Money management is the art of making the right calculations. Investing your money in the right investment vehicles will give you long-term returns.
High-net-worth individuals (HNIs) often find themselves amid several investment options. Choosing the best alternative becomes difficult, yet important. Most HNIs choose to become private investors for lucrative returns and long-term benefits.
However, not all private investment vehicles are suitable for everyone. If you are an HNI planning to make the most of your assets, you should go through multiple private investment strategies and explore various options before choosing the best one.
Let us explore some of the top private investment strategies that help HNIs grow their funds:
Private Equity Investments
Private equity investments involve investing in private companies with growth potential. Investors can also buy out public companies to make them private.
Making private equity investments gives HNIs access to niche markets and high-growth companies that aren¡¯t open for public investments (at least yet). As a private investor, your potential for returns will be high with long-term stability.
In many cases, private investors have a major say in the management of the companies they invest in. You can provide your valuable and strategic support to these companies, benefiting from their ultimate growth.
Mortgage Investment Corporations
If you want to enter the real estate sector without making direct investments as an HNI, you can always look for mortgage investment corporations. These organizations create dedicated funds used to provide alternative mortgages to borrowers.
For example, a mortgage investment corporation in Canada will gather funds from HNIs and other private investors. This fund will then be used to provide mortgages to borrowers struggling to meet conventional lending requirements.
As an investor, you will profit from the mortgage repayment the fund receives over time. Investing in real estate generally puts investors in a safe place, ensuring that they receive their principal even in the worst-case scenario.
Venture Capital
Venture capital allows HNIs to back promising startups during their early funding stages. If you come across a venture that has immense growth potential, you can invest in it and benefit from its progress.
Venture capital is an extremely common form of HNI investment in innovative sectors like tech, healthcare, and more. Investors back companies working on disruptive technologies and capable of setting new trends.
As a venture capitalist, you get exclusive exposure to sectors and companies before public involvement. If the startups succeed, you can make impressive returns on your investment.
However, it is important to note that venture capital, like most private investment strategies, is not free from risks. Make all the necessary assessments before making up your mind and backing a promising company.
Private Credit And Debt Funds
Private credit funds allow HNIs to provide credit to borrowers in a non-conventional way. They are ideal for borrowers who do not qualify for conventional loans, mortgages, and other credit instruments offered by banks and credit agencies.
HNIs can receive direct and steady payments from interests for a long period of time, especially in sectors like real estate. Income in these sectors is also predictable, giving HNIs a safety net.
Moreover, private credit or debt funds help HNIs diversify their portfolios to manage risk. Investing in multiple instruments is always safer than putting all your eggs in one basket!
Many private credit funds are likely to generate greater yields than conventional fixed-income securities. If you analyze your borrowers¡¯ credit profile thoroughly and find the right opportunity, you can receive impressive returns on your investment.
Alternative Assets
HNIs can also diversify their portfolios by investing in alternative assets, such as cryptocurrencies, art, collectibles, commodities, infrastructure, and more. These assets do not work like conventional instruments and require in-depth knowledge before investing in them.
Alternative assets help you move beyond conventional assets like stocks, bonds, real estate, etc. Some of these assets (like infrastructure or gold) also give you a hedge against inflation. They make you more or less immune to the larger economic conditions around you.
Moreover, assets like art installations and collectibles add monetary and lifestyle value to your life as an HNI. The only consideration here is to understand the volatility of your investment and the risk involved. Assets like cryptocurrencies may also require professional guidance and complete knowledge to make the most of your investments.
Fund of Funds
If you solely want to focus on diversification, you can choose the fund of funds approach. Here, instead of investing in a specific private equity or hedge fund, you can spread your investments across multiple managers, strategies, and funds.
With multiple funds and managers, you can minimize the risk of losing your investments if one of them performs poorly. You can also have access to exclusive funds that are otherwise difficult to invest in.
However, you should know that the fund of funds way of investing includes an additional layer of fees. Know that your fees will increase while you diversify your investments.
Hedge Funds
Hedge funds pool funds from different private investors (including HNIs) for advanced strategies like arbitrage, short selling, derivatives, global macro plays, and more.
Such private investment strategies have potential for absolute returns, irrespective of where the market is heading. They also involve professional fund management that gives you access to strategies not accessible to retail investors. Many hedge funds also include non-traditional asset classes, helping you diversify your investments.
If you can navigate the complexities of hedge funds with professional help, you can earn high yields on your investment.
The Final Word
These were a few top private investment strategies for high-net-worth individuals. Whichever strategy you choose, analyze the risks involved, the businesses or borrowers you back, and the exit policies for liquidation.
Most private investments offer high yields while carrying high risks. It is best to diversify your portfolio and make long-term investments for the best results. Analyze all the options available to you and seek professional help before making any investment.
