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Unlisted Assets: The Investment Lesson We Can Learn From Police Cars

Monday, May 16, 2016

Have you ever wondered why the police force buys so many Holdens and Fords?

If you think about it, there must be many other vehicles that are better suited to transporting prisoners, or high-speed pursuits on a Friday night.

But when you buy as many vehicles as the fleet manager of a police force buys, the humble Falcon and Commodore have one great advantage – they’re easy to sell.

There’s a big market for these particular vehicles, and they can be exchanged for a well-known price. They’re not the most exciting of vehicles, but they have the benefit - to put it in financial market terms – of being very liquid.

They’re the automotive equivalent of Treasury Bonds or Telstra shares.

However, a more sophisticated investor’s portfolio will probably include some investments that are rather less run-of-the-mill than T-Bonds or T shares, such as unlisted securities, or units in unlisted property funds.

These investments can be hugely attractive. The upside of getting into an on-the-rise tech stock before it goes public, for example, hardly needs to be stated.

But unlisted investments have always had one drawback compared to the listed variety – their liquidity.

You may have found a superb investment but you’ve always had to be aware that if this asset is illiquid, you’re locked-in. If your strategic focus changes and this asset no longer fits your portfolio, or if you find yourself needing to raise funds - and fancy liquidating this asset to provide them – it can be a challenge to find a buyer.

There just aren’t the same opportunities to promote and build awareness of an illiquid asset. Treasury Bonds and Telstra shares have their price advertised in the newspaper every day. And if the newspaper price isn’t current enough for you, you can go online and find out what the price is this very second. And if you wish, buy or sell with a click.

Less liquid assets - such as unlisted property funds or unlisted securities – haven’t experienced the same kind of market awareness.

And the harder it is to find buyers, the harder it can be to find a good price. The holder of the illiquid asset may end up having to sell it back to the same people they bought it from. If existing co-investors or unit-holders don’t want to buy your holding, then that typically exhausts the options. Yes, there are certain informal pools or networks of investors… but it’s a challenging (or expensive) task to engage them all.

Net result, an asset that may have significant value and upside can end up not selling, or selling for significantly less than its true value, purely because it’s tough to trade.

This problem is just what PrimaryMarkets was developed to solve. Our belief is that valuable unlisted assets should not have to be illiquid. We’ve set up a platform to put these assets on display to a global audience, thus multiplying the opportunities for transactions to take place, and bringing all the well-known benefits associated with market transparency.

In short, we want to give that aftermarket Pontiac Firebird or Mercedes 300SL – a vehicle with strong appeal but to a limited universe of buyers – the same chance to find a happy new home as a Ford Falcon or a Holden Commodore.

It’s not a service that will appeal to your stock-standard fleet car buyer. But to the sophisticated investor looking to buy or sell attractive unlisted assets, it will.

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