Private investments used to have the reputation of only being available to the rich and connected with deals taking place in hallowed halls and high towers inaccessible to the general public.
This was because these opportunities were prohibited from being advertised. So unless you knew the right people, ran in the right circles, or had relationships with financial professionals or institutions privy to these opportunities, chances are you were never going to hear about these opportunities.
What may have been true about private investments in the past is slowly becoming a thing of the past. Recognizing private investments’ value, the SEC has instituted several rule changes to make them more accessible to more investors. Thanks to recent regulatory changes, private investments are no longer the exclusive domain of the rich and connected.
Before these recent changes, private investments weren’t only hard to come across, but they also had high entry barriers. Most had high minimum capital commitments and were restricted to accredited investors (meeting certain income and net worth criteria) only. With the new Crowdfunding rules, investors can invest in online offerings with minimum capital requirements and qualification criteria.
With the increased likelihood of private investments landing on your radar, the question arises whether private investments are right for you. Before you answer that question, let’s first explore the different types of private investments.
The types of private investments are as diverse as the companies offering them. Private investments can offer equity, debt, or hybrid security, combining features of both. They can be in established companies in startups. They can involve companies that invest in one particular asset, multiple assets, or other companies.
Private investments can go by several names depending on their structure, including private placements, syndications, hedge funds, private equity, and venture capital.
With the types of private investments out of the way, decide which of the following groups you identify most:
- You follow the news and social media and invest and trade based on the latest buzz.
- You are constantly chasing the latest shiny object.
- Your investment time frame is hours, days, and weeks not years.
- You invest based on hunches and guesses.
- Your investing mantra is to buy low and sell high. You’re not concerned about the underlying economics of an investment because your instincts tell you that you’ll be able to flip the asset to another investor down the road at a profit.
- You like to stick to what everyone else is doing or what you grew up being told was the right way to invest.
- You don’t mind paying commissions to financial advisors because you trust they have your best interest in mind.
- You don’t like to speculate.
- You would rather follow successful investors than the masses.
- You have the confidence to break from the herd and to think independently.
- You prefer assets with a history of reliable and consistent returns, even if they’re boring.
- You seek hidden values the public is ignoring.
- The underlying economic fundamentals, numbers, calculations, and projections matter to you.
- You prefer fixed income or appreciation or a combination of both over short-term capital gains.
- You invest with a long view.
- You seek out assets shielded from Wall Street volatility.
- You can tolerate risks as long as they can be strategically mitigated.
If you identify more with the investors falling under Group 2 than Group 1, then private investments may be suitable for you.
You may still have to qualify – depending on the circumstances – but you have the right temperament, investment objectives, and outlook to be a private investor if you identify with the attributes under Group 2.
Kyle Jones is a co-founder and Key Principal of TruePoint Capital, LLC. Kyle is responsible for the company’s strategic planning, investment decisions, asset management, and overseeing all aspects of the company’s financial activities, operations, and investor relations.
Kyle obtained a Bachelor of Science degree from Texas State University – San Marcos, where he also played Division 1 Baseball.