There are a myriad of reasons why affluent investors should consider investing in private companies, argues Matt Taylor, Managing Partner at Rockpool Investments.
When thinking about investing, many people might limit themselves to equities and bonds. But a number of factors are making investing in unlisted companies more attractive than ever. So, to the question “Should affluent individuals be investing in private companies?”, we believe the answer is a resounding yes.
Let’s examine the reasons why
The first point that Rockpool likes to make is that private company investing sets you free from the “same old” round of main market shares. It offers you a real alternative.
But of course the reality is that it is much harder for individual investors to access private companies than traditional investments and to do so you need the right experience and lots of free time. It is therefore unsurprising that fewer investors make the effort to invest in this sector – despite the benefits that investing in private companies might secure for them.
The fact that fewer investors come into this sector doesn’t stop the private companies needing funding for growth and development. What it does mean is that there is significant value to be gained for those willing to be a little bit different and find more about how to access this exciting investment sector.
Rockpool’s service provides an easy route to finding private companies and being able to access this value. What Rockpool’s experts do is the hard work – from seeking out profitable private companies, through to carrying out due diligence on them and negotiating the best terms for investors. This information is then presented to investors so they can review the information and make their own decisions.
HMRC tax reliefs
Of course, much depends on your attitude to investment risk. As we all know, investing in shares always brings the risk of losing your capital. On top of that, private company investments are illiquid, which means you may not be able to sell when you want to. We would always encourage investors to evaluate the asset allocation of their portfolio to ensure they are putting an appropriate proportion of their wealth into both traditional and alternative investments before making any big investment decisions.
But the next – and possibly most important point that needs to be highlighted is that individual investors are encouraged to put money into UK private companies through HMRC’s Enterprise Investment Scheme.
What this means is that if you are a higher-rate tax payer you can benefit from a range of tax reliefs linked to private company investing, meaning that as much as half of your risk is taken by HMRC through your tax bill. The benefits of investing under the Enterprise Investment Scheme include:
· 30% income tax relief
· 100% Capital Gains Tax deferral for the life of the investment
· 100% exemption from Inheritance Tax after two years
· Tax-free growth
· Loss relief
Finding the right companies
Tax reliefs are a real bonus when investing in private companies, but it is vital to build a portfolio of high-quality investments. The key to successful private company investing is selecting companies with the right risk profile. Rockpool’s founders have been practising this selection task for over 20 years.Some people base their view of private companies from the television show “Dragon’s Den” or crowd-funding websites.
Yet the reality is that there are thousands of private companies in the UK making profits year in and year out which represent solid investment opportunities. You don’t need to back risky start-ups for investing in private companies to generate attractive rewards. Small companies do tend to be dependent on fewer customers and fewer products than big companies, but as long as you build a diversified portfolio, these specific risks become less important. As with all investments, it pays to spread your investments rather than “putting all your eggs in one basket”.
Some people base their view of private companies from the television show “Dragon’s Den” or crowd-funding websites. Yet the reality is that there are thousands of private companies in the UK making profits year in and year out which represent solid investment opportunities. You don’t need to back risky start-ups for investing in private companies to generate attractive rewards. Small companies do tend to be dependent on fewer customers and fewer products than big companies, but as long as you build a diversified portfolio, these specific risks become less important. As with all investments, it pays to spread your investments rather than “putting all your eggs in one basket”.
What Rockpool loves to do is seek out profitable private companies run by management teams who have expert knowledge, impressive industry experience and a real passion for their business. We at Rockpool don’t interfere in the day-to-day running of the businesses we back, but we will be there to support the management teams of these firms if they need it and continue to look out for the interests of our investors. This is why it pays to invest in private companies through an expert in the field.
To find out more about direct private company investing through Rockpool please the findaWEALTHMANAGER.com team here.
