Private investments are either direct or pooled investments in companies or funds that are a) not publicly listed or traded, b) issued in reliance upon certain SEC registration exemptions that allow for such investments to generally be made available only to certain sophisticated or accredited investors. Such investments normally include direct equity or debt securities in private companies, or investments in a pooled or fund structure, such as venture capital funds, private equity funds, or hedge funds.

There are a multitude of inherent risks in private investing.  Individual investments in private companies are subject to the risk that the company may not achieve economic sustainability or viability, may lose their ability to continue to obtain the funding they need for continued operations, and may completely deplete all investors’ capital.  In addition, private investments are highly illiquid, particularly in contrast to public securities.   Even if private companies do achieve some level of success, investors may not receive any portion of their initial investment for a number of years, and thus have no access to their capital investment throughout that timeframe.

Private funds such as venture capital and private equity funds invest their capital in a portfolio of private companies, most of which have underlying securities that are illiquid.  These funds normally have commitment periods in the 7 to 10 year range, and investors have no interim access to the capital they have invested.  While venture capital and private equity funds diversify their capital among a broad portfolio of companies, many of these companies can and do fail, and there is no guarantee investors’ capital will be returned in full, or that investors will ultimately receive a meaningful return on that investment. Hedge funds invest in public and, to some extent, private securities, and often use leverage as part of their strategy.  

Hedge funds often require investors to invest their capital for at least a one or two-year period (sometimes longer); most allow for liquidity opportunities only a few times a year, and notice of such liquidity request at least 30 days, and sometimes greater than 90 days, in advance.

Private investment sponsors are not required to provide investors with nearly the level of disclosure that public companies are, and it is presumed that private investors have the experience to understand the risks and bear the potential economic loss of private investing.

As an alternative to more traditional market returns and sustained lower interest rates, private investments may serve as alternate sources to generate uncorrelated, and potentially above-market investment returns.

A portfolio allocation to private investments may serve as an additional option for investors to grow wealth, further diversify their portfolio, and potentially uncover additional opportunities for yield.  The historically “traditional” mix of stocks and bonds may no longer provide the returns investors need to reach their goals, where some professionals are of the view that private investments have become an essential component to a well-diversified portfolio. (See Note 1)

Investing in some of the biggest technological innovations has historically been made possible in private markets before they reach notably higher valuations of the post-IPO public markets.  For example, if you accessed companies such as Facebook, YouTube, Twitter and others as a private investor, you saw significant value appreciation by the time these companies went public.

Private companies can also typically implement changes more quickly and with less restriction than a public company given the size differential and less board/shareholder approval requirements, etc.  Moreover, younger companies often may carry higher growth rates, have greater inefficiency to notably enhance margins, and allow for investors to align with sponsors who can drive value more efficiently and predictably than their public peers.

1-  JP Morgan 2021 Long Term Capital Market Assumptions

Private investments curated on the platform are reviewed by the Mercato Investment Team, which conducts research on a variety of economic, statistical and market factors, some of which it publishes and provides to institutional asset managers and investors to construct a behaviorally palatable portfolio strategy, and optimal investment outcomes. In addition, the team may conduct meetings with private investment sponsors, managers and investors as it relates specifically to private issuers and their respective investment entities. Where Wealth Advisors search for and select their own private investments on Mercato (those not currently in the Marketplace, which are not curated), they do have the option of requesting curation. Please note that diligence and research conducted by Mercato on a private investment is not an endorsement or a recommendation, but one of many factors an investor may consider. Investors should always consider consulting with their own financial, legal, and tax advisors, as necessary.

As investors continue their journey from public to private investments, digitization is an essential underpinning to successful program outcomes in ensuring investor experiences are as fluid and transparent as they are accustomed to in public securities investing.

Mercato is a fully digitized technology platform that allows wealth managers and private investment sponsors to provide investors with a fully digital, secure private investment experience. While most private investment transactions are diligenced and procured in a paper environment, Mercato leverages data that allows for a more robust diligence and research process, a centralized and seamless transaction and reporting process, and commercial-grade security.

Mercato provides program sponsors with a custom “feeder” or “aggregator” vehicle structure, where private investors may access certain private investments that are normally inaccessible or restrictive, as a result of:     

• Higher prescribed investment minimums (e.g. $5 million minimum investment), where the investor does not have the means to meet the higher prescribed minimum;
• The higher prescribed minimum impedes the investor’s ability to appropriately diversify its investment (e.g. the investor needs to commit 75% of their total investable assets to meet the minimum, vs. the 5% it desires to in order to properly diversify its investments);
• The terms established by the underlying investment are not optimal, such as extended capital commitments (or “lockups”) that restrict the investor’s access to their investment for multiple years. 

In an effort to bridge the gap between the traditional minimum capital requirements, liquidity terms and other features, funds aggregate the combined capital commitments of multiple investors in an effort to make such private investments more accessible to a broader range of investors.

As an example, a private fund or private investment that may require a minimum investment of $5 million, with a multi-year commitment, can be augmented with a dedicated aggregator fund that may allow a $50,000 investment with a commitment of 1 year or less.

BridgePort WMS ^TM is an agnostic, cloud-based, private investment ecosystem that hosts fully digitized transactions and reporting for any private investment, including privately placed securities (SAFEs, Convertibles, Series A, B, etc.) and private funds (Hedge, Venture, PE, RE, etc.), including a variety of white-labeled user interfaces enabling industry constituents, including wealth managers, RIAs, and Administrators to leverage a private investment ecosystem with robust diligence tools, data algorithms, search filters and more. BridgePort currently hosts thousands of private investors and private investments, wholesale distributors and wealth managers, all of whom have embraced an SSOT-based, all-digital private investment ecosystem. BridgePort is a member of the DTCC AIP Network, which allows for multi-custodial transaction and reporting. For more information, please visit www.bridgeportft.com. BridgePort is a SOC 2, commercial-grade SaaS platform, utilizing multiple enhanced security protocols for data privacy and protection:      

• AWS Cloud hosted platform, with world-class security, meeting SOC1/SAE 3402, SOC2, SOC3 assurance programs
• End-to-End (E2E) encryption for maximum data privacy
• Two-factor authentication (2FA) for identity protection
• Routine third-party penetration testing
• User-controlled permission protocol for authorized delegates and interested parties