What is portfolio investment? Their advantages and risks, as well as their differences from direct investment. Direct, portfolio and other investments Direct and portfolio foreign investments

07.10.2023

Evgeny Smirnov

Bsadsensedinamick

# Investments

What are direct and portfolio investments?

A direct investor develops a chosen enterprise, a portfolio investor buys shares of already successful companies.

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Definition of direct and portfolio investments
What are the similarities between direct and portfolio foreign investment
How do direct investments differ from portfolio investments?
Purpose of participation in investment: direct, portfolio and other investments
Direct and indirect investments: essence, forms and principles
Are private equity investments different from venture capital investments?

It is well known that the classification of investments has a complex and ramified structure. Profitable financial investments vary in many ways. This article will discuss the similarities and differences between direct and portfolio investments.

Definition of direct and portfolio investments

Direct investment is the financing of the creation (creation or reproduction) of fixed assets of a particular enterprise. A typical situation typical for this type of investment: a company needs money to purchase equipment that can strategically solve the problem of increasing profitability. The management of the enterprise approaches a person (individual or legal entity) with a proposal for financial participation. A business plan is demonstrated, which describes the investor’s benefits from the investment with a detailed schedule for disbursing the requested funds. The conditions for control and cooperation are discussed.

Portfolio investments represent an injection of money into the turnover of an enterprise in order to increase its financial assets. About achieving control economic activity in this case there is no question. The investor is interested in the rate of return, that is, the rate of profit per investment monetary unit or one share.

The similarity is manifested primarily in the goal of each investment - the most efficient use free funds. All profitable investments, both domestic and foreign, are subject to this rule.

Foreign portfolio investment indicate general trust in the recipient country. Since relatively small shares of the stock do not provide the opportunity to interfere in the management of the enterprise, the financier, when purchasing them, hopes for the stability and reliability of his investment. In general, capital inflows are beneficial for the national economy and confirm a good investment climate.

The same considerations apply to direct investment. A foreigner buying shares in an enterprise must have a minimum acceptable degree of confidence that his funds are protected by the state and that the legislation is stable. Otherwise, the acquisition may result in losses, even if the investor is actively involved in the management of the property and has the necessary skills for this.

In some cases, the criterion of similarity may be the method of purchasing assets (production or financial). This can be done directly from the issuer valuable papers or indirectly on stock exchange or the secondary market from a third party. In this case, what matters is not the place in which the sale of shares is carried out, but the purpose of this operation. If a financier wants to obtain the right of management control, he buys the enterprise “in parts” from different holders.

A portfolio investor generally does not care who to buy shares from - he is only interested in their economic performance.

Commonality is also observed in the nature of a specific product, which is securities. Whether they are part of a portfolio or part of a direct investment, they can be speculated on or realized under certain circumstances.

How do direct investments differ from portfolio investments?

First of all, direct investments differ from portfolio investments in the nature of the assets for the development of which they are spent. The shares included in the portfolios were purchased with funds that the recipient disposes of at his own discretion as financial instrument. Direct investment involves strictly intended use(purchase of fixed assets, their renewal, modernization, construction, etc.).

Another difference is the amount. The contents of the portfolio are formed by several types and types of securities. This structure is appropriate for ensuring diversification, but is completely unsuitable for a takeover strategy. In other words, it is difficult to concentrate not only a controlling stake, but even a tenth of the total capital of an individual enterprise in one portfolio.

The third significant difference is in the timing of investment. Shares in a portfolio can be held for quite a long time, but can be sold at any time if they no longer provide financial returns. There are other considerations for selling, particularly speculative ones.

Direct investment is calculated as a long-term investment (at least five years). The reason for such a long cycle lies in the very nature of the operation. Such an investment, by definition, is aimed at developing production capacity and subsequent payback. There is little point in getting rid of securities before reaching point “zero” (beginning of making a profit).

In Russia, the differences between portfolio and direct investment are clearly demonstrated by the prevalence of the latter. In the conditions of the domestic economy, the attitude towards impersonal securities is wary, especially against the backdrop of the low development of the stock market.

