Syndicated PIPE deals
Posted in: alternative investing, alternative investing, alternative investment | Comments (0)
Syndicate investing simply describes a situation in which there are multiple parties to the deal. In many cases, the syndication is done in order to ensure that the minimum required capital that the company is trying to raise is met. In this particularly tough market environment, you will find that far fewer deals get done where there is only one bank or one investor. As a company looking for funding, syndications allow access to a bigger pool of opportunities. As an investor looking to be a part of a syndicated deal, there are various factors that may make such an investment a better alternative to being a sole investor in a deal.
As the timeless proverb goes it’s usually not a good idea to put all your eggs in one basket. The case certainly applies to investments in particular. Syndicated deals offer investors an opportunity to invest without having to risk all of their capital. While the total capital needed by the company may total $10 million dollars, PIPE investors with smaller amounts of capital may still be able to get in on the deal at much smaller amounts. The trade off under this situation is the fact that the smaller investors generally are not able to drive the deal terms. While it is the responsibility of all investors to conduct their own due diligence, it is not uncommon for many of the smaller investors, particularly individuals, to rely solely on the work that’s done by the lead investor.
While syndications offer safety in numbers, it also creates other potential risks. One critical issue in particular is the concept of overhang. In most PIPE deals, there is a projected timeline in which investors have the ability to exit out of their position. Since these PIPE deals involve publicly traded companies, there is a real concern that if all investors try to exit at the same time, the company’s stock price will be negatively driven down. This potential adverse effect is what we deem as overhang risk. Such risk is can only be minimized by investing with only groups that you are familiar with. Unless you are the sole investor, there are many variables that are outside your control. Investors should invest only within the comfort of their risk reward box.
admin @ August 2, 2010
Can You Get Investment Returns Without Risk?
Posted in: Life Insurance, Life Settlement Info, alternative investing | Comments (0)
The simple answer is NO.. but that does not mean that you have to assume large amounts of risk to get good returns. What is important is that you identify what the risks are and have specific strategies to mitigate them or otherwise protect your investment capital.
If you are satisfied with low single digit returns then muni’s are probably right for you and I would not waste much time reading further. We are alternative asset specialists and provide strategies that have the potential for double digit returns and we spend a lot of time managing risks.
The fact is that the best returns can be found where they always have been i.e investing in corporations or projects that are creating new value. Whether that be a small company bringing a new product to market, a new clean energy project, or any of the literally millions of value creating opportunities around the globe. If you want returns you need to invest in strong new projects or companies. Clearly, anything new has risk of failure for any of a million reasons. But do you just have to accept the risk of loss to get these returns?
Absolutely not! Sophisticated investors are adding layers of protection to the deals they do. This is done by “wrapping” the deal with a non-correlated, secure type asset that can repay the principal invested even if the project fails.
Leading investors and banks in Europe are looking to life settlements to fill this roll. Life settlements are one of the most highly uncorrelated assets available, returns are simply not impacted by interest rates, market or political trends. And given the right structure they provide a predictable cash flow. They are not very liquid and have a long term horizon but they are an ideal asset class to protect principal invested in similarly long term projects like real estate, energy, etc.
I would encourage any investor who would like to invest in private equity or project finance to spend time understanding the value that life settlements can play in reducing the risk while maintaining the ability to get yield. Unfortunately many investors seem to prefer to keep their head down and not take the time to understand the opportunity they offer.
admin @ August 2, 2010
