Investing in unlisted securities : A safe option for your portfolio?
«Financial investment inevitably rhymes with the stock market». It’s an all too common belief, and one that puts many people off taking the leap into investing. For many, the stock market is a jungle! Reassure yourself, and put down your machete: it is entirely possible to make your money to work without having to worry about the SMI or the health of the Dow Jones. And how can you do that? By opting for the strategy of investing in non-listed securities, for example!
Understanding investment outside the stock market
What is an «unlisted» investment ?
« Unlisted » refers to all investment vehicles that are not listed on the stock exchange. In other words, those that are not traded on a financial market. But that does not mean they are second-class investments – quite the contrary. The many advantages that this characteristic gives them make them an excellent way of diversifying your portfolio, or starting to build it!
The differences between listed and unlisted investments
A company is « listed » when it sells its shares on a stock market. The buyers of these shares then become investors. In return, they receive dividends on the company’s profits. They can also make a capital gain by selling their shares for more than they bought them, if a good opportunity arises.
The advantages and disadvantages of unlisted assets
Investing in listed securities provides you with good liquidity and the supervision of the stock market, a neutral third party that acts as a referee and ensures compliance with the rules of the game.
On the other hand, it also implies being subject to :
- Market fluctuations, which are as numerous as unpredictable.
- The financial health of the companies you invest in.
- « Trends » : Stock prices are largely determined by investor perception.. This can result in temporary trends, adding to the volatility generated by crises..
Investing in listed companies is therefore potentially profitable, but undoubtedly risky.
Good to know: An asset is said to be « liquid » when it can be quickly traded. A listed share, for example, is highly liquid, as it can be bought and sold easily. This liquidity comes with a premium, included in the price of the asset.
Best practice for investing in unlisted assets
The hallmark of a stock market investment is the way it is acquired via a financial market. So the question arises: how do you invest in unlisted securities? There are various solutions.
Over-the-counter
Over-the-counter transactions are carried out without an intermediary. In the case of an unlisted investment, this exchange can take the form of :
- Acquiring a direct stake in the capital of a company.
- A purchase from the holder of a security.
- Buying a property directly, as part of a property transaction.
Via an intermediary
The absence of a stock exchange does not mean the absence of an intermediary. You can go through:
An investment fund, which invests the capital pooled by investors, who then receive dividends. Most of these funds are listed and experience a high volatility. There are also unlisted funds, known as “closed-end” funds. These are generally difficult to access and require a substantial investment.
An investment platform, which allows a large number of individuals to contribute to defined projects that they select by themselves. This is known as crowdfunding. Although still emerging, this model is becoming increasingly popular, particularly in the real estate sector.
Good to know: Crowdfunding is a general category that encompasses different types of participative financing. These include crowdlending, which consists of a loan rather than a stake in the capital of the company financing the project.
The different types of unlisted investments
There are four main categories of unlisted investments.
Real estate
Real estate is certainly the best-known and most popular non-listed investment. Although the buy to let strategy (buying a property to rent it) is the most widespread investment model, there are many other ways of putting your money to work with real estate! Crowdfunding, for example.
Private debt
Private debt is an alternative financing solution to bank loans. A group of private investors pool their capital and grant a loan to a company. Investors receive interest throughout the term of the loan, and get their initial investment back at the loan’s maturity.
Private equity
Private equity involves buying unlisted shares, thereby acquiring a stake in the capital of a company.
Infrastructure
This involves financing the construction of public infrastructure, such as motorways, hospitals or telecommunications facilities. Some investment funds specialize in this area. These 4 broad categories are not mutually exclusive. It is possible, for example, to invest in private real estate debt.
More diversity, less volatility: unlisted investments, an alternative with many advantages
Because they are not exposed to the volatility of the financial markets, unlisted shares present a number of advantages.
An investment protected from the ups and downs of the market
The main feature of unlisted investments is that they are uncorrelated with stock markets. This presents a major advantage: they are only marginally affected by the volatility of the financial markets. While the liquidity of listed assets is an advantage in itself, it is a double-edged sword: it allows you to hit the jackpot in the event of a momentary rise in the value of a financial product, but fosters market instability.
Attractive returns
Over the past 20 years, unlisted assets have often shown double-digit outperformance. What’s more, in the case of unlisted investments that are uncorrelated with the stock market, such as investments in real estate, these returns are more stable and predictable.
