Browsing Tag

private placement

Assymetrical Access to Wealth Creating Opportunities


The older I get the more convinced I am that the real game changer in life – or the battle of life – is really the battle for access. There is no doubt that we do not have equal access to opportunities and/or resources. That assymetrical access makes a difference as to whether you will create massive wealth or struggle.


When I served on the Board of a financial institution some years ago I was shocked to discover that people do not have equal access to financing. For example some people because of their character, connections or networth are not required to put up collateral for any borrowings. Some may just make a call to the bank and within days they have a significant financial facility rolled out to them. While the average person struggles to even be entertained by the bank manager let alone be approved for a simple loan facility. That is assymetrical access!


Dr Francis Myles tells of access to the table of opportunity through invitation from powerful insiders. He gives the example of Mark Zuckerburg the founder of Facebook who had a brilliant idea and made lots of money through his innovation. Dr Myles then explains that Mark did invite some of his friends onto the table of opportunity and those who accepted his invitation to partner him in Facebook are now massively wealthy. While most people could only get access to this by buying the shares of Facebook publicly, these friends bought the shares privately and could negotiate the price and terms. Those who bought publicly paid a significant premium which reduces their profit margin while those who bought privately had massive gains. The difference was due to both timing and access to opportunity. This and similar stories led me to understand that those who have better access to financial tools privately have significant chances of winning big.


Actually one of the major sources of access asymmetry is based on whether you access financial instruments publicly or privately. The super wealthy or those on their journey to wealth prefer private access to public access. Unfortunately the average person believes wrongly that whatever is accessed privately has to be immoral, wrong or illegal. This perception has blocked more people from wealth creating opportunities. Let me deal with this public–private perception because it is critical to your wealth creating strategies. Remember that most astute investors prefer private transactions to public ones.


A private company is not illegal as compared to a public company. The main difference is that there is limited access to owning shares in a private company. Access is only by invitation. There are also less onerous regulations on private companies as compared to public companies. Public transactions are heavily regulated to protect the common person. The number of shareholders in a private company are normally prescribed to remain few. Access to its shares and its financial records is restricted. Restricted access to information does not mean or imply illegal. It simply means greater confidentiality.


When a company wants to go public it goes through a very transparent and open process called a listing on the stock exchange. It is called an initial public offering (IPO). The process is very regulated to protect the average investor who want to invest. Because of this regulation information has to be disclosed as publicly and transparently as possible. The process is also very expensive. But it allows for fair and open access. However the price of the stock that is publicly traded is fairly high when you purchase it unless there is a significant recession. But not everyone buys this company’s shares this way. The first and major players are given an opportunity to buy these shares in a private placement deal. A private placement deal happens when the insiders invite a person or corporate they like to join the party mostly before the public offering. These invited parties have faster access and can negotiate the terms and value of their purchase. They normally get very good discounts and deals at this point. The process is privately negotiated and minimal information about the transaction is provided to the public. The deal is governed by confidential agreements. The fact that it is a private transaction does not make it illegal. It is still regulated. But access is limited to those invited by insiders.


Similarly when one has insiders in the real estate market one can purchase well prized properties at very good discounts before they are opened to the public. Once a real estate opportunity is advertised and open to the public the price is often difficult to negotiate and discounts hard to come by. So access by invitation is critical to a good real estate opportunity.


I have discovered that assymetrical access to private placement opportunities is one of the major disadvantages in wealth creation. This is often increased by the perception that private transactions are illegal and public ones are legal. Significant bargains are accessed through accessing private transactions through invitation from powerful insiders.


One of the most powerful wealth creators are hedge fund managers. However these and their financial instruments are not easily accessible to the general public. In the US most powerful wealth creating strategies are restricted only to sophisticated investors. This regulatory requirement often gives the impression that private placement deals are illegal when they are not.


May you by God’s grace win the battle for access to the premium wealth creating tools that are often hidden from the average investor. May you be invited to the table of opportunity. Meet you at the top.