It’s no secret that private investment is taking the world by storm. With robust opportunities and high-reward outcomes, it’s no wonder why millions of global investors are intrigued by its portfolio-boosting capabilities. Private equity rarely correlates to public stock markets and day trading, but according to experts in the field, getting involved may be easier than ever.
“Modern companies are staying out of the public market longer and only going public after reaching substantial sizes,” says Francois-Xavier Morency, an equity investment professional with multiple years of industry experience. “There are certainly unique risks involved that are not a problem in the public market, but the reward of participating in the private market is worth the extra diligence.”
Morency, a trustee manager for small family businesses, believes private market investments can be a game-changer for investors interested in higher returns. As the previous Managing Director of Canadian Operations of Supply Service with A.P. Møller-Mærsk, Morency is encouraged by the number of people eager to explore new opportunities. He has supplied some pertinent details exploring the nature of private investing and provided his thoughts on the top three opportunities available to new investors.
Understanding private investing
Private investing is an asset class divorced from public markets. Rather than buying shares from companies traded on stock exchanges, investors throw in with private companies through sums that can range into the millions.
Initial investments in a private market are much higher than a $50 stock — but so are its rewards. Private investments historically provide better returns than public equity, which may be of interest to investors comfortable with strong covenants and low liquidity.
According to a McKinsey report in 2021:
- Private investments collected 50 more basis points than public markets over a 10-year period.
- Equity from private investments resulted in a 9.9% annualized return versus public markets (6.4%).
- Venture capital and growth capital investments have provided a median net IRR of 14.1%, which is 1.1% higher than buyouts.
The ‘illiquidity premium’ of private investing results in high returns for risk-tolerant investors. However, selecting the right opportunity may require additional planning, including familiarity with the market options involved.
Opportunities available to private investors
As the volume of public listings shrink and the number of investors grows, Morency sees a wealth of opportunity for the shrewd private investor. “Private investors have a great deal of opportunity that deserves to be capitalized on,” Morency says. “Many opportunities are available on the market for those in a higher wealth bracket.”
There are four major opportunities available at a global level:
Private equity real estate provides ROI that is infrequently correlated with public asset classes. Investors have the opportunity to join managed funds and inject a lump sum into the fold. Typical strategies may include core, core-plus, value-added, and opportunistic approaches.
While private real estate investments usually begin with raw land or buildings, private infrastructure investments focus on structures that provide essential services. These include utilities, transportation companies, and social facilities like hospitals and schools.
Private debt investing is exactly what it sounds like: private investors form partnerships that lend money to a company. The lenders receive partial ownership, regular interest payments, and a claim to future earnings depending on the company’s performance.
Direct lending investments
If you want to lend money to a private business without working through an intermediary, direct lending investments may be the best option for you. Individuals lend money directly to a company and collect their principal as the loan matures. Note that direct lending investments are rarely correlated with public markets and stock exchanges.
Exploring your options as a private investor
The private market may be more diverse than many investors realize. Although venture capital is one of the most well-known forms of private equity, opportunities abound in real estate, infrastructure, direct lending, and beyond. Wise investors can develop a lasting strategy that charts a path toward their future.
But taking the first step, Morency says, is half the battle.
Some investors see the private market as a leap of faith in their growing portfolios. However, Morency suggests it may act more like a flywheel in achieving personal financial independence. “Diversification is, of course, incredibly important, and distributing your portfolio through multiple investments is always a wise pursuit,” he says. “But once you find an opportunity to dip your toe into private investing, don’t hesitate to explore a private-market portfolio that matches your risk tolerance with your personal financial goals.”
Francois Xavier Morency is a veteran investor with decades of experience working with equity investments. He has participated in traditional equity markets as well as startup investing for brands in the earliest stages of growth. He currently acts as a trustee for smaller family trusts and emphasizes the conservative management of assets for long-term results and performance.
Mr. Morency used his extensive experience in business development to perform in a Managing Director role as the Canadian Operations of Supply Service with A.P. Møller-Mærsk. He is a proud chemical engineering alumni (1998) from the Université de Sherbrooke in Québec, Canada.
To learn more about Francois-Xavier Morency, please visit his Linkedin profile.