What Are the Three Models of Direct Investing and Which One Suits Your Investment Strategy?

Direct investing has gained significant traction among high-net-worth individuals, institutional investors, and family offices looking to gain greater control over their capital. Instead of investing through traditional vehicles like mutual funds or hedge funds, direct investing allows individuals or institutions to invest directly into companies, real estate, or other assets. This approach not only provides more transparency and control but also eliminates the layers of fees typically associated with managed funds.

When venturing into direct investments, there are three primary models to consider: solo investing, partnership investing, and co-investment. Each has its unique set of advantages and trade-offs. Let’s explore these models to help you determine which aligns best with your financial goals.

Solo Investing

Solo investing is perhaps the most hands-on and independent form of direct investing. It involves a single investor—or entity—making all the decisions regarding where to allocate their capital, which investments to pursue, and how to manage their portfolio.

The key benefit of solo investing is complete control. You are free to set your investment criteria, make rapid decisions, and choose where to allocate resources. It also provides an intimate understanding of the companies or assets in which you're investing. However, solo investing requires a significant amount of time, expertise, and resources. Investors need to perform rigorous due diligence, monitor investments continuously, and often, engage with management teams directly. Without the expertise or access to high-quality deal flow, this can be an overwhelming endeavor.

Solo investing is best suited for investors who are confident in their ability to make strategic decisions, are highly knowledgeable about the market, and prefer full autonomy over their portfolios. It's also a good fit for those who have a dedicated team to manage the complexities of the investment.

Partnership Investing

Partnership investing brings in a collaborative approach, where two or more investors pool their resources and expertise to make direct investments. This model leverages the strengths of each partner, allowing for the sharing of both risk and reward. It also enables the pooling of capital, which can open up access to larger deals that might be too costly for a solo investor.

Partnership investing allows for shared responsibilities—one partner might handle due diligence, while another focuses on operations or finances. The combined experience and perspectives often lead to better investment decisions and diversified expertise.

However, partnership investing comes with its own set of challenges. Disagreements on strategy, exit timing, or management approach can cause friction among partners. It's essential to establish clear guidelines and expectations upfront, including roles, responsibilities, and exit strategies, to ensure the partnership operates smoothly.

This model is ideal for investors who recognize the value of collaboration and are open to leveraging the strengths of others. It also works well for those who might not have all the resources or expertise on their own but still want more direct involvement than what traditional fund-based investing allows.

Co-Investment

Co-investment is a hybrid approach that allows investors to partner with a lead investor or investment firm in a specific deal. In this model, the lead investor typically conducts most of the due diligence, makes the primary investment decision, and manages the asset. Co-investors then have the opportunity to invest alongside the lead investor, often at a reduced cost and with greater transparency than they would get from a traditional fund structure.

Co-investments are particularly attractive for investors who want exposure to high-quality deals but may not have the time or resources to source and manage these investments on their own. Because the lead investor has skin in the game, co-investors can often benefit from the expertise and deal flow of experienced professionals, while avoiding many of the fees associated with managed funds.

However, co-investment opportunities can be selective, and investors need to be comfortable relying on the lead investor's judgment. While co-investors benefit from reduced fees, they must also understand the risks associated with having less control over the investment.

Co-investment works well for investors who want to diversify their portfolio with direct investments but don't have the resources or bandwidth to go it alone. It’s a compelling option for those who prefer to leverage the expertise of a seasoned lead investor while retaining more control and transparency than they'd get with traditional pooled funds.

Which Direct Investing Model is Right for You?

Each of these direct investing models—solo, partnership, and co-investment—offers distinct advantages, depending on your financial goals, risk tolerance, and level of expertise. Solo investing provides ultimate control but requires significant resources. Partnership investing allows for shared responsibilities and risk, while co-investing offers a blend of professional guidance and reduced costs.

When deciding which model is right for you, consider how much involvement you want in your investments, your level of expertise, and the amount of capital you're willing to allocate. Whether you want full autonomy, the support of trusted partners, or the opportunity to invest alongside industry leaders, there’s a direct investing model that can align with your strategic objectives.

At Orgon Bank, we understand that every investor is different. That’s why we offer tailored investment solutions and opportunities across various direct investing models. Whether you're looking to invest solo, form strategic partnerships, or explore co-investment opportunities, we provide the expertise and access to help you achieve your financial goals with confidence.