But beware! All investments, whether listed or unlisted, carry risks. No investment is infallible, and past performance is no guarantee of future returns.
Giving meaning to your investments through unlisted investments
Unlisted investments give you the opportunity to invest in the real economy, and to select projects that fit in with your values. For example, you can invest in real estate to create new housing, or finance the construction of wind turbines to contribute to the energy transition… In short, investing in unlisted securities offers you the chance to combine the useful with the beneficial.
Is it a good idea to invest in unlisted securities to diversify?
Don’t put all your eggs in one basket… Everyone knows this principle! If you put all your money into a single asset, you run the risk of losing everything. When it comes to financial investments, the golden rule is to diversify your portfolio.
- Benefit number 1: varying your investments dilutes the risks, since they are spread over several assets.
- Benefit number 2: by investing in different sectors, using different products, you increase your chances of acquiring an asset that will gain in value, or prove particularly profitable.
Here again, the isolation of unlisted investments from the financial markets is a major advantage in the event of a downturn.
Real estate: the ideal unlisted investment?
The unique characteristics of the property sector make it resilient and full of opportunities. Particularly in Switzerland, where the market stands out for its robustness.
An inherently investment-friendly sector
A non-cyclical defensive asset
The term « defensive assets » is used to describe sectors or businesses which financial performance is not directly dependent on stock market cycles. These stocks are therefore less exposed to systemic risks. They respond to a primary need of individuals, which must be satisfied whatever the economic context. This is the case with housing, and therefore real estate. These types of assets are favoured by investors in periods of economic instability, because they offer greater security and the prospect of returns, even in the event of a crisis.
A vast and diversified asset class
The options offered by real estate are numerous. You can invest directly or indirectly, over the long or short term, with a large sum or a modest amount… Real estate alone offers enough variety to create a diversified portfolio which is sustainable and profitable over the long term. Real estate investment is not just about buying to rent, even if this is still the best-known model. Investments in co-ownership and crowdlending, for example, are good alternatives.
Relative liquidity
Because of the nature of the assets traded, real estate investments are not very liquid overall. Selling a house, for example, is a time-consuming process. You have to find a buyer, negotiate, deal with the administrative procedures and so on – a process that contrasts with the speed at which shares are traded on the stock markets, but in return you benefit from greater security and more stable returns.
Why invest in Swiss real estate ?
Whether economic or health-related, the crisis has spared no one. After more than 30 years of low inflation, it rose sharply at the end of 2021. This is likely to have an impact on many areas of activity, and lead individuals to reconsider their investment strategy. But as usual, the Swiss real estate sector has proved to be a resilient performer. Real estate has always been a safe haven, and today it remains a solid, reliable market brimming with great opportunities. This is mainly due to the overall robustness of the Swiss economy. As reported in a CBRE analysis published in October 2022, inflation has been much lower in Switzerland (3.5% in August 2022 over 12 months) than in Europe (9.1%) or the United States (8.3%).
Finally, the country’s demographics and social context still offer good prospects for real estate. Migration is still positive, while demand for housing already outstrips supply. The vacancy rate has fallen for the third consecutive year, peaking at 1.15% in 2023 (source: Swiss Federal Statistical Office).
How can I invest in Swiss real estate?
Yes, Swiss real estate is an attractive sector in which to invest. No, it’s not necessarily easy to convert intentions into reality. Access to property ownership is particularly difficult in Switzerland. Not least because of the amount of equity required to buy a house or a flat. The best-known form of real estate investment, buying to rent, is not affordable for everyone. Therefore, is investing in Swiss real estate an impossible mission? Absolutely not! There are a number of ways to go about it. These include real estate crowdlending and investments in co-ownership.
Real Estate crowdlending: Investing from CHF 10’000
Foxstone’s crowdlending solution offers an attractive return, a fixed term and an affordable entry ticket. It involves lending funds to a developer for the purpose of carrying out a real estate development project. In return, the investor receives interest annually or when the loan matures. Their initial investment (minimum CHF 10’000) is reimbursed at the end of the loan period, which generally varies from 1 to 3 years.
The average yield for this type of investment starts from 5%.
Investing in co-ownership: Access to real estate without the constraints of property management
Shared-ownership investment is another alternative. It consists of bringing together investors to enable them to jointly acquire an existing building, which is already rented and from which they receive rental income. Day-to-day management of the property is entrusted to a property management company.
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