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What are the Different Types of Private Placement Investments?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 12 November 2016
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Private placement investments are investment opportunities that are not offered to the general public. Instead, the investments are offered to a select group in a non-public offering. There are several different types of private placement investments offered by companies to private investors, including certain classes of stocks, bond issues, and even promissory notes.

One of the most common of all private placement investments is the stock option. Pension funds and pension pools are often invited to participate in the non-public offering, making it possible for the issuing company to collect a great deal of money before any of the remaining shares of stock are offered to the public in some type of initial public offering. In this scenario, private investors can often secure a significant interest in options that are anticipated to provide steady returns over the long-term.

Another example of private placement investments is a bond. As with the stocks, private investors have the opportunity to purchase the bond issues before they are offered to the general public. The bonds may be structured with a short-term maturity date, meaning they will mature in three years or less. It is also possible to obtain bonds that provide a steady amount of returns in the form of interest over a much longer period, sometimes as long as twenty years before the issue matures.

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Promissory notes are another example of private placement investments that attract a fair amount of attention from private investors. The terms of the notes are structured to comply with governmental regulations in the country of origin, with most providing some guidelines for when the note can be called and the buyer can redeem the note. This particular type of investment opportunity may come with an attractive rate of interest that is paid when the note is settled in full, or it may provide periodic payments according to a schedule agreed upon by the buyer and the seller.

Private placement investments are typically traded by industrial investors that specialize in private investments, rather than being offered to investors who typically buy smaller lots in the marketplace. This does not mean that individual investors do not participate in private placement opportunities from time to time. Assuming the private investor has the resources necessary to acquire investments of this type, he or she may be able to participate in the non-public offering and secure assets that serve to increase the value of the portfolio significantly over a period of several years.

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