In the United States, a significant part of the population is involved in stock exchange transactions. Ordinary citizens buy shares, form their own portfolios (on their own or using the services of financial advisors), that is, they act as investors. Russians don't trust securities. And the enterprises themselves (especially successful ones) prefer to find other sources of third-party capital for fear of the consequences of an uncontrolled issue of shares.

In the Russian Federation, direct investments are still practiced, when the financier knows who he will invest in cash flow and what it will be spent on. It is likely that over time this proportion will change and Russians, like Americans, will invest their savings in the development of the domestic economy.

Purpose of participation in investment: direct, portfolio and other investments

It is obvious that the motivations of direct and portfolio investors are different. It is easier to understand the motivations if you take into account the classification of financial investments.

Real investments are called if they are aimed at the development of specific assets, that is, fixed assets. They are expressed in capital investments. Naturally, most of them are straight.

Financial investments consist of investments in instruments for generating income. When implementing them, the investor does not go into details economic mechanism issuing enterprise. He will be pleased if he receives an acceptable amount of dividends for the ruble invested in a certain company. This is precisely the situation described by the American writer Theodore Dreiser: small stock exchange dealers watched with which foot the financial tycoon would step onto the asphalt when getting out of the car. If on the left, then today he is “bearing”, that is, he is selling. This was their sign. Investor-financiers do not think about how the invested enterprises operate.

We can come to the conclusion that a direct investor seeks income by developing a specific enterprise and increasing its value. Ideally, he absorbs a growing company and receives the lion's share of its profits. His portfolio colleague goes to the same goal in a different way - he buys the most profitable or promising securities.

Duration investment cycle also serves as a classification criterion. Short-term investments are considered to be two years or less. The average period is from two to three. All other investments are long-term. The cycle time demonstrates the investor’s intentions - to make money quickly or to develop the object for a long time.

According to the form of ownership, investments are divided into:

private;
government;
internal;
foreign;
joint.

Each of the subjects pursues its own goals.

When allocating funding for a project, the state takes into account its social or other important significance (for example, general economic or even defense).

The task of a private investor is profit, but not everything is simple here. Sometimes an individual business entity seeks to establish a monopoly position or control entire sectors of the national economy. In some cases, investment is subject to legislative restrictions related to the fight against monopolies and state economic security.

Foreign investors taking capital out of their country pursue a variety of goals. Some are looking for the most favorable conditions for business (cheap labor resources, energy, raw materials, nearby markets, etc.). Others want to diversify revenue across currencies. Still others “indicate presence” on regional markets, showcasing the brand with an eye to the future. The forms of such expansion are mutually beneficial joint ventures, branches, foreign representative offices and subsidiaries.

With the sectoral attribute, everything is clear: investments can be directed to individual target sectors of the economy ( Agriculture, light, heavy or other industries, IT technologies, trade, etc.).

An investor's interest in a certain sectoral specialization indicates the potential of the industry, in other words, its insufficient development.

Another criterion for classifying financial investments is the degree of riskiness. An aggressive portfolio indicates the investor’s desire for a high rate of return at the expense of security. Conservatism is manifested in the prevalence of reliable securities, but possible lost profits are sacrificed. Requirements for stock liquidity are dictated by the need to quickly raise funds.

Summarizing the above areas of investment, we can come to the conclusion that the main goal of portfolio investments is to extract speculative income. Direct investments are aimed at development real sector economy.

Direct and indirect investments: essence, forms and principles

Indirect financial investments are called direct or portfolio investments in the form of securities purchased from intermediaries.

The role of the “transfer link” is specialized funds, mutual funds, brokerage and insurance structures, banks and financial consulting organizations.

These intermediary enterprises acquire shares of different companies and then sell them to interested parties. Securities are included in ready-made, optimized portfolios that take into account individual requirements.

Indirect investments are also called indirect or indirect. Their share should not exceed a tenth of the company's capital. Otherwise, such a block of shares can be used to seize control over the enterprise, which is typical for direct investment.

Direct and portfolio investments– types of investments in the development of an enterprise or company.

