In recent months, I’ve been offered several investment opportunities in unlisted businesses. We’ve also seen some delistings that gave shareholders the option to remain in the unlisted entity.
For me, the answer is no, with the exception being regulated funds. But that’s for another column.
The big issue is liquidity.
Right now, I could sell my entire investment portfolio, built up over the past three decades, in a matter of minutes.
Of course I am not planning on selling any time soon, but that liquidity is a critical part of investing on an exchange. The exchange is essentially a marketplace where different listed businesses, debt instruments and exchange traded products are available for everybody to buy and sell. If you want to buy or sell any of these assets, there is no better place to do so.
Now, some unlisted businesses may offer a trading facility. But even then, there will be fewer buyers and sellers, meaning less price discovery. Sure, inefficient price discovery means you could be buying at a great valuation, but the same could happen when you try to sell. So I stay away.
I also like that the exchange offers an extra layer of protection over and above the Companies Act, which all businesses must adhere to. If your unlisted investment is in breach of the Companies Act, your only recourse is to consult a lawyer. With an on-exchange investment, the exchange largely handles that in terms of ensuring regular AGMs and timely results releases.
Many will counter that real profits are made in unlisted investments because they are smaller and so have better growth prospects. Perhaps, but there are also real risks. Many small businesses do not survive the long term, whereas listed businesses typically have a proven track record.
Some will point to Steinhoff as an example that being invested in a listed company offers no guarantees of protection to investors. But I’d argue that Steinhoff’s collapse was expedited due to it being listed, as it couldn’t get the auditor’s sign-off and needed to publish results. In the unlisted space, that could have dragged on for many more years before the inevitable collapse.
Another advantage is the standardisation of news releases via Sens. Details about possible deals, director dealings, trading updates and the like are all exchange benefits and not part of the unlisted investment environment.
I have never invested in unlisted assets, and while I am smart enough to never say never, it would have to be an exceptionally well-structured investment to get me even remotely interested; the structure to protect investors is as important as the actual investment potential.
The exception is, of course, your own business. It’s unlikely to be listed — yet you have control, because you’re the one in charge.
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