Over the past decade quantitative easing has suppressed fixed income yields globally, this has led to a surge in equity investment. With stock markets showing lower returns, venture capital has become increasingly popular amongst private investors, especially with the significant tax incentives available. Here we look at how institutions tend to invest in venture capital to explore what private investors can learn.
What Investors Want
Equity Invested in UK SMEs has increased significantly in recent years
A recent report published by Oliver Wyman and the British Business Bank on the best ways to generate higher returns from pension pots, provides a clear insight into the potential returns from investing in technology and other private companies especially as part of a longer term growth strategy.
With investment in UK Small and Medium Enterprises (SME) increasing significantly over the past three years, the report clearly indicates the higher returns possible from this sector.
To achieve a high short-term return on investment then you have to embrace high risk.
As all seasoned investors know, it is essential to use diversification to bring down the overall risk of the portfolio. This is particularly true when investing for growth. A well-diversified portfolio in a range of smaller companies that tick all the boxes will still have failures. Successful portfolios typically will make returns from less than 20% of the portfolio, with these companies achieving stellar growth and providing a healthy overall return to the investor.
2018 was rife with market volatility, political upheaval, climate disasters, personal data dystopia, global economic uncertainty and much more. The general view seems to be expect more of the same for 2019.
After the Brexit vote and Trump’s election in 2016, economists, analysts and investors were pretty fearful about market prospects for 2017, yet it turned out to be a fantastic year for the global economy.
Then, at the end of 2017, there was a real sentiment of optimism for 2018, which turned out to be a very disappointing year pretty much everywhere apart from the US.
Now, there is widespread doom and gloom for 2019. So the question is; will things pick up, making the forecast wrong for the third year in a row or are the pessimists going to be proved right?