With portfolio investment, the investor does not have the right to control the activities of the organization, whereas in the case of direct investment he has such a possibility.

What is the difference between portfolio and direct investments?

Under direct investments It is generally accepted to understand investments in the capital of a corporation to make a profit and obtain the right to participate in the management of its activities.

The main difference between direct and portfolio is that with direct investment, the company can count on all kinds of support from the investor: financing for the development of the enterprise, assistance in strategic administration, etc. As for investing, here investors do not have the opportunity to manage the enterprise and make decisions related to his work.

As an example of direct investment, we can consider an investor who purchases equipment for the production of pasta in order to subsequently produce and sell this
product. If we're talking about about an investor who buys Gazprom shares, but does not intend to take part in the management of the enterprise, and expects to receive income in accordance with the number of shares purchased, then this investor is a portfolio investor.
It is worth noting that direct investing is much more profitable than portfolio investing.

What you need to know about portfolio investing?

The essence of portfolio investing is to invest money in shares of enterprises that are either very small or are so dispersed among the owners that it is simply impossible to gain real control over the company's capital.

Aimed at making a profit by changing the price of the company's shares as a result of trading on the stock exchange. Portfolio investing is rarely long-term; it is often spontaneous and unpredictable.

The main task in portfolio investing is to assess the investment attractiveness of the company in which money will be invested. Investment attractiveness it is customary to call the availability of income from participation in the project, as well as related investment risks(it is worth saying that the greater the expected income, the greater the risks). To do this it is necessary to evaluate financial condition company and opportunities for its development.

Very often, investors use the services of brokers for investing in international funds- this is the kind collective investment when the funds of many investors are combined into common investment portfolios and in accordance with the chosen strategy, which makes this method investing is extremely convenient for investors on a limited budget.

Portfolio investing is very common in countries such as Denmark, Switzerland, and Canada. But in other parts of the world it is found much more often than the direct one.

What you need to know about direct investing?

This type of investment can be made in several ways. In one case we are talking about companies or banks that create foreign branches, build new enterprises and buy up businesses, and in the other we mean depositors purchasing control packages shares of a company, which typically represent 25 percent or more of a business's share capital, and are given the power to direct the operation of the corporation. Both options are quite popular and are used in many countries to manage an enterprise.

Among the common examples of direct investment, one can recall automobile concerns in America and Western Europe (car production is their strong point), which literally monopolized the car production market. Another striking example of this type of investment is oil companies, the shares of which are owned by only a few investors. It's worth saying that high percent The number of direct investors in the country, to a certain extent, indicates its economic development.

Results

Sometimes it is quite difficult to draw the line between direct and portfolio investing. Western countries successfully take advantage of this circumstance by artificially lowering the percentage of direct investments. The fact is that portfolio investment provides only profit from dividends, while direct investments provide the opportunity to receive much more significant income from the activities of the enterprise.

Both direct and portfolio investing imply that the investor owns a fairly large amount of money, which he is ready to turn into investment capital.

Portfolio and direct investment are often carried out by foreign investors in little-explored markets, but in some cases, prohibitions are imposed on areas of production in which foreign investors are entitled to make direct investments.

The volumes of portfolio and direct investment can reach very large financial sizes; for this reason, large investors carefully analyze the market for the effectiveness of investing capital. To determine the profitability of certain investments, various market analysis techniques are used; they can be based on various mathematical models. In order to evaluate the possibilities of portfolio and direct investment in more detail, you can attract an independent expert (financial analyst) who will help assess the effectiveness and profitability of investments in a particular enterprise.

For a long time, loans were the main method of investment. Probably the simplest way of investing in the era of exchange (before the invention of money by mankind) was “selfish charity”. A successful food producer could feed strong people experiencing hunger due to temporary difficulties (weather, war). The survivor would later become their farmhand or help out during difficult times.

During the Renaissance, Florentine Medici merchants, tired of trading, became “money changers,” investing money in properties under construction and young businesses. Even during that period, it became “fashionable” to buy monopolies - securities that allow you to engage in any industry without interference from competitors.

