Investing in unlisted shares – factors to consider
1. Diversification – spread the risk in your portfolio
Spreading investments across different asset classes is a proven strategy for reducing risk in uncertain times. Unlisted shares differ from listed shares in both risk profile and market dynamics, which makes them a potential complement in a diversified portfolio.
Because unlisted shares often have a different valuation structure and lower market correlation than listed shares, they can contribute to a broader spread of risk. It is important, however, to invest in companies you understand, and to make your own assessment of the valuation before an investment decision is made.
2. Valuations and market conditions
Unlisted shares have historically often been valued lower than their listed counterparts, partly because of limited liquidity and fewer buyers and sellers. In uncertain market conditions this difference can become even more pronounced, with some private companies trading at a considerably lower valuation than before.
For capital-intensive private companies, this can mean that future capital raises take place at a lower valuation than before. Not all companies will survive a tougher market, but those with stable business models and strong finances may have the chance to keep growing, which can create value for investors who think long-term.
3. Understand the companies you invest in
In a volatile market it becomes even more important to invest in companies with clear business models and long-term potential. Private companies are often smaller than listed companies, which can make them more straightforward to analyse.
Making a careful assessment of the company's operations, competitive situation and financial strength is crucial when investing in unlisted shares. As always, investments involve risk, and the value of your investment can both rise and fall. Through thoughtful analysis you can create better conditions for making well-founded investment decisions.
If you have further questions about investing in unlisted shares, you are welcome to get in touch.
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