Investing in Private Equity is obvious when going after large returns
What are the benefits of investing in Private Equity?
Generally, investing in Private Equity implies:
• Lower expenses in commissions and advertising.
• All the company’s earnings go directly to the owners of the company, which means that your take at the end of the day will be much higher depending on your stake in the private company.
• Additionally, once the company starts trading its shares publicly, they tend to increase their price considerably, which would allow the investor to sell their shares at a greater price and therefore getting a large return on investment.
And when compared with public companies:
1. A major advantage is that public companies are more interested in the results of every quarter, and as such tend to focus on the short-term plans more than the long-term plans.
While for day traders this might not be a problem, for investors who want to look at the long game, the fact that public companies tend to think of the short-term gain rather than the long-term is quite the put off.
2. Public companies typically don’t pay dividends to their shareholders, meaning that all of your profit is retained. However, with private equities, you may find some great dividend securities.
There’s nothing better than getting paid for doing nothing. And that’s what dividend investing is all about – getting a steady stream of payouts as return of investment from simply owning shares of stock.
So, if Private equity offers so many benefits, why public stocks are so popular?
Investing in Private Equity have a lot of advantages over trying your luck in the stock market and public stocks. They’re simply superior when it comes to profit generation.
However, there is one major downside to investing in Private Equity that stops a lot of major investors from making the plunge from public to private:
It’s not easy to liquidate your investments in a timely manner and there’s not a market for it.
In many cases, investing in private equity come with certain sales restrictions. Sometimes specific conditions are imposed for the share’s sale forbidding it for months or even years after the company begins its participation in the public stock market.
In consequence, companies are staying private longer—10 years or more from inception, in many cases—and often generating hundreds of millions in revenue before filing. Then when the company decides to participate in the stock market, the value of its shares rises exponentially.
Many tech companies even launch with valuations in the billions.
In spite of all of this, there have been transactions in Private Equity for many years. Usually, the friction is high, since companies need to sign off on any transactions in their shares without an efficient share price valuation due to the current barriers in matching buyers and sellers.
But as companies stay private longer, is evident they represent high-growth opportunities ahead of an initial offering for their shareholders. Which continuously push harder for an effective and easy opportunity to liquidate.
The search for liquidity in the Private Equity market
This push for liquidity and the efforts to accommodate to this demand in order to reap the larger return on investment that investing in private equity represents, has drove the volume of trading in privately held shares to a 100% growth per year.
While trading activity in the Private Equity market surges ahead of almost all liquidity events, there is a consistent upward trend in their trading volume since more unicorns reach historic values.
Nonetheless, liquidity still remains a serious issue since many private innovation companies continue to extend their IPO timelines.
At least, until now.
Right now, as we speak there actually IS a private company that has created a liquid investment instrument that acts much like public stock, but has all of the advantages of both public and private equity at the same time with none of the drawbacks.
This private fintech company has grabbed the attention of professional investors by claiming to have a new form of digital equity that they are calling a New Asset Class (NAC).
This NAC has been created for private companies to have more access to capital markets, and for investors to have a liquid instrument while still benefiting from the inherent characteristics of companies that remain private.
If you are still unsure about investing in private companies, click the link below to learn everything you need to know about their groundbreaking alternative.
Your financial goals may be even closer than you think.