Direct Investments

Direct investments are equity or quasi-equity investments in unlisted businesses. The primary goal is to eventually reap the capital gain by divesting when the business becomes public (IPO) or through a private sale of the equity to other investors.

Although direct investments are not primary tools in financial planning, inclusion of this asset class into portfolios would enhance portfolio efficiency. Due to the low correlation of direct investments with other portfolio instruments such as fixed income, equity and cash, inclusion of direct investments into portfolios will tend to increase expected returns for a given level of risk. Most direct investment funds have return targets in excess of 20%.

However, the drawbacks with direct investments are their illiquid nature (fund lives of 5 to 8 years are typical) and the high minimum entry levels. A typical minimum investment amount would be approximately US$200,000. As we recommend not more than 10% direct investments in a portfolio, this asset class would be open to individuals with investments portfolios of more than US$2,000,000. We would also only recommend direct investments to clients with above average investment risk tolerance.

At New Independent we work with direct investment firms (also known as venture capitalists). We do this in order to provide some of our clients access to this asset class and provide our partner firms access to the businesses or business ideas of our clients.

*All examples cited and views expressed herein are not intended as offers or solicitations for the purchase or sale, nor do they take into account the investment objectives or financial situation of any particular person. Investors should seek independent advice based on their individual circumstances before making investment decisions.