Private Placement Trading Summary Private Placement Trading is one of the most lucrative areas of the investment realm. Private Placement, in general, refers to private transactions amount two parties and usually a middle facilitator or intermediary. Private Placement Trading is a more defined area. Private Placement Trading is typically dealing with Medium Term Notes (MTN) or something of the sort (paper).Private Placement Trading is based on the Fractional Reserve Banking system, which all banks are based on. Private Placement Trading is not hard to understand once you grasp how the fractional reserve banking works and how it is directly tied to Private Placement Trading. It is what all banking is based on. The only difference is the scale at what takes place with Private Placement Trading. Here is an over simplified explanation of how these Private Placement Programs operate and how Private Placement Trading takes place in the safety that they offer. Before speaking of Private Placement Programs and Private Placement Trading (as follows called PPP) we need to realize some basic reasons for the existence of this business. It means that there is a need to learn some basic concepts about what money really is, and about how money is created, and how the demand for money and credit can be controlled, and that someone can issue a debt note which can be discounted and sold, and resold in an arbitrage transaction (the basic system for running most of these programs), etc. The first reason why this business exists is to create money. More money is created by creating debt. You as an individual can lend out $100 to a friend, and you can make an agreement that the interest for that loan is 10% so that he must pay you back $110. What you have done is to actually create $10, even though you don’t see that money. Don’t consider the legal aspects of such an agreement, just the facts. Now, the banks are doing this every day, but with much more money. Banks have the power to create money out of nothing. Since PPO (“Private Placements Opportunities”) involves trading with discounted bank issued debt instruments, money is created due to the fact that such instruments are deferred payment obligations (debts). Money is created out from debt. Theoretically, any person/ company/ organization can issue debt notes (don’t look at the legal aspects of it). Debt notes are deferred payment liabilities. Example: A lawful person (individual/company/organization) is in need of $100 so he writes a debt note for $120 that matures after 1 year, which he then sells for $100 (this is called “discounting”). Theoretically the issuer is able to issue as many such debt notes at whatever face value he wants – as long as there are those that believe that he’s financially strong enough to honor them upon maturity, and thereby is interested to buy such debt notes. Debts notes like Medium Terms Notes (MTN), Bank Guarantees (BG), Stand-By Letters of Credit (SBLC), etc. are issued at discounted price by some of the major world banks in a very large amount of billions USD every day. There is an enormous daily market of discounted bank instruments like MTN, BG, SBLC, Bonds, PN, etc. involving issuing banks and long chains of exit-buyers (Pension Funds, large financial institutions, etc.) in an exclusive Private Placement arena. The real core of the trading and its safety is due to the fact that they arrange the buy-sell transactions as arbitrage, which means that the instruments will be bought and sold at the same time with pre-defined prices, and that a chain of buyers and sellers are contracted, including the exit-buyers who often are institutions, other banks, insurance companies, big companies, or other wealthy individuals Let’s say that you’re offered the chance to buy a car for $30K and that you also find another buyer that is willing to buy it from you for $35K. If the buy-sell transactions are done at the same time, then you don’t have to spend $30K and then wait to earn the $35K since it can be done at the same time you cash in $5K in profit. However, you must still have that $30K and prove that you’re in control of it. Arbitrage transactions with discounted bank instruments are done in a similar way. The involved traders never spend the money, but they must be in control of it, and the investor’s principal is reserved directly for this. For an investor it is much simpler (and usually more profitable) to enter a program where the Trader with his Trading Group has already everything in place (the issuing banks, the exit buyers, the contracts ready for the arbitrage transaction etc.) and the investor needs only to agree with the contract proposed by the Trader and trust associated to the program. After understanding how private placement trading works and how it is tied in with fractional reserve banking, then next obstacle is to figure out how to get into a Private Placement Trading Platform. This can be the most difficult part of the whole process. A lot of people say that they have access, but in all reality they do not. Private Placement Trading is just that, Private! So it takes time for people to be able to break into the field. You have to be dealing with the right people that have real access. At least one person in the group should have personal experience in closing these deals, or you will be spinning your wheels for a long time. Preferably you will deal with someone that has personally invested in them. It is not rocket science, but it must be understood up front that the client in a Private Placement trade is applying to be part of the platform. That means submitting the required documents in order to be considered. Private Placement Trading – What the big guys don’t want you to know What Trump & Buffet won’t tell you: “How to Maximize your Return & Eliminate Risk” There are many things in life that are kept hidden from common public knowledge for one reason or another, but ultimately they are there if you do some research and find them. The number one thing that is not readily known is that there are “retail investments” and “wholesale investments”. The majority of the public only knows about “retail investments”. The character of retail investments are lower returns and sometimes even higher risk. The reason that some of these retail investments are higher risk is that they shed off so little return that you are actually losing money when you compute inflation into the equation. The reason that they give you such little return is that they say your principle is safe. Ask yourself this question: “How safe is my money, when it is actually losing money consistently when inflation is taken into account”? Another question to ask is “How much of my principle is at risk”? Let’s take a look at just some of the many “retail investments”. 