Gain access to privately held securities through private placement. In some cases, this type of investment has the opportunity to bring higher returns than other traditional types of investments.
Choose who you or what you invest in for ultimate diversification.
Open yourself to new opportunities for increased returns.
Help support new inventions and social initiatives with this type of investing.
A private placement is an offering of unregistered securities to a limited pool of investors. With this, investors are able to buy shares to a closed group of investors rather than through the open market.
In a private placement, a company sells shares of private placement stock or funds in the company in exchange for cash. This type of investment allows investors to purchase shares of entities, like hedge funds, oil and gas funds, and private stock that isn’t publicly traded or registered with the SEC.
Do your due diligence before investing in private placements. Because these often aren’t regulated by the SEC, your initial investigations are extra key.
A private placement can be structured in the form of private stock or a private fund. These structures can reduce costs and reporting obligations while allowing management to have a greater degree of control over the company.
In contrast, an initial public offering can be expensive and require significant preparation to ensure the company’s financial statements meet certain accounting standards. There are many other requirements that public companies have (disclosures, earnings releases, and public regulatory filings) that private companies or funds are not required to perform. This can be a selling point for some investors.
Private placement products are illiquid and typically restricted. Restricted means investors cannot resell them without registration or an applicable exemption under the securities law. The company must also file a brief notice of the offering with the SEC. Stocks in closely held companies may not go through the registration process. Any change in ownership follows the guidelines established in the governing documents.
Private placement alternative investments vary in type, rules, structures and more.
More so than many other alternative investments, private placements require quite a bit of upfront research and due diligence. Here are a few of the things you need to consider before investing in this type of strategy:
Investors are encouraged to do adequate research or contact a broker/financial advisor, attorney or CPA to determine if private placements are an appropriate investment. Once you have determined that a private placement is suitable for you, it can be purchased with your Self-Directed IRA or another retirement account at Mainstar Trust. Click here to find out how to use a Mainstar Trust account to invest in a private placement.