Investment categories in the private market
Equities and debts of private companies form a growing proportion of investments in the financial market. However, most of these investments are not accessible to the general public and hence called ‘private markets’. Such markets are only accessible to the extremely-wealthy individuals or people who are well-connected.
Private markets allow investors to diversify their investments and earn potentially higher returns as compared to the public markets. There are various categories in which an investor can invest their capital in private markets. Private markets include the below categories, however, these markets are not limited to these varied investment categories:
● Unicorn investing
Investing in private companies with a valuation of US$ 1 billion or more before being listed on a public exchange platform. These companies have a huge potential to grow and investors earn in time with the growth of the company.
● Growth capital
Investing in companies that have already established themselves in the industry and are poised for accelerated growth. Investors must conduct their research before investing in these companies to know about their future plans, strategies, etc.
● Venture capital funds
Venture capital funds allow investors to own a certain stake in a diversified portfolio of small to medium sized startups. These portfolios generally have an attractive long-term growth potential which attracts investors with a long-term perspective.
● Hedge funds
Invest in funds that are professionally managed with the use of sophisticated techniques to generate high returns. These hedge funds have a diversified investment approach by investing in assets that have a greater chance to generate returns in the near future.
● Private equity funds
Invest in funds consisting of private companies with the potential to deliver a high rate of return to the investor. However, investors must be aware and have in-depth knowledge about the companies as the risk is also high.
● Private debt
Private debts involve investors loaning capital to private companies in exchange for an interest on their primary investment amount. This amount is generally used to cater the immediate needs of the private company.
● Real estate funds
Invest in a wide variety of real estate properties which are not generally found in the public markets. Investors can own a specific portion of these real estate properties than physically owning them. This provides the investor with liquidity as it could be traded in the market if necessary.
● Wholesale corporate bonds
Wholesale corporate bonds are bonds offered by private companies with a minimum denomination of at least S$250,000. Investors invest in these bonds with an aim of earning a profit once the bonds matures.
● Commercial paper
Commercial paper is an alternative way for companies to raise money to cover their short-term liabilities when they do not want to rely on the banking system.
● Structured credit
Invest in debts that are customised according to the investors needs, often incorporating special incentives.
Private markets have limited access as they traditionally cost an investor millions of dollars. However, ADDX democratises private equity investing allowing investors to enter the private market with a minimum investment amount of S$10,000 for primary offerings and S$100 to trade. It is a proprietary platform regulated by the Monetary Authority of Singapore (MAS) and is open to all non-US accredited and institutional investors.
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