What are Direct Private Investments?
Direct private investments fall under the broader category of alternative investments, which often are presented in the form of funds that invest in categories such as real estate, art, commodities, precious metals, and any other private investments not registered with the Securities and Exchange Commission. This is a massive category, with around $6 trillion invested, larger than the public markets.
Why Direct Private Investments?
Direct private investments can be attractive because they exist in an inefficient market, meaning that investors can potentially find opportunities to invest where there is virtually no competition, unlike the highly competitive public markets. In these private markets, there is greater opportunity for investors to find unique and compelling businesses to support.
Additionally, direct private investments allow investors to support companies that align with their personal values or interests. Examples of such companies include one that provides a software platform for addiction treatment providers who, if this helps them manage their case load more efficiently, can deliver better treatment to their patients. Another company, for instance, enables surgical instruments to be sterilized in remote areas in humanitarian crises or war zones without electricity or water, dramatically expanding the footprint of where surgical procedures can be conducted.
The Challenges of Direct Private Investments
One challenge of direct private investments is the lack of transparency and professional support in the banking community. With private companies, there are no established guardrails such as credit ratings or market makers that are available to public security investors. As a result, investors must rely on their own research and due diligence. Carofin seeks to bridge this gap by providing investors with an extensive Knowledge Base. A large repository of information to help them enhance their understanding of private investments, it also guides investors to approach an investment methodically and also to learn how to analyze a proposed issuer.
When to Consider Direct Private Investments
The ideal time to consider direct private investments varies depending on an individual’s risk tolerance, liquidity, and investment portfolio. Generally, investors who can afford to take on higher risks for greater yields often allocate around 10-20% of their portfolio to direct private investments. University endowments, for example, often invest a much larger percentage in alternative investments due to their long-term outlook.
However, investors relying on a return of capital to sustain their lifestyle should steer clear of direct private investments, as the risk is too high. Investment strategies will also differ depending on an individual’s stage in life and financial goals.
Support Networks for Direct Private Investing
Going it alone in direct private investments is hard. However, a support network like Carofin can be very helpful for investors. Carofin conducts the due diligence on the issuer, analyzes the competitive landscape, structures the security, and then becomes an advocate for the investors post-investment, trying to protect their interests and ensuring investors are well-informed and on top of their investment going forward.
Advice for First-Time Investors
First-time investors exploring direct private investments should start by educating themselves on the sector. Carofin’s Knowledge Base is an excellent starting point, offering white papers, videos, articles, and a glossary to help investors understand the jargon and intricacies of the investment world. Additionally, while many more opportunities exist thanks to crowdfunding sites. Roberts recommends that investors be cautious of these platforms. Don’t be that fish rising to the “shiny” opportunities. Instead, Bruce argues that he likes to focus on businesses with sound business models. They may be more obscure, but many of them have solid margins and the potential for growth.
Working with Carofin
Carofin offers a comprehensive approach to direct private investments, guiding investors from origination to post-investment support. They perform thorough due diligence, including personal background checks and lien and judgment searches, and ensure that investors are well-informed about the companies they invest in. Carofin also provides ongoing support to help companies succeed, increasing the chances of a successful investment.
Direct private investments offer unique opportunities for investors to support growing businesses that align with their values and interests. Although challenges exist in terms of professional support, organizations like Carofin are working to make the process more efficient and accessible. By taking advantage of the inefficiencies in the private market, investors can potentially achieve greater returns and make a positive impact on the companies they support.