Don't invest unless you're prepared to lose all the money you invest. This is a high-risk investment and you are unlikely to be protected if something goes wrong.
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Risk Summary

Estimated reading time: 2 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

  • You could lose all the money you invest
  • Most investments are shares in start-up businesses or bonds issued by them. Investors in these shares or bonds often lose 100% of the money they invested, as most start-up businesses fail.
  • Checks on the businesses you are investing in, such as how well they are expected to perform, may not have been carried out by the platform you are investing through. You should do your own research before investing.

You won't get your money back quickly

  • Even if the business you invest in is successful, it will likely take several years to get your money back.
  • The most likely way to get your money back is if the business is bought by another business or lists its shares on an exchange such as the London Stock Exchange. These events are not common.
  • Start-up businesses very rarely pay you back through dividends. You should not expect to get your money back this way.
  • Some platforms may give you the opportunity to sell your investment early through a 'secondary market' or 'bulletin board', but there is no guarantee you will find a buyer at the price you are willing to sell.

Don't put all your eggs in one basket

  • Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well. A good rule of thumb is not to invest more than 10% of your money in high-risk investments. Learn more here.

The value of your investment can be reduced

  • If your investment is shares, the percentage of the business that you own will decrease if the business issues more shares. This could mean that the value of your investment reduces, depending on how much the business grows. Most start-up businesses issue multiple rounds of shares.
  • These new shares could have additional rights that your shares don't have, such as the right to receive a fixed dividend, which could further reduce your chances of getting a return on your investment.

You are unlikely to be protected if something goes wrong

  • Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker.
  • Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated platform, FOS may be able to consider it. Learn more about FOS protection here.

If you are interested in learning more about how to protect yourself, visit the FCA's website here.

For further information about investment-based crowdfunding, visit the crowdfunding section of the FCA's website here.
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Alyssa Peterson
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Private market investments explained

Private market investments (also known as alternatives) are on the rise, as more private investors look for alternative ways to diversify and grow their portfolios. Private market investments can have the potential to offer better returns than traditional listed investments and, in this article, we will explore the following:

1. Private market investing explained

2. Growth of private market investments

3. Why invest in private markets?

4. Moving on from the traditional 60/40 portfolio

5. Characteristics of private market investments: potential risks and returns

6. Accessing private market investments

7. Private market investment platforms

 

1. Private market investing explained

Private market investing is an investment strategy focused on accessing alternative asset classes, typically including the following:

  • Private equity - Investment in later-stage private companies
  • Venture capital - Investment in early-stage startup businesses
  • Property - Residential, commercial and mixed-use schemes
  • Private debt - Private company and property loans
  • Infrastructure - Equity and debt for infrastructure projects, such as energy and telecoms

 

2. Growth of private market investments

Private markets have experienced rapid growth in recent years. For example, PwC has estimated that assets under management (AuM) in private markets will expand by approximately $4.2 to $5.5 trillion between 2021 and 2025, to reach approximately $13.7 to $15 trillion in total, more than 10% of total global assets under management.

Whilst the majority of investment into private markets has previously came from institutional investors, experienced private investors are now following suit and, on average, increasing their overall portfolio exposure to private market investments.

 

3. Why invest in private markets?

There are typically three main reasons that investors choose to invest in private markets:

  • Access potential for high financial returns
  • Protect against inflation
  • Portfolio diversification

There is also the additional benefit of investing for more than just financial returns. For example, with many venture capital and private equity investments, the potential to support innovation, job creation and wider positive social, economic and environmental impact can exist.

Find out more about how experienced private investors are building their wealth with impact here.

Furthermore, especially in volatile economic climates, experienced investors are increasingly assessing the implications of inflation on traditionally constructed portfolios and considering investment strategies from different perspectives. Particularly, investors are becoming more keen for their investments to achieve inflation-beating returns.

 

4. Moving on from the traditional 60/40 portfolio

Private market investments can provide private investors with the opportunity to build on the traditional 60/40 portfolio structure of bonds and listed equities. The ability to diversify their asset allocation and access opportunities that offer a higher return potential than public markets investments is one of the key draws of alternative asset classes. 

