In the general sense and the most known nomenclature, private investment programs are mostly capital raised to expand working capital and the upward trend towards strengthening a company's balance sheet. More times than naught, private trade programs encompass the development of new products as well as technologies.
Whereas in this article, we will be discussing Private Trade Programs, which is an entirely different investment channel generating great returns for small and large investors alike.
Individuals and companies alike have minimal choices regarding investing in the high-yield markets of Private Trade Programs. Unless they have liquidity in the hundreds of millions, most others who have lesser evaluated amounts to put an investment find themselves sitting on the sidelines without choices. In this article, the expansion of knowledge concerning private trading, MTN, BG, and other instrument facets will explain why and where individuals are willing to invest from $10M on up. Sometimes, $1M can participate in this Private Trade game as well.
Why is there such a demand for investing in Private Trades?
From early 1996 to the present, Private Trade Programs' total investment dollars have escalated from a trace-able phase of just over $10 billion in 1996 to a current level of well over $75 billion through the third quarter of 2008. There have been roughly 6,500 private trade programs done through the third quarter of 2008. From a low of fewer than 2,500 in all of 1996, you can see that the interest towards Private Trade Programs gains when markets and the economy as a whole degrades.
Institutional investors and wealthy individuals are often attracted to these Private Trade Programs. Large corporations, institutions, certain hedge funds, and high net-worth individual investors have their blocked funds either go into a conglomerated leveraged program or, if individually large enough, enter into a Private Trade Program by themselves. Their blocked funds represent these Private Trade Programs and are an economic stimulus in their own right by the generation of monies that is inevitable from these programs.
Often, the derived profits, as well as the leveraged amount of the blocked funds, will go into further capitalization of new companies believed to have significant growth possibilities in industries such for instance:
healthcare
bio-technologies
software/hardware
telecommunications and others.
These Private Trade Programs add value to these companies and further compel advancements in those particular sectors. Without Private Trade Programs and the profits derived from such, many of the participants of these programs would never launch over the first tier regarding the programs they are included in.
Typical Minimum Investment Requirement
Private Trade Programs and investing are not easily accessible to the typical investor or corporation unless they are either introduced to the trading platform from a referring client or through a series of referral educational sites where the client can thereafter request admission. Most Private Trade Programs typically accept investors who are willing to commit as much as $25 million to have blocked for leverage. Although some firms have dropped their minimums to $250K, this is still out of reach for most people.
Fund of Funds
A fund of funds holds the leveraged funds of many private partnerships that invest in private trades. It provides a way for firms and individual participants to increase cost-effectiveness and reduce their minimum investment requirement. Since a fund of funds is leveraging against those original funds, sometimes up to 20 to 50 times, the accumulated return for that specific funds of funds becomes much more lucrative.
Besides, because of its size and diversification, a fund of funds has the potential to offer higher returns than you might experience with an individual Private Trade Program; this only holds to those Private Trade Programs that are under the 100 million dollar level though, since most times, the lesser amounts are leveraged through funds of funds or similar means.
If it could be considered such, the disadvantage is that there is an additional layer of fees paid to the fund of funds manager. Though typically $10 million and up, Minimum investments can, on occasion, allow $250,000 - $1 million to the respective participants. For those smaller amounts under $10 million, the platform manager may not let you participate unless you have a net worth between $1.5 million to $5 million.
Is it worth it?
There are several key risks in any Private Trade program. As mentioned earlier, the fees of Private Trade Programs that cater to smaller investors can be higher than you would typically expect with traditional investments, such as mutual funds. With a pre-established return rate on these smaller (less than $100M) funds, usually in the high double to low triple digits, the promulgation of these fees is irrespective and of little consequence to the investor.
In a market as volatile as the one we currently face, it is much harder to find streamlined programs that offer little risk. Transferring of investors' funds is not evidenced in these Private Trade Programs at or above $10 million. A block is placed on the client's funds within their account for the trading period's duration. Hence, the safety the client experiences remains secure with the leveraged program they enter.