1. Stocks 2. Mutual Funds 3. CD’s (Credit Deposits) 4. T-Bills and T-Bonds Now the question should be what are “wholesale investments”? Wholesale investments in and of themselves are highly protected in nature. The reason the previous statement is true is because the majority of the wholesale investments are private or “by invitation only”. They are peer to peer or small groups of networks. You have to know someone who has access to the wholesale investments in order for you to have access to them. There are various reasons for this. One, of many, is that there are a lot of regulations that are placed on investments deemed “public worthy” by the SEC and various other regulatory agencies. These are your retail investments that everyone knows about. The people that have access to the desired wholesale investments have no desire to put up with regulatory agencies and to be honest, don’t have the time. The regulatory agencies are fine with these wholesale investments operating, just as long as the people running these types of investments don’t advertize or solicit for business. So these are the rules that everyone plays by. Everyone is happy, except for the general public which is not given the full picture of all of the different types of investment vehicles which are available. The characteristics of wholesale investments is high rates of return, paid weekly, monthly, and sometimes yearly depending on what the investment is and are by invitation only. Most of these wholesale investments have very little risk and the best ones have zero risk. That is right, let me repeat myself, the best wholesale investments eliminate risk. Really, the only downside to these wholesale investments is that there are mandatory minimum investment amounts. Generally speaking $100k USD is the minimum. The majority of wholesale investments source the funds as well. This is for the protection of everyone involved. Let’s take a look at some of the different types of wholesale investments that are out there: 1. Private Placement Memorandums- Allows you to invest in a private company before they go public on a stock exchange by doing an IPO (Initial Public Offering). 2. Corporate Investment Programs- Consist of contracting with financial institutions. Everything from returns to funds placement is contracted. This particular investment is one of the best wholesale investments available. There are two reasons this is the case. It has an extremely high rate of return and risk is eliminated due to the contractual component of this type of investment. 3. Private Managed Accounts- These are different than public managed accounts, as they do not advertize and are only available through word of mouth, usually an intermediary. 4. 506 Regulation D- Another form of Private Placement Memorandums 5. Syndications- These types of investments are different almost each and every time they are put together. The main thing to know is that they are temporary in nature and work for a common goal. Unless you have already invested in some of these, likely you do not have access to them. There are many different ways to get involved with them, but the easiest is to know someone that is already involved with them. Though this might sound like an impossible mission, I can personally tell you it is not. The best and most effective way to do this is to use an intermediary, private placement individual, or referring broker. Many times all three are one in the same, meaning that they all do the same thing. These are people that have access to these wholesale investments and would be able to get you into them. There are different protocols to follow when getting into these different types of wholesale investments. Standard documents before even discussing any particulars are: 1. Non-Solicitation Agreement- This basically states that you were not solicited and that you will not go out and solicit for business. 2. NCND (Non-Circumvent & Non-Disclosure)- States that you will not go around your intermediary and that you will not disclose the confidential information. 3. Request for Info Pack- Simply asked some questions about how the client is going to go into the program and is used to see if the client is qualified to enter into a program. By submitting these documents, it will get you in the door. After that, there are some compliance departments that will look further into your background and make sure that the funds you have available were not made by any illegal activity and that you do not have ties to people with questionable backgrounds . Remember that these investments are reserved for the best of the best and that if you are fortunate enough to be a part of them, you have to abide and play by the rules. Private Placement Programs, in summary… There are a wide variety different Private Placement Programs that are available. The private placement programs that offer the best private placement, in my opinion, are private placement platforms. We will speak about them in a minute, but let just go over one of the other areas of private placement that does have a lot of potential to be a good private placement option. Private placement that deal with private placement memorandums are a good way to get your feet wet in the private placement arena of private placement investing, which is the wholesale side of the investment world. Private placement memorandums offer a private investor a way to get into a company, prior to the company going public. This is a great way to make good returns if you are just getting into the wholesale side of the investment world. It is not my favorite though, and we will now talk about private placement programs that deal with the platform side. Private placement programs that are offered from a trading platform are the most effective and safest way to go with any investment, in my humble opinion. This is the way that it works. The client submits documents to be accepted into the platform. If the client passes compliance, they are offered a contract from the trading platform/financial institution. It does not require that the client move their funds, as long as it is currently in a top 25 western European or US bank. The financial institution then uses the funds on their balance sheets to make large commercial loans. I.e.- New paper created in loans. They then sell off the paper at a discount of face value creating a profit which is then shared with the client. These profits are paid out weekly, or whatever was agreed to upfront on the contract that was signed by both parties. The reason that they can do this is called fractional reserve banking. All banks operate from this. Simply put, it allows the banks to leverage out in loans a certain multiple of what they can show on their books. This varies from country to country. Some things to understand: - This is a non-solicitation private transaction - Client must apply to be part of the program - Protocols must be followed and should be laid out upfront Private Placement Trading? Does It Really Make Sense? The thing to remember with all Private Placement Trading is that these are private transaction. With that being said, private placement trades are not disclosed to the public. This is even the case if one of the parties in the Private Placement Trade is a publically traded company. Private Placement Trading is, for all intents and purposes, private party contracts that have the same non-disclosure and confidentiality clauses as would a normal business to business contract would have in them. Just because one of the parties in the private placement trade may or may not be a publically traded company does not matter when it comes to public disclosure. The opposite is actually true in many instances that the two parties that are involved in the Private Placement investment are not allowed, per the contract, to disclose what the contract says or anything about the contract in the Private Placement trade, or even their business to business relationship. Welcome to the wonderful world of wholesale investing. This is in stark contrast to the retail end of the arena, where public disclosure is not only required but is also mandated by law. Anyone who has the wherewithal to be qualified financially for the private placement investments and private placement trades must follow the rules. Just because you have the money, doesn’t mean that you will be accepted into the program and can pass compliance. The really neat thing about private placement investments, at least when it comes to private placement trades, is that risk are mitigated by the contract and there are no upfront fees required to get a contract and see what would be offered, after being accepted into the Private Placement Program.
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