Introduction to Private Capital

Private capital, unlike traditional investments, is investing in unlisted companies.

Since they are not listed on the stock market, access to them is a bit more complicated, and we will usually need to invest in them through expert management companies that know this asset much better and that have access to entrepreneurs, businesspeople or families that own the companies.

In short, it is a type of investment in unlisted companies that are slightly more difficult to access.

More than 90% of companies are private capital companies. Some examples of companies are Wallapop, PlayTomic and other more traditional companies, but with considerable growth, such as Pastas Gallo, Ducati and PortAventura.

Private capital investment is more tangible. You are less exposed to volatile, to something happening at an international level and to a change in the stock market.

This is a more long-term investment; it involves how that specific company is doing, how Pastas Gallo's revenue and its future profitability is going.

The first difference is the term: whether you invest in the short-term or medium/long-term, which is highly linked to liquidity (being able to receive the money you invested in companies).

In traditional investment, there is more liquidity, because when you invest in the stock market you can sell your position the next day. You also have the problem that market timing can affect you.

When investing in private capital, you invest more for the long term. You have less access to selling your participation, because it depends on how the company performs, whether the company is sold or if the company receives an investment from a third party, so you have to consider a longer time horizon, of around six to ten years.

In addition to the time horizon and liquidity, another difference is volatility. In traditional investment there may be greater market volatility (the stock exchange goes up or down from one day to the other).

On the other hand, private capital investment is less volatile, it depends more on the underlying asset, and you invest more in how a future trend can change in 10 years or how a market trend can change in 10 years. Therefore, you become less dependent on your savings in terms of your day-to-day and consider more long-term returns.

These characteristics that you mention lead me to think that investing in private capital is a very powerful tool to save in the long term, as it takes away the stress of daily market swings, you have a very clear time horizon and you stick to your financial plan.

Yes, I think it is a good alternative for part of your savings, provided that you do not need to recoup it immediately or in a very short time or put it in a place where, within 5, 10 or 15 years, it will give good returns.

There are several types of private capital investment:

Venture capital is a type of investment that management companies make in companies, especially technology-based companies, where technology is a differential factor and you expect that they can significantly change a specific market. These companies scale up very quickly with explosive growth. They also have a higher risk profile (higher growth in less time is usually associated with a higher risk).

Other options are, for example, private equity, which invests in more traditional companies or in sectors that are at a turning point or in which a market condition has changed or is about to change and there is an opportunity to consolidate several companies into one or to implement a change in the type of management. In that case you depend a little less on the technological explosion, and can experience a slightly slower growth.

You can also invest in impact funds, that is, in companies that have a positive impact on the environment or on certain social issues.

Previously, there was a traditional limitation that required being a professional investor and a minimum investment of €100,000 to access this type of asset.

Since last year (2022), with the entry into force of the Create and Growth Act, this limit has changed, and now you can make a minimum investment of €10,000, when holding assets worth €500,000, provided that these €10,000 are less than 10% of the total assets.

The doors to access investments that were previously inaccessible are now widely open and have been democratised. The doors to private capital have been opened.

As with all investments, it is important to consider what you do and why you do it. The first important aspect is if you want to invest in the short term or the medium/long term.

If you can invest in the medium/long term because you do not need to immediately recoup the funds you invest, then placing part of your savings in private capital is an interesting option.

The second aspect to consider is liquidity: how much liquidity do you need in the coming years and understand that the part you invest in private capital has limited liquidity for a few years.

In addition, you must be aware of your exposure to market volatility: how much you want to depend on what happens in terms of the day-to-day in the capital markets or if you prefer to invest more in future trends.

The last aspect is linked to risk aversion. It is important to diversify investments: a part in fixed income, a part in equities, but also a part in private capital, which we know is a great option to place your long-term investments. It is also important to diversify, with a part in private equity, venture capital or impact investments. You need to diversify in the stages, in the type of management companies and even in the geographies you invest.

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This content is merely informative. This video is merely financial training offered to you by Crescenta, without the intention of giving any type of personalised investment recommendation.

It is neither any type of advertising of financial instruments nor a recommendation or purchase offer.