An investment can be private or public. This is the privilege of the address to the public, and the rest of the subject to the approval and constraints of the Autorité des Marchés Financiers (AMF), unlike a public placement on the free market subject to many requirements. regulatory (stock market with purchase / resale of shares for example).
Among these private placements, there are investments called “Private Placement Programs” or PPP (Private Placement Program). Little known to the public, PPPs provide multiple returns compared to the stock market.
PPPs were first developed in the 1930s by the United States and Switzerland following the global recession. Then, PPPs were no longer used and remained in the books of economic history, before regaining interest in 1944 after the Second World War.
How does the private placement program (PPP) work?
Definition and operation of PPPs
A private placement program (PPP), or “high yield investment programs”, is a specific type of investment that provides access to the market to trade bank assets, most often with medium term notes such as the Medium Term Notes (MTN).
The term Medium Term Note refers to a debt instrument that matures in the medium term, on average between 5 and 10 years.
These MTNs are purchased fresh (fresh-cut) at a steep discount to their original value to be resold at a higher price on the secondary market later. The investor makes a profit on the difference between the selling price and the buying price.
The private placement program can last up to 12 weeks on average.
PPP creates wealth through anticipated profits. Let’s take a concrete example to better understand:
The PPP can be compared to a natural or legal person (individual or company) who wishes to buy a car to resell it at a profit. The car he wants costs € 10,000. Before even buying the car, she agrees to sell it to someone else for € 10,500 and knows she is going to make a profit of € 500 for sure, since she will always find a buyer.
This type of planned and contractual buy / sell is called “arbitrage”, and can only take place in a private PPP market with prices set in advance.
Arbitrage and leverage
Transactions carried out in a PPP are secure because they are carried out as arbitrage, that is to say that the purchase / resale of financial instruments is carried out immediately with predefined prices.
These instruments are never sold directly at the outlet, but to a chain of several players in the market.
The banks, for their part, benefit from this operation indirectly thanks to the interest generated by the line of credit granted to the operator. This is referred to as a leverage effect. They also benefit from the commissions linked to each transaction.
Profitability of PPPs
The profit generated per trade may be small in percentage terms, but several trades can potentially be completed in a short period of time (a week or even a day), allowing large gains to accumulate quickly.
This type of investment therefore offers a low level of risk (if of course the trading platform is reliable), and therefore remains very different from the purchase / resale of shares for example.
These programs obtain in principle a very high return between compared to the return of traditional investments. It is thus possible to obtain a yield of 50% to 100% per week.
PPPs generally make it possible to finance projects requiring large fundraising.
In general, you have to invest millions to invest in private placement programs, not less than $ 50 million. This amount represents the cost of banking instruments. At Stantax, you can enter a secure Level 1 PPP with an investment of $ 25 million.
Financial institutions make deposits of billions to obtain funds for large projects, especially in developing countries.
In these programs, the investor must enter into a joint venture (agreement allowing the pooling of resources for the realization of a project, with a distribution by each of the members) with the trading group. Profits will be paid to the person designated by the investor to receive the funds.
Assets accepted in a PPP transaction
Different types of assets can be used in a PPP transaction, including :
- Some change ;
- Durable goods: precious metals, gold, silver, platinum, diamonds, art collections, etc… ;
- “Inground” assets: precious metals and stones (gold, silver, diamonds, emeralds, etc …;
- Bank guarantee (BG);
- Stand-by letters of credit (SBLC or Standy Letter of Credit);
- Medium term notes, etc.
For which investor profiles?
PPPs are generally offered to investors with a high spending capacity (foundations, investment funds, mutual funds, financial institutions, banks, companies, individuals, infopreneur, etc.), and must be executed by qualified traders with ‘a license.
The procedure for entering a PPP
To enter a PPP, it is necessary to go through several stages.
Step 1: Sending supporting documents
Investors who wish to have access to a PPP must send several supporting documents to their broker. Usually, this is an information sheet, a copy of the passport, and a bank statement including the balance of funds committed for the trade.
Step 2: Candidate review and compliance
The program manager examines the candidate’s file and recontacts him or not depending on each case. A due diligence investigation is also carried out on the potential investor.
Step 3: Presentation and instructions
When the candidate is selected, the broker presents the various conditions of the program and the guarantees. The customer can ask any questions they want to the program manager. Stantax arranges face-to-face meetings between the client and the trustee to meet all investor requests.
He then receives the instructions to open a new bank account with unique signature with his broker’s bank for the transfer of funds. The origin of funds is of course controlled by the trader, these funds must have a legal source.
Step 4: The contract
Subsequently, the investor receives a contract (this contract is concluded between the supplier, the trustee, and the investor) which notably provides for the timing, the arbitrage rules, the volume of the funds, the total gross return, the percentage for profit sharing fees to be deducted for brokers, etc.
If the customer accepts the contractual stipulations, the contract is signed by the parties and the program can begin.
Step 5: Execution of transactions
The selected broker can finally start to make transactions with the investments made by the client. Profits are paid directly to the investor according to the terms of the contract.
The risks for investors of a PPP
Investing in private placement programs is not without risks for investors.
Risk n° 1: Freezing funds
The funds invested in a PPP can be blocked for a year or even for a longer period. This is the case when an operation has not been well prepared and organized due to non-compliance with the regulations in force. Indeed, all the legal rules or not must be respected, whether it is the law itself, the regulations imposed by the financial institutions, or the international rules as regards money laundering.
Risk n° 2 : The scam
The second risk is that of a scam. It is difficult to know whether a program is real or not due to the information received which remains as pure whispered gossip ready to be expressed publicly at any time which facilitates scams. Choosing a reliable broker is therefore very important to avoid wasting time or falling victim to investment fraud.
Risk n ° 3 : Document theft
To enter a PPP, it is mandatory to provide certain documents (bank statement, passport and compliance documents). These documents can be sent over the Internet to hundreds of brokers. Malicious people can steal the identity of the person concerned, or worse in some cases. Stantax acts as a facilitator to submit requests directly to the PPP.
How to protect the funds invested in a PPP ?
Of course, no investor wants to lose money when they decide to trade. Fortunately, there are ways to secure the funds invested in a private placement program.
- The sole signatory
The trading group may request the transfer of invested funds to their host bank where the account will be under the sole signature of the investor. No movement of funds can take place without its prior consent.
- Blocking funds
Funds invested in a PPP can be blocked in a SWIFT MT760 account, which is a mechanism between banks that prevents them from using the funds for other purposes during the duration of the current program.
- Deposit with a Trustee
It is possible to deposit funds in an escrow account in some programs, always with a first rank bank under the control of a lawyer, a fiduciary agent, or a recognized and / or authorized third party.
In conclusion, private placement programs (PPP) make it possible to raise funds on a massive scale to finance large projects, and that with little risk compared to the traditional financial market.
If you want to invest in PPP, Stantax offers a secure program and supports you step by step throughout your investment.