Today's market consists of millions trading operations in a day. Thousands of businesses are created and go bankrupt every day. The shares of many of them, as well as securities of countries and industries, are listed (have a single price) on the stock exchange.

Direct investments

Direct bonds are fundamentally used by the world's leading investors. There are different types of investors. Venture capitalists invest money in “startups” - the most fragile companies consisting of 1-2 entrepreneurs, 0-5 employees and one “super idea”. They estimate the likelihood of a company's success "by eye" and take away most of the company for next to nothing. However, their risk is up to 90 percent. In other words, nine out of ten startups don't survive. The profitability of a venture investor is determined by the success of 10% of selected companies.

Portfolio investment

Good investors generally avoid short positions (quick bets), minimize losses, and analyze the entire market. The modern financial “ecosystem” is fragile - the fall of one enterprise can “down the chain” cause a crisis in other industries. Sometimes (the relationships, connections of variables) of stock prices are not obvious: during a crisis, the fall of a tire manufacturer can affect acoustic companies (car acoustics).

Financial "bar"

The “Barbell Principle” advises storing 80%-90% in the most reliable tools (money, precious metals, real estate), while 20%-10% should “work to the fullest.” The riskiest “small interest” can be placed in income bonds developing countries, complex derivatives ( credit instruments) etc.

Many experienced investors use it, keeping up to 90% of their “budget” in cash and government bonds. A small part of savings is stored in the riskiest instruments, shares of developing companies and their shares.

As defined by the Organization for Economic Co-operation and Development foreign direct investment (FDI) mean the movement of capital and resources with the aim of establishing strong economic relations, organizing the production of goods and services in the territory of the host country and obtaining the right to control the enterprise. The international movement of capital in the form of direct investment is long-term in nature and is carried out, as a rule, within the framework of transnational corporations. Moreover, direct investment forms the basis of the policy of international corporations in the global market. They provide them with either full ownership of foreign enterprises, or possession of such a part of the share capital that ensures actual control on the part of the investor. As a rule, these are investments in which the foreign investor owns at least 25% of the share capital of the invested company.

In the USA, Germany, and Japan, direct investments are considered those that cover 10% or more of the share capital and provide the opportunity to control the enterprise.

According to the UNCTAD classification, Foreign direct investment includes:

acquisition by a foreign investor of a block of shares in an enterprise in the amount of no less than 10–20% of the total value of the declared share capital;

reinvestment of profits from the activities of the specified enterprise;

creation of joint ventures - participation of national and foreign partners in investments;

conclusion of licensing agreements – transfer by a foreign investor of patented information, know-how, industrial designs and utility models, trademarks and service marks, etc.;

agreements on putting the enterprise under management to foreign companies in the service sector (hotels, catering, transport, etc.), while the necessary experience and knowledge are transferred to managers, i.e. “investments in people” are made.

Foreign direct investment has increasingly entered foreign markets in the form of mergers and acquisitions of local companies.

Merger occurs when the operations and assets of two companies are merged and placed under the control of a new company that is jointly owned by the shareholders of the original companies.

Acquisition or takeover occurs, when one company gains control of another by acquiring a majority voting interest.

The most common forms of foreign direct investment in countries with economies in transition are the creation of subsidiaries and joint ventures.

TO portfolio Investments (IP), according to UNCTAD, include investments in the purchase of shares, giving investors the right only to receive dividends, but not to influence the functioning of the enterprise. They usually represent less than 10% of the total share capital. In a number of countries (for example, Germany, Great Britain) this threshold is 20%.

International portfolio investments are divided into:

investments in securities providing participation in capital,– shares, shares, ADRs (American depositary receipts for foreign shares deposited (stored) in US banks and confirming the participation of the depository (the owner of these shares) in the capital of enterprises);

debentures– bonds, promissory notes, promissory notes, giving their holder the right to a guaranteed, fixed cash income; treasury (government) bills, certificates of deposit (special government loan bonds), bankers' acceptances (the bank's agreement to pay a bill of exchange within a specified period), entitling their owner to receive a fixed cash income on a certain date; financial derivatives (financial contracts for a certain period), which certify the owner’s right to sell or purchase primary securities.

