Whether you are retiring or wish to earn a regular income on your savings, it can be tricky to find the right investment product. To receive regular income you only have two realistic solutions:
Private Placement Loans
Bonds pay out interest every 6 months, usually directly to your bank account.
Private placement loans are loans given privately to a company that agrees to pay you a specified rate of interest. The interest payments can be on a monthly, quarterly or semi-annual basis. Generally, private placement loans have a minimum investment amount of 200,000 – 300,000 USD.
Private placements are not easy to find using traditional search methods such as Google. Generally, these investment opportunities come from hedge funds and other financial institutions who have a large network and skills to create opportunities for their clients’ portfolios.
Which private placements are available
A Monaco-based hedge fund has developed a private placement loan together with a Swiss based trading and investment company with over $5 billion under management. Capital One Group has been in operation since 1931.
The trading company uses extra capital from investors in order to purchase precious stones and sell them to their established wholesale buyers. This particular private placement is very interesting as each loan is collateralized. This means that you are given a claim to an asset within the company, similar to when you borrow money from the bank and use your house as the collateral, Capital One Group give you a collateral as well. Swiss regulation authorities dictate that for private placement loans, the minimum investment is 250,000 USD/EUR.
The trading company uses this as working capital to purchase top quality, large rough diamonds, which are inspected by their in-house gemologist, from regulated suppliers in South America. These diamonds are then transported by well known logistics companies such as G4S and Brinks. The bulk of the diamonds are transported to Europe and sold to CAP’s existing network of buyers, which they have built up over many years.
The loan period is just 12 months and pays 12% annual interest rate quarterly directly to your bank account.
For example, lets say that you invest 250,000USD – this will earn you 30,000USD in interest paid out to you, on a quarterly basis without touching your capital. This makes it a great source of income for those who are retired or wish to earn regular income on their savings as opposed to investing in stocks.
Every stage of the process is fully insured. Payments from buyers are received before the delivery of the diamonds is made, so there is never any money outstanding for diamonds sold. In addition your capital is secured against physical commodities stored in a secure location in Lichtenstein.
US citizens and residents
While the global disparity in regulations has been causing difficulties for some investors, Americans in particular, this opportunity is open to all United States citizens, whether they are currently a resident of their native country or living as an expat.
Risk Management and Mitigation - Q&A
The diamonds are owned by CAP during the transportation. What if the commodities get lost or the cargo is stolen? The transport companies are fully insured for these events. No transportation company without this insurance will be contracted.
If the buyer becomes insolvent and cannot pay, what risk for economic losses does this mean for CAP and their investors? All buyers have to pay for the diamonds in full before they are released to them. No lines of credit are given to buyers.
If CAP becomes insolvent and cannot carry on their business? Investors monies are covered by collateral in physical commodities regulated in the contract signed under Swiss law.
Decrease in demand for the diamonds from the buyers and also the lack of diamonds from the suppliers? There is an abundance of buyers of top quality rough diamonds, the buyers cannot get enough rough diamonds to meet their demands.
What happens if the market drops and prices of rough diamonds fall? CAP have enough margins in this trade to cover the investors returns, should there be a market correction. CAP buys at a certain discount from the market price and have buyers ready to buy. The stones are not held for long, so a trend of decreasing prices will not affect the profitability of the trade.
Liquidity in the market, should there be a shortage of liquidity? It would not affect CAP, as the total purchase volume is very small in comparison to the global market. They have buyers from all over the world, purchasing 3-4 months stock in advance for the cutting production. These buyers are very liquid. CAP’s pricing compared to the market price is very attractive therefore the sale is not a problem. CAP can utilise the money to buy more diamonds from the source, maximising the use of capital. Hence there is more than enough returns in these transactions to cover the interest payable to the investors.
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