We’ve discussed the benefits to investing as an accredited investor, and how it provides an investor with access to wealth-building opportunities not otherwise available. Financial institutions may similarly qualify as institutional accredited investors, although the qualifications to become an accredited institutional investor differ from those for individuals.
What is an Institutional Accredited Investor?
Any investment carries inherent risks. The accredited investor system was implemented by the SEC to qualify people and entities with the assets and expertise to responsibly invest in higher-yielding — but often higher-risk — securities.
To qualify as an accredited investor, an individual or entity must meet certain criteria laid out by Rule 501 of Regulation D. For individual accredited investors, a person must meet one of the following:
Qualifications of certain entities:
What are the benefits of qualifying as an Institutional Accredited Investor?
By qualifying as an accredited investment entity, accredited institutional investors gain access to higher-yielding investment vehicles. Public offerings, or those available to accredited and non-accredited investors alike, are required to disclose certain levels of information and must be registered with the SEC.
Alternatively, a company or private fund offering may be exempt from SEC registration, but only if it is available solely to accredited investors - either individual or institutional. These securities, referred to as private placements, remain subject to the Securities Act of 1933 but are not required to be registered with the SEC.
By opening these placements only to accredited investors, the SEC ensures that higher-yield, higher-risk opportunities are undertaken only by those qualified to do so responsibly.
Why invest in mineral rights as an Institutional Accredited Investor?
The potentially higher yield in private placements or other vehicles open only to accredited investors is at times offset by higher risk. As with any investment, some bear more risk than others.
With the advent of horizontal drilling technologies, mineral rights have become an appealing, comparatively lower-risk investment for many seeking to diversify their portfolios and generate revenue and generational wealth. Unlike other investments in oil and gas, such as those that invest directly in drilling, mineral rights ownership does not carry with it the risk of dry holes or heavy operating costs.
Mineral owners can see revenue in the form of significant lease bonuses, which are upfront lump sums paid by drilling operations for the lease and use of the land for the production of the minerals of commercial value the land contains. In this case, it is oil and gas.
In addition to the lease bonus, operators pay royalties to the mineral owners on everything produced. Because these royalties are paid before any other costs are deducted, the market price of oil would need to drop to effectively $0 before revenue generation for the mineral owner ceases. Investors can anticipate 20 to 30 percent IRR in many cases.
For example, our recent offering - Redhawk Minerals Fund I in the STACK Play - is exceeding our expectations with 50 wells in production and 62 wells beginning or filing pre-drilling activity already in units where the fund owns minerals. In Q4 2017, revenue was 146 percent higher QoQ.
Most importantly, mineral rights never expire. Because they are a real property right, mineral rights and the wealth they generate can be passed down through generations. For investors seeking high-yield opportunities that can build legacies for their families, mineral rights are an excellent portfolio choice.
How do I choose the right Institutional Accredited Investor for mineral rights?
As I am famous for saying, there's a certain amount of risk in any investment, but one of them should not be the company with which you are dealing. When choosing a company like Redhawk to invest alongside, it is essential to conduct due diligence to safeguard your investment. It may be a good idea to go visit the company, if it’s feasible. Should it show any hesitancy (whether you go or not) about allowing a visit, that raises a red flag. Ultimately, the best way to mitigate potentially higher risks and increase yields is to be sure that your investment is managed by a credible, trustworthy organization.
Maximizing investment opportunities in oil and gas
If you are interested in the types of wealth generation available when investing in mineral rights with a company such as Redhawk, reach out to us at any time. Our many years of experience can help you navigate oil and gas investing to maximize your returns and start building a family legacy that will last for generations.
The material herein does not constitute an offer to see nor is it a solicitation of an offer to purchase any security. Offers will only be made through a private placement memorandum to accredited investors and where permitted by law. Investments in security are not suitable for all investors who can withstand the loss of their investment. Investors should perform their own investigations before considering any investments and consult with their own legal and tax advisors. Past performance does not guarantee future results. This presentation is copyrighted material and only for the use by Redhawk Investment Group and its affiliates.
Redhawk Investment Group
Jack Nichols is a founder and Managing Partner of Redhawk Investment Group, a family-owned and operated energy company with offices in Dallas, Texas and Oklahoma City, Oklahoma. The company developed and uses an investor-friendly business model for use in the private placements of mineral rights aggregations and drilling and development projects.