Interested in private investing? The following reveals how private investors make their money, what such investors look for, and how private and public investments differ. It also covers how private equity markets can help investors take positions in alternative assets.
Because the emphasis is not exclusively on profit, but also on growth opportunities, private investments can spur demand, usher in new technology, establish capacity, increase labor productivity, and create jobs. The overarching aim is to preserve wealth through long-term, disciplined ownership.
Private investors are individuals or firms who invest significantly in growth opportunities, which differentiates them from institutional investors. In addition to generating profits, such investors concentrate on wealth creation over time as well as accountable ownership. They tend to steer away from capital markets to concentrate on investments in top-shelf companies and infrastructure assets.
Such investors usually possess expertise and knowledge in a given field, and mostly inject capital into companies that need it to succeed and will provide financial returns. Rather than speculation, private investors focus more on opportunity and growth.
Private investors usually make money by continuing active, responsible stewardship for more protracted periods. For example, say a private real estate investor purchases a plot close to an area under development and awaits that development to reach where he is. The situation permits the investor to procure that area at a lower rate while holding on to its development prospects.
In a similar fashion, private investors often seek new companies that have made marked strides in a short period. While it may take some time for the organizations to grow big, investing capital early typically means a solid return on investment.
During holding periods that range, on average, from five to eight years, these investors produce growth by working with company management to enhance the investment. Improvements may be in the form of strategic directions, asset performance, or operational changes. For example, private real estate investors might help identify complementary acquisitions to develop a more foundational ownership structure and generate long-term wealth.
Having said that, profits for personal investors vary depending on investment size and the amount invested.
Venture capitalists and angel investors are two common examples of private investors. Such investors put their capital in companies’ business ideas, and often help with development, with the goal of an ownership share or commission.
Specifically, venture capitalists generally finance startups with very promising business ideas, while angel investors are usually high-net-worth people who look for startup companies in which to invest, typically in exchange for an equity stake.
Private equity firms are associated with growth capital, as opposed to startup capital, which makes them a type of private investor. Most companies they service are usually seeking a certain growth or exit strategy that is unavailable through traditional financing.
Such investors are typically high-net-worth individuals who are seeking profitable returns in a promising business venture, and help companies get there through business connections and networking opportunities. Sometimes, they will assume a management role in the company.
Becoming a private investor first depends on the type of private investor – angel, venture capitalist, or private equity – one is interested in pursuing.
Generally, those who wish to be full-time private investors should first gauge their psychological fortitude, analytical skills, and investing passion. Craft a nuanced investment strategy and remain focused on the private-investment path chosen.
Private investors tend to hunt for emerging organizations that, in a short period, have made a lot of progress. Through active management, they seek to foster further organizational growth, with risk assessment and expected outcomes as key factors.
Essentially, an investor is an individual or group that, in exchange for the expectation of future profits and gains, provides companies with capital. Investors put their own money into an existing organization.
An entrepreneur, though, focuses on their own enterprise and its operations. Profits are typically the main goal.
When transitioning from entrepreneur to investor, be discerning about educational tools and sources, exercise patience, have a game plan, understand asset allocation, gain expertise in a single industry, and resist becoming distracted by what the “crowd” is investing in.
Overall, the difference between the two is that private investors put capital in companies in early growth stages, while public investors invest in established companies. With the former, an example would be taking a position in a startup company seeking initial funding. Investments in transportation and water projects are examples of public investment.
Private equity (PE) markets can help private investors take positions in alternative assets. After all, alternative assets such as art and real estate are increasingly popular as investors seek to ease portfolio volatility and potentially enhance returns, which are consistent even during faltering public markets. In fact, private markets have outperformed stocks in every economic downturn of nearly the last 20 years.
Since its founding in 2015, the alternative investment platform Yieldstreet has seen $4 billion in investments, with returns totaling more than $2.3 billion and net annualized returns exceeding 9%.
Yieldstreet offers the broadest selection of alternative asset classes – all highly vetted – of any other platform. In addition to asset classes such as legal finance, short-term notes, venture capital, transportation and more, the platform’s accessible investment offerings include private equity.
PE allows investors with risk tolerance to take positions in private companies, potentially sans the volatility associated with public markets. It can also be used by investors to diversify their portfolio. Diversification – building a portfolio comprised of varying assets – can go a long way toward minimizing investor risk.
Alternative investments can be a good way to help accomplish this. Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings.
Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk.
In some cases, this risk can be greater than that of traditional investments.
This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million. These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform.
However, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments.
Moreover, investors can get started with a relatively small amount of capital. Yieldstreet has opportunities across a broad range of asset classes, offering a variety of yields and durations, with minimum investments as low as $10,000.
Understanding all things private investing can open up a whole world of investing possibilities and their potential benefits.
Remember that private equity investments, in particular, function independently of the stock market and can offer higher returns as well as portfolio diversification.
Yieldstreet provides access to alternative investments previously reserved only for institutions and the ultra-wealthy. Our mission is to help millions of people generate $3 billion of income outside the traditional public markets by 2025. We are committed to making financial products more inclusive by creating a modern investment portfolio.