This is a general description of a common private financial program for educational purposes only.
Description of a common type of private financial program
Private programs are also referred to as secured asset management programs. These investment vehicles are commonly used by the very wealthy because the investment principal is fully secured through various mechanisms. The principal is then managed and invested to produce typically high yields to the participant on a periodic basis. The participant's risk of losing their principal investment is eliminated for all practical purposes.
Private trade programs often involve the purchase and sale of bank debentures within the international market through a controlled, fully managed program. These programs allow participants to place their funds through an established program management firm working directly with a major participating bank.
Program funds are secured by a bank-endorsed guarantee provided by the banking institution at the time the funds are deposited. The participant is designated as the beneficiary of the guarantee unless otherwise instructed by the participant. The guarantee is issued to secure the participant's principal for the contract period. This guarantee will be bank-endorsed with the bank seal, two authorized senior officers' signatures and will guarantee that the funds will be on deposit in the bank during the contract period and will be returned fully to the participant at the end of the contract term. The program directors will also issue the participant a program contract that states that the participant will receive a certain percentage of the yield that is made on each transaction by the trade bank. This can be in the form of either a "best efforts" basis or a guaranteed percentage of yield that is paid on a periodic basis upon terms as set forth in the contract.
The instruments that are transacted under the buy/sell trade programs are fully negotiable bank instruments delivered unencumbered, free and clear of any and all liens, claims or restrictions. The instruments are commonly debt obligations of the top one hundred world banks in the form of medium term bank debentures of 10 years in length. These instruments usually offer 7 1/2% interest or "standby letters of credit" of one year in length with no interest but at a discount from face value. These bank instruments conform in all respects with the Uniform Customs and Practice for Documentary Credits as set forth by the International Chamber of Commerce, Paris, France (ICC) in the latest edition of the ICC Publication Number 400 (1983 Revision) and the newest implemented ICC Publication 500 (1995 Revision).
What is the risk to the participant in these types of programs?
As stated, the participant's principal funds are fully secured by a bank-endorsed guarantee which is issued by the participating program bank at the time the funds are deposited. The participant is designated as the beneficiary of the guarantee which is issued to secure the principal for the contract period. With this mechanism, practically all elements of risk have been addressed. It must be stressed that, before a bank instrument is purchased, a contract is already in place for the resale of the instrument.
Because of the safeguards built into these private trades, practically all risks to a participant's funds are structured away. After each transaction period, the yields are distributed according to the agreement and the process repeats for the duration of the contract.
How often do private programs do transactions?
Operations will take place for approximately forty international banking weeks per year with specific transactions taking place approximately one or more times per week depending on circumstances. Although there are 52 weeks in a year, there are only 40 international banking weeks during which transactions take place. An international banking week is a full week which does not include an officially recognized holiday. However, this does not preclude that transactions may occur on short weeks that have a holiday.
Why are these "high returns with safety" programs not generally publicized?
The answer is that these programs have been available, though not widely known, for years. However, because of the extremely high minimum requirements to enter them, only a few could qualify. The minimums have traditionally been $10 to $100 million dollars. Only recently have the smaller minimums been available and this has made it possible for more potential participants to qualify and have the opportunity to earn exceptionally high yields while also having unusually high protection against risk to principal. Still, participants must be invited to participate in these very limited enrollment programs and once participants are engaged in a program they are bound by very powerful non-disclosure provisions. Individual programs are quickly filled and are then closed to further participation. So with the penalties for disclosure and the limited opportunities available, those fortunate enough to be in a program have little incentive to "spread the word."
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