One way to invest in tangible assets is through investment programs called direct participation programs (DPPs). When you have a direct investment in tangible or real assets such as real estate, leased equipment and/or energy resources you own a share of the actual assets of an operating company. In doing so you may benefit from the value of the assets, typically the income they produce.
The most common DPPs are non-traded real estate investment trusts (REITs), equipment leasing corporations and energy exploration and development limited partnerships.
Investing through a DPP gives you partial ownership of actual physical assets. For example, if you invest in a non-traded REIT, you’re part owner of the real estate holdings of the REIT. If you invest in an equipment leasing corporation, you’re part owner of the actual equipment offered for lease by the corporation. And if you invest in an oil development corporation, you’re part owner of the corporation’s wells and the proceeds of oil sales.
The pooled investment structure of DPPs has been described as a way to provide the average investor with opportunities previously available only to the wealthy. Because you invest as part of a group, DPPs don’t require the means to acquire a large percentage stake in the venture or fund your own start-up company to invest in new businesses.
In each case, the sponsors who offer DPPs pool your funds with the funds of other participating investors, typically a thousand or more of them, to make investments they have identified as appropriate to the program’s investment goals. The sponsors are responsible for managing the assets of the program as long as it continues to operate and for devising an appropriate strategy for ending it.
The legal structures that provide the foundations for different types of direct investment programs vary. REITs are a special type of corporation. Equipment leasing businesses are structured as limited liability corporations (LLCs). Energy ventures are formed as limited partnerships. In practice, however, the investments behave as limited partnerships regardless of their differing legal structures.
In brief, a limited partnership has a general partner, in this case the sponsor who runs the business, and a number of limited partners who invest but aren’t involved in the partnership’s operation or liable for losses beyond their own investment.
DISCLOSURE: These investments are non-traded and therefore lack the liquidity associated with a stock market investment. These investments may not be suitable for all investors. Individual states and the SEC (Securities Exchange Commission) have developed specific standards for investor accreditation. To learn if you meet the accreditation standards of your state or an SEC-registered DPP, please refer to the Offering Memorandum or Prospectus for specific language and speak to your financial professional.
