Investment Considerations – Fundamentals

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.

CFG is not a financial advisor or wealth manager.  However, as a FINRA registered broker dealer, it is our responsibility to explore the following with each prospective individual Investor before they make a private investment with our firm (See CFS Privacy Policy):

  • 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