Investing in Private Companies

ENHANCE YOUR CLIENTS' PORTFOLIO WITH PRIVATE COMPANIES

As an adviser who has high net worth or sophisticated clients, you will be aware of the importance of actively managing an investment portfolio and avoiding over exposure to any asset-class. It is essential to achieve diversity, a balance of risk and return, and of course, to control costs.

AN ALTERNATIVE FOR YOUR CLIENTS' PORTFOLIO

Private company investing adds a different source of wealth creation to your clients' portfolio. Returns on private company investment are not closely correlated to traditional asset-classes, such as listed shares, gilts and corporate bonds.

Studies also suggest that the long-term returns of private equity exceed those for public equities and the very wealthy individuals and families (more than £10m of investable assets) now allocate on average 29% of their portfolio to private companies.

MANAGEMENT EQUITY AND PASSION

Private companies are typically managed by people with a big stake in their success. Where the average listed company chief executive owns less than 3% of the business he or she runs, private company CEOs are more likely to own around 10-20%.

But the motivation is not just financial. Private company managers are fulfilling their dreams. With their dedication and drive, supported by funding and professional guidance, these companies can transform and bring great value to investors.

THE RISE OF CROWDFUNDING

Recent years have seen the proliferation of crowdfunding and peer to peer lending platforms which offer investors the chance to access a number of seemingly exciting new business ventures. Generally, these companies are pre-profit and are seeking relatively small investment amounts. They are sold as a chance to make a ground up investment, which will take the company to the next stage and hopefully onto profitability.

However, according to data from Harvard Business School, as many as 75% of startups fail, and with crowdfunding platforms heavily reliant on such businesses, the risks are clear. Granted, the returns on offer can be high, and the key to success in this model of investment is to utilise small amounts across a large number of companies.

BARRIERS TO ENTRY

Anyone looking to access this asset class outside of crowdfunding can find themselves facing difficulties. The time and expertise required to assess the viability of a business creates a barrier to entry for most institutional investors, whilst also increasing potential risk for their clients.

Historically, this has seen many turn to private equity funds. The problem is that funds offer little visibility on where and when money is invested and a lack of information on performance.

THERE IS ANOTHER WAY

Advisers with sophisticated and high net worth investors are increasingly choosing to partner with professional private company investors such as Rockpool to give them direct access to opportunities beyond the start-up phase.

A DIIFFERENT APPROACH FROM ROCKPOOL

Our team of investment experts spend thousands of hours digging deep into the businesses and the background of the management team, as well commissioning expert due diligence.

The detailed information on the business, market, management team, financial forecasts and investment returns are collated into an investment memorandum for review.

The power of our network is also an important resource. There is an enormous variety and depth of business experience amongst the individuals who make up our network. Access to this can help inform our investment decisions and strengthen management teams.

HOW TO BUILD A PORTFOLIO OF PRIVATE COMPANY INVESTMENTS

Our range of services are designed to make it easy for your clients to build a diverse portfolio of companies across a choice of strategies.

TRANSFORMER COMPANIES OFFER VALUE

Our focus is on small founder-led companies which are profitable, growing and have annual revenues of £5m or more.

With the support of our experts and the investment from our network, these companies can transform into professionally managed stars, positioned to attract private equity funds and trade buyers.

BUILDING A PORTFOLIO

Building a blended portfolio of loan and equity investments can help your clients achieve a balance of risk and reward. Using different investment vehicles such as a company, SIPP and IFISA can also help enhance returns through tax-efficiency.

AFTER INVESTMENT

We offer access to your clients' investment information via our on-line platform and report regularly on all the companies in your portfolio.  Our investment team monitor the companies during the lifetime of the investment.

RISKS

Capital at risk and there is no guarantee of any return. This sort of investment does not provide a reliable source of income.  Tax benefits of investing in private companies depend on investors' personal circumstances, on the circumstances of each company and on rules and regulations.  All of this could change removing tax benefits investors expected to enjoy. Private company investments are illiquid and it's rarely possible for an investor to sell at the time of their choosing. Instead investments are realised by an exit arranged by the company or manager acting for all investors or a repayment of loan capital.