Participation Programs
Direct Participation Programs
Direct investments are generally income investments, providing a regular stream of dividend payments based on real estate rentals, mortgage payments, equipment leases, and oil or natural gas sales. In some cases, investors realize capital gains at the end of the investment term from the sale of their interest. Many direct investments also provide tax benefits, including tax deferral on a portion of the regular distributions paid to you, tax deferment for depreciation, depletion allowances, and other deductions. DPPs are not without their risks though, including the risk of rental property vacancy, mortgage defaults, lease defaults, equipment failure, dry oil wells, and dropping energy prices, among others. But many of the risks are non systematic, and relate to specific investments, so you can potentially protect yourself by researching the management, quality of assets, performance history, and business plan of the venture. Much of this analysis is performed in the normal course of due diligence by independent research firms and by broker-dealers before they agree to sell any DPP.
Preservation Capital Group, LLC. will also want to evaluate the sponsor’s management team, business strategy, track record of program performance, and financial strength.
JUST LIKE STOCKS AND BONDS—OR NOT?
The extent to which asset classes perform similarly to one another is called correlation. Positively correlated assets are affected in the same way by certain systematic risks and their returns tend to move in the same direction. Negatively correlated assets are affected differently by economic and political events and their returns tend to move in opposite directions. The extent to which assets perform similarly or differently indicates the level of their correlation, typically measured on a scale from 1 (most positive) to –1 (most negative). Many alternative investments tend to have low to negative correlations to traditional asset classes, as their values don’t tend to move in tandem with equity or bond markets. Though it may seem counterintuitive, adding higher risk, negatively correlated assets to your portfolio can reduce the overall volatility and risk within your portfolio and increase your potential return.
State suitability and accredited investor rules apply – not suitable for all investors.
While some mix of traditional asset classes is likely to yield satisfactory investment returns for the average investor, you may also look for nontraditional opportunities, such as futures, options, and direct investments, to put your money to work. These alternatives have the potential to provide balance in an otherwise conventional portfolio as well as to increase your current income. Of course, before adding new asset classes to the mix, you’ll want to be sure you understand their risks as well as their strong points. With Preservation Capital Group, LLC., you can investigate the ways in which different types of investments put your money to work and identify the ones that interest you the most. Direct Investments are generally long-term investments in limited partnerships or corporations investing in businesses such as real estate, equipment leasing, and energy exploration and development. By making a direct investment in one of these programs, an investor becomes part owner of the hard assets of the enterprise.