In addition, private market investments are also generally considered to be less volatile and less correlated to traditional markets, potentially offering a hedge against wider market movements.

 

5. Characteristics of private market investments: potential risks and returns

Investing in private markets is a higher-risk and higher-return investment strategy, most often aimed at high-net-worth individuals (HNWIs) and experienced investors.

It is important to note that the characteristics of private market investments are different to public markets, as are the potential risks and returns:

  • Liquidity - Unlike listed stocks, shares and funds, there are no fully established secondary markets for private market investments. Although there are some private secondary markets, these private market investments are usually relatively less liquid and investors should expect their investment to be held for a comparatively longer period.

  • Transparency - Private market investments do not have the same reporting requirements as listed stocks, shares and funds. In some cases, particularly direct investments into private companies, the reporting may be less frequent. However, many of the more established private equity, venture capital and property funds do provide detailed reports and performance reviews.

  • Potential loss of capital - As with all investments, there is always potential for the loss of capital, and the risk/return profile will vary across the sub-asset classes. Typically, asset-backed investments (such as property and infrastructure) will have a lower risk profile than private equity or venture capital investments. 

  • Potential Returns - To compensate for the relatively higher levels of investment risk, private market investments typically target lucrative returns. For example, later-stage private equity investments usually target between 3x and 5x money over a 3- to 5-year holding period, whereas venture capital investments typically target in excess of 10x money over a 5- to 10-year hold period. Returns from property investments can vary based on income yield, capital growth and the type of investment (residential, commercial or mixed-use).

 

6. Accessing private market investments

There are a number of ways to access private market investments, but some routes will only be available to institutional investors and family offices due to the comparatively large minimum investment amounts.

The following list outlines some of the most favoured routes that investors follow to access private markets, together with an indication of typical minimum subscriptions:

1. Private equity fund - Professionally managed by a fund manager. Minimum subscriptions can vary, typically from £100,000 to £1 million.

2. Private equity single deal - Structured on a deal-by-deal basis by a professional intermediary, such as a co-investment platform. Minimum subscriptions can be as low as £25,000 depending on the transaction.

3. Venture capital fund - Professionally managed by a fund manager. Minimum subscriptions can vary, typically from £100,000 to £1 million.

4. Venture capital single deal - Structured on a deal-by-deal basis by a professional intermediary. Minimum subscriptions can be as low as £25,000, depending on the transaction.

5. Real estate fund - Professionally managed by a fund manager. Minimum subscriptions can be as low as £25,000, depending on the transaction.

6. Real estate single deal - Structured on a deal-by-deal basis by a professional intermediary. Minimum subscriptions can be as low as £5,000, depending on the transaction.

7. Infrastructure fund - Professionally managed by a fund manager, with minimum subscriptions typically standing at £1 million.

8. Equity crowdfunding platforms - Aimed more at retail investors investing in startups or property transactions. Minimum subscriptions vary significantly; can be as little as £10 up to £5,000.

9. Private markets platforms - Aimed at experienced investors (high-net-worth individuals, sophisticated investors and family offices). Typically £25,000 minimum subscription, although some platforms provide a lower entry level depending on the transaction and asset class.

For private investors, the most appropriate way to access private market investments will depend on the type of investor you are and the amount you are prepared to invest. Before investing, it is essential to understand the risk and return profile of the particular investment opportunity in question to ensure it aligns within your investment style and risk parameters.

 

7. Private market investment platform

There are a number of online investment platforms offering a number of opportunities that can provide access to alternative private market assets. Online transactions are increasing in volume and subscription value as private investors are attracted to this increasingly popular investment approach.

 

Introducing GCV Invest

GCV Invest is an online private markets investment platform for experienced UK-based investors. We provide access to carefully selected alternative investments across three asset classes: venture capital, private equity and property.  Our investor members have co-invested over £35 million alongside institutional investors in transactions worth over £100 million.

With a portfolio worth over £600 million and over 600 high-quality jobs created, our investor members are building wealth with impact.  You can find out more about GCV Invest here.
Driving Growth.
Creating Value.
Delivering Impact.

Backed by

Growth Capital Ventures (GCV) is backed by funds managed by Maven Capital Partners, one of the UK’s leading private equity and alternative asset managers.