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Savvy investors realize that private equity can deliver significant rewards. When those investments are held in a tax-advantaged IRA, the returns can be even more compelling.

Private Equity Details

What is Private Equity?

Private equity, sometimes referred to as a private placement, consists of ownership interest in companies that are not publicly traded on a stock exchange. These investments can be made in an operating business, a real estate venture or an investment partnership, among others.

Perhaps the best-known form of private equity investing is buying a stake in young, growing companies. Many of them turn initially to individuals, or angel investors, for funding to add people, equipment, technology, expertise and marketing.

There are two primary ways your self-directed IRA can invest in private equity:

• Through a fund. This may include Private Equity funds, Venture Capital (VC) funds and funds of funds.
• Directly in a company. This means putting money into private companies, including potentially, your current employer.

The investments available range from the safety of collaterally-secured loans to the high-risk, high-reward potential of angel investments in start-ups.

You can use your PENSCO self-directed IRA to purchase ownership in everything from micro-businesses to billion-dollar global companies, as well as less conventional opportunities, such as land trusts and hybrid securities. Available investments include:

• Limited liability companies (LLC) and limited partnerships (LP)
• Private common stock, preferred stock, options, rights and warrants
• Private hedge funds and funds of funds
• Private and non-exchange traded Real Estate Investment Trusts (REITs)
• Foreign private equity
• Exchange traded funds or funds of funds investing in privately-held companies
• Convertible notes

A Private Equity Investor

Susies friend Sally has decided to start a business. Susie really believes in her friends business acumen and wants to make an investment in the business to help it get off the ground.

So, she calls PENSCO Trust Company, and asks the PENSCO private equity specialist where to start. The representative explains that PENSCO will need to look at some of the documents associated with her friends business, like the articles of incorporation, financial statements and other examples, before accepting the investment. After Susie collects these documents and submits them to PENSCO, the investment is reviewed and accepted, and PENSCO processes the necessary paperwork to make sure that the investment is held in the name of Susies IRA account.

Years later, when Sallys business has grown to the point that it needs additional sources of financing, Susie decides to cash out and instructs PENSCO to execute the sale transaction. During the time that her IRA has held this private equity investment, the value of the company has increased by 40%. After her private equity is sold, Susies IRA is worth 40% more than it was to start out, and she retains that 40% in her IRA account tax-free, at least until she decides to withdraw money from the account.