Private Placement Programs (PPP) act as a bridge between the public
or private sector investors and the financial markets. They provide an
opportunity for dynamic flow of funds and thereby increase the trade
avenues. This Buzzle article will give you in-depth information about
investing in the private placement programs.
Tip
Investing in good private placement programs can give yield higher than that from traditional methods of investments.
With
the everchanging global dynamics of investments, private placement
programs have emerged as a popular sector in the investment market. In
the last decade, there were hardly any such programs. However, currently
we can find that the Internet is flooded with many such programs. So,
what are they? There are types of investments in the market that
traders, brokers and investors look out for, in order to earn better
returns on their invested money. Examples include equity investing
(buying and holding shares on a stock market), managed forex accounts,
pre-IPO funding, etc. Similar to such investment programs are private
placement programs.
The key players involved in PPP are trading
groups, banks who issue bank instruments, brokers, exit buyers like
financially strong companies, insurance companies, trusts, pension
funds, etc. However, it should be noted that exit buyers are not allowed
to participate as individuals. Investors are "invited" for
participation and they have to submit a full compliance package which
includes POF (Proof of Funds), CIS (Client Information Sheet), passport
copy, etc. Exemptions from the Securities Act of 1933 allows an
unlimited number of accredited investors to purchase the securities.
However, it restricts the number of non-accredited investors to 35. The
accredited investors are individuals whose net worth is in excess of $1
million or their annual income together with that of their spouse in
exceeding $200,000 or $300,000.
An Overview
If an investor
has a large amount of funds and wants to create his own trading
program, he will have to undertake the tedious tasks of arranging for
bank instruments with the help of an arbitrage transaction, line of
credit with trading banks, necessary guarantees, etc. Also, he will have
to contact the concerned parties like the banks, brokers, exit-buyers,
etc. In addition to this, he will also have to adhere to the FED
restrictions. Hence, it is better to enter a program with a trader who
has already arranged for the groundwork. All that the investor has to
do, is to agree to the contract proposed by the trader. It is essential
for the investor to submit the complete compliance package to the
trader.
Bank instruments such as Medium Term Notes (MTNs), Bank
Guarantees (BG), Line of Credit/Stand-by Letters of Credit (SBLC) and
Certificate of Deposits (CDs) are similar to the bonds and shares that a
person can purchase or sell. Private placement programs involve the
trading of such bank instruments. They are not registered by the U.S.
Securities and Exchange Commission (SEC). However, the rules of selling
the bank instruments, stocks, bonds and shares applies to the private
placement firms and agents. It is mandatory for such firms to inform the
SEC about their sales. The placement of sales is generally made by an
individual having knowledge in the field of investment banking. Traders
make profit in the PPP by buying an instrument or selling it. Sometimes
they undertake the buying and selling of similar instruments. They also
undertake betting on the price fluctuations between two instruments. PPP
comprises common stock or preferred stock, and other types of
membership interests, warrants, bonds, etc.
Merits
✓ If you invest in a private placement program you will able to reap benefits of higher yields.
✓
As genuine traders have a predetermined contract with the buyers to
purchase the bank instrument at a higher price, it minimizes the risk.
✓
There are very few people who have gained immense wealth through
private placement programs. You can be part of their circle if you get a
genuine private placement deal.
✓ In a genuine private placement
program, the information and interests of the investor are protected,
while the profits are multiplied.
✓ If you have hundred million
plus in liquid assets, you can undertake the funding of billion dollar
projects which will result in larger profits.
Demerits
✗ Most of the private placement investments do not perform as well as they should.
✗
There are many traders who come up with bogus private placement
investments. They may con you into investing your money in fraud schemes
by making tall and impressive claims about the returns.
✗
Submitting your bank statement, passport and other important documents
in the hands of a fraud trader may even lead to identity theft, finance
crimes, etc.
✗ Just to make you invest, many private placement
brokers will tell you that the bank will not charge fees for blocking
funds via MT 760 or SBLC. However, there are chances that the banks will
charge fees according to their policies.
✗ If you want to
withdraw the investment partially or totally, you will not be able to,
as it will remain locked for a certain period.
Some Fundamental Tips
This
is a fact that among firms, many have never closed a deal. Undoubtedly,
this makes it a tough decision for investors and clients to choose a
trustworthy company that has suitable experience in this field. Remember
that consulting an expert before investing in a private placement firm
can save you from fallacious and misleading brokers.
➭ Personalized Communication
Private
investments are never safe to be carried out through emails, messages
and Internet phones. Even a phone call is better but never reply to
emails or messages and submit any type of on-line forms regarding
investment in the private placement programs. Face-to-face communication
is very important in the initial stages of investments.
➭ Trust Only Experienced Brokers
When
you try to search for a private placement program, you will be
surprised to discover thousands of brokers and traders offering you such
services. Don't go by the numbers and carefully collect all facts about
the broker or firm through which you are going to invest your precious
money. Many brokers have never finalized any deal but claim to do so,
just to fool the customers. Consult your friends, experts, lawyers and
research as much as possible and only then invest money.
➭ Deny Solicitation and Guaranteed Programs
Often
in the initial stages, deceitful firms or agents guarantee high returns
on your investment even before the program has started. If a broker
tries to persuade you through attractive offers of higher returns and
provides fast steps to make money, then be alert. People involved in
private placement programs do get high returns but that may or may not
be achieved due to various constraints. Often firms misguide the clients
with false promises just to pull crowds and earn money. Always prefer
non-solicitation laws and never predict or forecast unrealistic returns.
Misleading investors is a crime and may lead to dire consequences.
➭ Involve Less Number of Brokers
Try
involving only 4-5 trusted brokers in a particular program. This should
also include the program manager and representative client. A larger
chain of brokers leads to division of the profits and money. At the end
of a deal, you may not feel satisfied with the negotiations on the
profit shared among a large number of brokers.
An investment in a
private placement program can be very risky as the traders may not be
genuine. Moreover, the investor who is investing in it should be ready
to endure high losses. A large amount of capital is required for
investing in such programs. Therefore, make sure that you have enough
funds for backup in times of losses and crisis.
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