Alternative Investments: 2

Question 1

Private Equity

Answer 1

• Medium- long term finance invested in companies not quoted on any stock exchange to profit from their growth and returns.
• Consists of equity and debt in unlisted companies, often taking the form of a fund.
• Low management fees (below 3%)
• Funding of under-performing companies with financial difficulties, but with potential to generate high profit.
• Most private companies prefer not be listed on stock exchanges, hence prefer private equity to avoid costs.

Question 2

Venture Capital

Answer 2

• Type of funding for new companies.
• Business ideas backed up by venture capitalists are innovative and risky.
• Consists of equity and debt finance
• VC funds are intermediaries channeling money from institutions or private individuals.
• Thus expecting multiple returns from their initial investment in a few years.

Question 3

Business Angels

Answer 3

• Wealthy individuals who provide their own money to be used in capital in new businesses.
• Substantial business and entrepreneurial experience.
• Equity finance, debt, instruments and preference shares.
• Usually don’t have a controlling shareholding.
• Competition is often very high, thus rejection rate runs at over 90%

Question 4

Gold

Answer 4

• Used as a “store of value” for thousands of years.
• Long term institutional investors view gold as a tool for protection against very high inflation.
• Used as trusted form of exchange for goods and services in countries with a less developed banking sector.
• Capital return can only happen from a rise in the price due to an increase in demand.