Brief Description
Also known as a Secured Asset Management Investment Program, this is an investment vehicle commonly used by High Net Worth (HNW) individuals or Corporations where the principal investment is fully secured by a bank where the investor has their own account. There is little risk to the investors principal if any.
This investment opportunity involves the purchase and sale of Bank Instruments within the Secondary Market in controlled Private Trading Programs.
The programs allow for the investor to place his funds through an established Program Management firm working directly with the major Trading Bank.
How does the Investor Profit?
In a managed buy/sell trading program, the spread between the buying and selling of Bank Instruments creates profits by buying low and selling high to a predetermined exit buyer on the secondary market.
Because traders cannot use their own money to operate a program, they utilize financially qualified investors to provide Proof Of Funds [POF] support for the initial purchase of a new issue asset.
Typically, a credit line makes the trades work, and in order to get the credit line, the trader must show that an investor is proffering his cash or instrument assets to be monetized.
In many cases, the investor becomes a joint venture partner in the process of this monetization.
Profits are generated weekly and they are generally split so that the investor shares with the Program Manager, sometimes up to the full amount of the trade credit line, resulting in an 80 to 100 percent profit to the investor.
Each program has different types of profit sharing which are negotiated when the program is established with the client.
In a managed buy/sell trading program, as we are discussing it here, a trader has locked in the first issuance of some instrument – such as a standby letter of credit, a bank guarantee or a medium term note. At the same time, the next, or secondary buyer is already in place and ready to take the asset at a higher price so the profit spread has also been predetermined.
Where are the Investor's Funds Held?
The investor money is never really touched and stays in their own account – it simply acts as Proof Of Funds [POF] for the trade credit line.
There are exceptions to this when the investor does not have 100 Million to participate in a Large Cap program.
Small Cap programs of under 100M typically require movement of funds to an IOLTA trust account in order to obtain the trade credit line.
As the credit line is generally non-repayable, non-recourse or non-depletion, this means little to no risk to the investor of losing his money.
For additional safety, the bank blocks cash funds in an administrative hold, which prevents credit line depletion during the trade contract, or utilizes an acceptable instrument as the support.
In the case of a bank instrument, the trader can rightfully use the instrument to support the credit line.
Who are the Buyers on the Secondary Market?
There is constantly tremendous demand for these Banking Instruments.
Only a select few Master Commitment Holders with Fed Authorization can purchase "Fresh Cut" Instruments directly.
The Secondary Market is literally flooded with eager buyers of "Slightly Seasoned" Banking Instruments.
Insurance Companies, Pension Funds, Corporations etc, are all in the market for these instruments from trusted verified sources.
The investor is guaranteed by the Program Managers/Traders by contract that they will receive what is in effect a percentage of each trade made by the Trading Bank. This can be in the form of a guaranteed profit/yield paid on a periodic basis as per terms set forth in the contract.
How does the Buy/Sell/Trade Work?
For illustration purposes, a new issue bank debenture may be purchased at about 40 percent of the face value. So, a €500m face value instrument may cost the trader/program €200m to buy.
The trader/program uses the trade credit line to make that new issue purchase of the instrument for 200m.
Then, an exit buyer who was pre-established at the beginning of the program will purchase it at 70 percent of face value (or €350m).
The difference is the profit made in the trade, of €150m.
That 150m is then used to pay profit to the investor (a shared percentage of the total profit), as well as the trader.
When bank debentures trade multiple times during a month, this profit adds up handsomely. This is why an investor can see a profit on his money ranging from 80 to 100 percent of the amount of the trade credit line, and sometimes more (depending on the program).
What is the Criteria to Engage in a Program?
The challenge for many investors is understanding the minimal risk for loss of principal, particularly if the money owned by the investor stays in his own bank account or is used to issue a cash-backed standby letter of credit.
Small Cap Programs- $2 Million Dollar Minimum
Small cap programs typically require movement of funds to an IOLTA account in order to obtain the trade credit line.
Having understood the principles behind a managed buy/sell, the next question most potential investors ask is, ‘what are the steps needed to engage with such a program?
Large Cap Programs-$100 Million
Most investors need a minimum of $100m or €100m – either in cash in a commercial corporate bank account or the face value of a bankable instrument. There are scenarios where a client can access a Large Cap Program with $50 Million or more if they aggregate with other depositors.
How Do I Inquire if I am Qualified?
A financially qualified investor, in order to avoid potential solicitation rules, is the one who moves first to establish the relationship.
This is done with the submission of a Know Your Customer (KYC) and Proof Of Funds [POF] set of documents which indicate the investor’s desire and capacity to enter a program.
While the preparation of these documents takes just a little time to complete, it fulfills the solicitation rules allowing the trading organisation to open the conversation and subsequently prepare the trade contract shortly after receipt by the appropriate authorized intake person.
In general, it takes a couple of weeks to arrange the trade commitments and the banks, along with approval from the authorities governing these programs, at which time the trading may proceed at the next opportunity to start.
Are These Programs Legitimate?
With the noise of internet brokers misinforming people about these programs, building trust must first be mutual between parties. Without trust, there can be no transaction.
Trust is the first thing any investor needs to feel is in place before too much discussion of a program is presented.
The fact is that managed buy/sell programs using bank debentures do exist, however actual providers are few and far between. The supply of these programs is small, and demand far exceeds it.
Getting in the way of being connected to something real are usually the internet brokers, who smell money but do not have the relationships or knowledge of how these work.
Seek out Transparency where all your questions can be answered before moving forward with any program.
Contact Us to Learn More or Inquire About Legitimate Available Programs
info@globalcapitalinvesting.com www.globalcapitalinvesting.com
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