New business startups and established entities wanting to improve infrastructure or raise capital for expansion create opportunities for private equity investments. Where do businesses go when seeking loans from investors instead of a bank when raising capital for operations, equipment, land or buildings? For larger public companies, this might mean a full-fledged public stock offering on Wall Street.
For most privately held companies, the need is small enough that a loan might be all that is required. And what about startup companies not yet qualifying for bank loans or other firms choosing not to tie themselves to bank requirements? Where do they find the money to get started or to expand?
You can use a Kingdom Trust account to invest in a number of different private equity investments.
Kingdom Trust cannot promote or endorse any specific investment, but we allow private equity holdings on our platform. Investors may become an owner of a private company (a private equity investor) or a debt investor (a private lending investor), the latter of which is really considered a separate asset class. For private equity investments, individuals could hold entities such as
- private placements, including private investments in public equities (PIPEs)
- private company stock
- corporate debt
- hedge funds and other pooled investment vehicles (PIVs)
- joint ventures
- multi-member limited liability companies (LLCs)
- limited partnerships (LPs)
These investments can be made both existing entities, startups and venture capital as direct investments or into pooled investment vehicles as indirect investments.
Many individuals consider direct investments in private companies on Main Street–non-disqualified companies you may know and with which you already do business. One of the greatest benefits of accounts like Self-Directed IRAs is that you can invest in what you know or are interested in. Therefore, you can invest in a specific private company or industry you are interested in or maybe one that has a product you would like to get behind.
Using retirement funds, you can also buy, sell and exchange private equity through your Kingdom Trust account without the same tax consequences as investing with non-retirement funds. There are also no public disclosure laws associated with private equity.
As a Kingdom Trust account holder, you can choose a company you’d like to invest in and, after agreeing to terms, direct us to send money from your account to complete the investment.
In addition, your IRA or another tax-advantaged vehicle could potentially make money from a private equity investment in multiple ways. For example, this could be based on a private company’s performance, from any sale of IRA ownership or through the sale of the private entity.
Besides a direct purchase of private equity, many investors have chosen to invest in pooled investment vehicles (PIVs) that themselves may invest in private equity. One example of a PIV would be hedge funds. Typically made available only to accredited investors, hedge funds pool investor assets and follow a specific investment strategy like long-short equity, directional, event-driven or market neutral. Hedge fund asset classes include equities, fixed income, commodities, options and a variety of other investments. A primary goal of hedge funds is to limit market risk while generating positive returns independent of market conditions.
Investing in private businesses or funds can pay big dividends, but it can also be risky, which is why you must do your homework and due diligence. Vet the company and its principals, perform any type of competition analysis and background check, and consult with your investment, tax and legal advisors prior to committing retirement dollars.
It’s important for you and your team of professionals to understand the tax ramifications of each investment and follow prohibited transaction rules. Because these investments are self-directed, Kingdom Trust does not perform an investment review to determine suitability or soundness.