Before investing in private capital, all retail investors must complete a questionnaire, the aim of which is to see if their financial situation and investment objectives, knowledge and investment experience is suitable to invest in private capital funds.
Through this test, known as the MiFID test, all the necessary information is collected and it is established whether the user has an ideal profile.
Investing in the long term (over five years), having invested previously in other strategies, knowing the product or having a minimum value of assets are some of the requirements that you must meet before investing in private capital funds. In this post we summarise the conditions required meeting to access private markets.
In order to protect investors and make sure that they invest only in products they know, regulators set a minimum level of knowledge future investors must have. In this regard, you must be familiar with terms such as liquidity, volatility, risk or diversification.
In addition to the more general knowledge about financial planning and investment, before investing in private capital funds, you must know the product. In other words, you must be familiar with terms such as private equity, venture capital or general concepts such as the type of investment (illiquid) or the time horizon (long term).
In our glossary and content library you will find all their definitions and be able to expand your knowledge about investment in private markets.
When investing in private capital, due to being different to traditional investment (fixed income or equity), a minimum investing experience is required before introducing private capital into your portfolio. Having invested in stock, investment funds, crowdfunding projects, pension plans... will add experience points to your profile
When we invest in private markets, we must be aware that it is a long-term investment, so we must do so by considering a time horizon of over five years.
This means that when we invest in private equity, we must do so by knowing that it is a long-term investment and that up until five years of making the first disbursement, we may not start receiving distributions.
In order to invest in private equity funds, you must also have a minimum value of assets. According to the Create and Grow Act, the minimum investment limit in private markets, when your financial net worth does not exceed €500,000, is €10,000, provided that your total investment in private capital does not exceed 10% of your assets' value. In other words, you will be able to invest in private markets if you have assets valued at least at €100,000.
In addition, investors must also show a certain savings capacity. This capacity is measured according to the percentage of income you allocate annually to current expenses. For example, if you allocate more than 75% of your income to current expenses, it is not advisable for you to invest in private equity funds.
Financial net assets are the financial resources you use. It covers from the money you have in your account to the money you have invested in deposits, investment funds, fixed-income investments, equity, pension plans, crowdequity, private equity/ venture capital funds, direct investment in a limited liability company, etc.
Investing in private markets is more risky than other more traditional strategies, but on the flip side, it can offer greater potential returns. Therefore, when we invest in private capital, we must be aware that our risk tolerance must be a little higher than in other types of investment. This higher risk is mainly due to the illiquidity of these products.
This suitability assessment is carried out through a questionnaire known as the MiFID test, which assesses the following factors:
Knowledge and experience: it gathers information on your knowledge and prior experience in the financial markets, with the aim of ensuring that you are able to understand the nature and risks of the product in which you wish to invest, in this case, private capital funds.
By means of the questionnaire, which you will complete online when registering in Crescenta, you provide information on the types of financial instruments, transactions and services you are familiar with; the nature, volume and frequency of your transactions with financial instruments; and the period during which they have been carried out, as well as your level of education, the current profession and, where relevant, previous professions.
In order to determine your investment objectives, you must inform on the desired time horizon for the investment (the time you want to maintain your investment), the risk that you are prepared to assume and the purpose of the investment.
In terms of the financial situation, you must provide information on your knowledge and source of regular income, the assets you hold (liquid assets, real estate and investments) and your regular financial commitments (e.g. mortgage payment).
This content is merely indicative. This content 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.
Author
Sofía Cisneros
Communication and content - Crescenta
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When you click on any underlined term, you can see a definition and example of each concept
When you click on any underlined term, you can see a definition and example of each concept
When you click on any underlined term, you can see a definition and example of each concept
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