We understand that the world of the high-end car is somewhat of a niche in the international investment landscape. Still, the compelling question remains: how can an understanding of what is private equity law bring wealth to automobile investors or simply car enthusiasts wanting to add more names to their vintage car collections? Well, here’s how. What is private equity? Investors that funnel money into privately owned companies are known as private equity investors. Their value to the universe of high-priced car collectors is evident – collectives of these investors pool their monetary resources to obtain and possess cars at a lower per-person investment buy-in.
What is private equity law? Private equity law is a collection of rules governing the process through which an individual or group purchases or sells a privately-owned company. This process includes the physical purchase of the business or business interests as well as the creative financing that allows for those purchases to be obtained. Private equity law applies to private equity investments in collectible vehicles, as it does in any other investment opportunity that does not go public. The statutory requirements of these purchases include a certain amount of due diligence, verification of the sufficiency of representations, delivery of information to investors, and the establishment of an exit strategy.
Private equity funds are pools of money used to buy securities in privately-held businesses. These pools of money are maintained by a manager who also sets the policy used to invest the money in target companies. These funds are used similarly as in a medical marijuana start-up, to purchase business interests. The law ensures that investors in privately-held businesses have adequate information about their investment before money changes hands. This requirement is satisfied through materialization of appropriate resources, namely the investment memorandum. The investment memorandum is a long document that details the plan the investor has for the business, including how the investor plans to disseminate the funds. It also details the risks and rewards the investor can expect from the investment, and it includes a forecast for the business’s performance over the period that the investor expects to maintain their investment. It also includes details about the buyer and seller, and about the trade proposed. Failure to create the investment recommendation will likely lead to a breach of duty, or fiduciary breach, potentially leading to a lawsuit.
Pooled investments are always advantageous. In the context of the collectible vehicle industry, cars obtained through a private equity fund will be likelier to appreciate within the relatively short period of five to 10 years, when the vehicle market peaks and recedes. This appreciation period typically falls within the long range of an investor’s debt horizon, increasing the expected benefit of the original purchase. The market for collectible vehicles is not unlike the stock market. Futures and options are an important component of both. The collectible vehicle market contains many ensemble markets where the investment is potentially split between several markets. The stock market, real estate purchases, and the foreign and U.S. securities markets all experience these market models. As a result, the investor is less likely to lose value if the original investment loses value, a benefit to the accuracy of the investor’s financial modeling and investment recommendation.
Due diligence refers to the extent and depth of the research the investor conducts before composing the investment recommendation. Due diligence will include periodic audits of the assets in which the investment fund was agreed to place its money. This is true for investments in the collectible vehicle market, as is true for investments in almost any other market.
Case study. When Amazon.com went public in 1997, their stocks were offered to the public for $18 per share. At the time of this offering, Amazon was not nearly as large a force as it is today. Still, it had a promise of profitability and strong market power – its success was foretold, and shareholders were right to believe in its possibilities. By 2019, Amazon.com shares traded at a value greater than $1,600 per share. Had the original investors purchased Amazon’s stocks for the minimum amount (1,000 shares), they would have spent $18,000 to purchase $1,800,000 worth of shares. This 10-year investment would have reaped a return of 10,000% despite the housing bubble of 2007 and ensuing recession. Amazon.com, now valued at more than half a trillion dollars, is not alone. There are many good investments, and smart investors know what they want to see in an investment offering. The fact that Amazon attracted funding at the time of its IPO is an ultimately amazing story. The reality is that private equity law can help to connect you to investment opportunities that will be extremely valuable in the future.
For more information on private equity law, you can visit Wikipedia.