It is very important that Investors participating in private placements evaluate their own SUITABILITY for what are generally higher risk investments which have no opportunity for a secondary sale before the investment is scheduled to return the invested capital.
- Overall personal financial profile
- Size and nature of the overall investment portfolio
- Investment strategy relative to the Investor’s stage of life
- Liquidity required of investments
- Whether a given CFG private investment represents a prudent addition to the portfolio, based upon risk/return sensitivities.
Incorporating private placements, specifically, and so-called “alternative investments”, generally, into an overall investment portfolios is a complex and important issue, particularly because since Investor must take into account the investments characteristic of a given private investment in relation to their unique personal considerations. Individual Investors are advised to consult with a financial planner or wealth manager as they consider alternative investments, such as private investments.
Some of the variables affecting personal investment choices include:
- Personal income
- Liquidity (i.e. cash on hand) and any potential for the need to suddenly sell a security before it is scheduled to return the invested capital
- The investor’s age, employment status, state of health and dependents
- Philanthropic goals and objectives
- Tax considerations
Alternative investments include the following investment categories:
- Privately placed debt of private companies
- Privately placed equity of private companies (e.g. venture capital)
- Hedge funds
- Private equity funds
- Mezzanine funds
- Distressed debt funds
- Natural resources (timberland, water, agriculture, oil, gas, minerals)
- Real Estate
- Commodity and financial futures funds
The characteristics of an alternative investment often include:
- Illiquidity (very difficult to sell once invested)
- Low correlation with traditional financial investments such as stocks and shares
- Difficulty in determining the current market value of the asset
- Costs of purchase and sale may be relatively high
- Limited historical risk and return data
- A high degree of personal investment analysis is required before investing in a specific offering
- Limited disclosure regarding performance and status of investment when compared with publicly registered securities.
However, alternative investments and private placements may offer the Investor:
- Higher returns, such as interest rate or capital gains, than that typically generated by traditional, publicly traded or offered investments such as stocks, bonds or mutual funds.
- Lower volatility in price and performance than traditional investments
- Diversification of risk and performance from traditional investment