Private capital investment: what it is and who can invest

Welcome to the world of private capital investment. If it is your first experience with private markets, you are in the right place. In this article, we explain in a simple way what it consists in, the differences with respect to traditional investment and the advantages and risks of this type of investment

You will also learn about who can invest in private capital and how an ever-growing sector is evolving.

Private capital investment involves investing in unlisted companies (private companies), seeking greater diversification and returns. They are attractive because they provide a source of income and decorrelation to complement traditional asset portfolios (equities or fixed-income) and help to reduce liquidity. It is also noted for having lower liquidez levels than traditional investment and longer investment time horizons (even exceeding 10 years). Private Equity, infrastructure and Venture Capital, among others, are some of the most common examples that you can find in Crescenta.

Despite showing common characteristics, the universe of private capital should not be viewed as a homogeneous block; from Private Equity to impact investment, it encompasses very different assets, each with its own characteristics and advantages. Therefore, to take advantage of the opportunities offered by each asset, investors can build a portfolio with a selection of different assets according to their needs.

With the entry into force of the Create and Grow Act, the minimum investment in private capital has been reduced from €100,000 to €10,000. With this Act, Crescenta opens up the possibility of investing in private markets for investors who want to diversify their portfolio. As a result, private capital is now within the reach of retail investors, thus democratising an investment that provides further profitability to our portfolio.

In addition to the minimum investment, retailers must take into account that if their assets are worth less than €500,000, they will be able to access this type of vehicles without these investments exceeding 10% of their portfolio and always under advice, which is a service provided by Crescenta.

However, in spite of the investment's minimum requirements, investors will not have to contribute the amount they wish to invest all at once. Contributions to private capital funds are made through capital calls. For example, in a conventional scenario, if an investor commits to investing €10,000, they will gradually disburse it through capital calls of €2,000 until in four or five years they add up to the committed €10,000. Therefore, investment in private capital is positioned as an excellent way of achieving regular savings in the long term.

Including private capital in a portfolio provides decorrelation and diversification, reduces volatility, increases profitability and grants investors access to a greater universe of opportunities. However, we must bear in mind that, like any investment, it also involves risks. You must have clear that it is an illiquid investment and that it is designed to invest in the long term.

• According to a report by Preqin, the total assets managed worldwide is expected to almost double to $18.3 billion by the end of 2027, from the $9.3 billion registered at the end of 2021.
• 935: record number of Private Equity and Venture Capital investments in Spain in 2022.
• €8,735 million: volume of private capital investment in Spain in 2022.

Learn, invest and grow. Investment in private markets is ideal for diversifying your portfolio, accessing a larger universe of possibilities and making the most of the high returns they can offer. But before making your investment, it is advisable you receive training, inform yourself and check whether it is an investment that is really suited to your investor profile, time horizon and knowledge. At Crescenta we invite you to enter our space Learn and Grow, which serves to both start from scratch and to expand your training.

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Crescenta