The main reasons for placing and increasing investments abroad are the possibility of expanding sales markets, gaining access to cheap resources, acquiring property, as well as the desire to place capital in such securities in which it will bring maximum profit. acceptable level risk.

For the host country, FDI has a number of advantages :

Firstly, they serve as a source of capital for investment in the production of goods and services, ensure export growth, transfer (transfer) of technical assistance, know-how, advanced management and marketing methods.

Secondly, foreign investments, unlike foreign loans and credits, do not place an additional burden on the country’s external debt, but, on the contrary, contribute to obtaining funds to repay it.

Third, FDI contributes to the most effective integration of the national economy into the world economy through increasing external contacts and various industrial, scientific and technical cooperation.

Fourth , the growth of globalization processes contributes to the development of human capital, an increase in FDI in the social sphere, medicine and education.

Fifthly, the development of one production determines the development of related enterprises, socio-economic stability is strengthened and the criminal situation is mitigated, employment and incomes grow due to the personnel of direct investment enterprises, and the tax base of the host country expands.

Among the negative effects of foreign direct investment can be distinguished:

anti-competitive practices used by TNC subsidiaries;

abuse of the practice of using transfer (domestic) prices by TNCs, which negatively affects the balance of payments of the host country;

displacement of national producers and suppression of national entrepreneurship;

various types of concessions to TNCs, especially in the production of export products, allow them to avoid regulatory requirements labor relations and the environment.

Portfolio investments also have positive and negative effects.

TO positive effects portfolio investments include:

inflow of foreign currency;

an increase in the capacity of the stock market and, as a result, a decrease in the level of bank interest.

Negative effects For economic growth are as follows. Portfolio investors, having joined the speculative securities market, increase fluctuations in economic conditions. The economy becomes unstable, losing part of its GDP. The course changes sharply national currency, which aggravates financial position countries.

The Republic of Belarus, like other post-Soviet republics, is faced with a lack of equity capital to transform the economy and the need to attract capital funds from abroad. Thus, in 2005, foreign investment in Belarus amounted to only 2% of the funds required for investment. The potential need of the Belarusian economy for foreign investment for the period from 2006 to 2010 is estimated at 15.5 billion US dollars.

Our economy is dominated by accumulated capital from Russia (18.9% of total investment), Germany accounts for 13.7%, the USA – 8.5%, and the UK – 7.9%.

Direct and portfolio investments

Investments ( capital investments) – the totality of costs of material, labor and monetary resources aimed at expanded reproduction of fixed assets of all industries National economy. Investments are relatively new to Russian economy term. Within the framework of the centralized planning system, the concept of “gross capital investments” was used, which meant all the costs of reproduction of fixed assets, including the costs of their repair. The concept of investments covers both the so-called real investments, which are close in content to our term “capital investments,” and “financial” (portfolio) investments, that is, investments in shares, bonds, and other securities associated directly with the title of the owner, which gives the right to receiving income from property. Financial investments can become like additional source capital investments, and the subject of stock trading on the securities market. But part of the portfolio investments - investments in shares of enterprises in various sectors of material production - by their nature are no different from direct investments in production.

Direct and portfolio investments are driven by similar, but not identical, motives. In both cases, the investor wants to make a profit by owning shares in a profitable company. However, when making portfolio investments, the investor is not interested in running the company, but in receiving income through future dividends. When making direct capital investments, a foreign investor (usually a large company) seeks to take control of the enterprise.

Foreign direct investment is more than simply financing investment in a country's economy. Foreign direct investment is also a way to increase the productivity and technical level of enterprises. By placing its capital in the country, a foreign company brings with it new technologies, new ways of organizing production and direct access to the world market.

Portfolio investments are usually called investments in shares of foreign enterprises that do not provide the right to control them, in bonds and other securities of a foreign state and international monetary and financial organizations. There are also real investments. These are capital investments in land, real estate, machinery and equipment, spare parts, etc. Real investments also include working capital costs.

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