Why you should consider income and growth assets
In a last article, we mentioned that high net-worth investors (HNWIs) are allocating around 30% of their portfolio in commercial real estate, which provides monthly or quarterly income, and growth (appreciation) that easily outpaces inflation.
Much of this is accomplished through private placements. Unfortunately, most folks are unaware this option exists because it’s rarely, if ever, discussed by financial advisors. In fact, most financial advisors know little or nothing about these because their formal investment education taught in college prepares them to work for firms that deal strictly with products traded on Wall Street. As a result, the only real estate products financial advisors typically deal with and understand are REIT’s – Real Estate Investment Trusts.
So, consider the famous quote below:
It only makes sense that financial advisors who are not familiar with private placements would be skeptical about the validity or legality of these.
Welcome to Main Street!
A private placement, or syndication, is a way for investors to purchase real assets like real estate, oil, and gas, precious metals, or non-publicly owned businesses, to name a few. As the name implies, these are securities, which are offered to investors through a private offering. The size of these groups can range from a few investors to a large number depending on the investment.
Keep in mind; just like the sale of stock on the public exchange, private placements are also regulated by the Securities Act of 1933 whose purpose is to ensure that investors receive sufficient disclosure when they purchase securities. Specifically, Regulation D of that act provides a registration exemption for private placement offerings. It allows an issuer to sell securities to a pre-selected group of investors that meet specified requirements (more on that later).
What’s important to understand is that depending on the type of offering; the issuer, or fund manager is responsible for adhering to strict guidelines which are governed by the Securities and Exchange Commission (SEC). This could include documents like a prospectus, private placement memorandum (PPM), and subscription agreement, all which are prepared by a highly qualified SEC attorney.
What’s most important to understand is that if offered by the right provider, private placements are legal, have been a tool used to create wealth by investors for many years, and are nothing to be feared!
Obviously, there’s a lot more information about private placements, which is why we feel it’s important to deliver in more than just one article. (Hopefully, your eyes haven’t glazed over yet…)
Again, if you can’t wait until then, you can always click on the link at the top of the 2nd paragraph which will take you to the SEC’s website and their explanation of private placements. You’re also welcome to reach out to us personally if you have questions or would like to learn more about how to get involved with these types of opportunities.
Investing for impact,
Global Summit Management