What is Equity Private Placement?
A Private Placement Equity is a financial vehicle that is usually only available to institutional investment
firms or hedge funds. It is comprised of distressed assets that are purchased at substantial discounts from their original price (such as a fixed annuity or any other guaranteed revenue stream).
Large financial institutions generally use these revenue streams in their individual form to fill “Tranches” for portfolios, which are then used as investment vehicles marketed to the public. A “Tranche” is derived from the French word “slice”; meaning that individual revenue streams of different characteristics are pooled together in order to complete the “pie”.
Each of these distressed assets or revenue streams is as unique as your investment needs and each represents an opportunity to secure what may be a keystone element of your financial future. If you are looking for a “Rock-Solid” income stream that is not tied to indices, an Equity Private Placement Annuity may be right for you.
What is the Risk?
Equity Private Placement Annuities are backed by some of the strongest insurance carriers and/or state institutions in America. This means your risk to return ratio is as favorable as it can possibly be.
Simply put, an Equity Private Placement Annuity could guarantee a high rate of return regardless of changes in the economy.
Equitas Advisors believes in a “conservative” approach to money management, the key word being “conserve”. For like minded clients wishing to conserve their wealth in a stable vehicle with a guaranteed revenue stream geared towards retirement, an Equity Private Placement Annuity can’t be beat by nominal products or annuities on the market.
The revenue streams inside these products are invested in by large-well rated insurance carriers, you’ll find that these monies are often found in government securities and high-grade corporate bonds with strong interest rates. This stability adds to its above-average returns when compared to the fixed income portion of your portfolio such as a CD or nominal fixed product.
Although some rates may be guaranteed, like all financial products, Equity Private Placement Annuities are not risk free. The risks associated with these instruments are:
The security of the annuity is directly related to the financial health of the insurance company that issued the annuity and its ability to make payments to the annuitant.
Equity Private Placement Annuities are not deposits and are not insured by the Federal Deposit Insurance Corporation (FDIC) or any other federal government agency. They may be in whole or partially guaranteed by State Guaranty Associations like any other insurance policy.
These instruments are subject to interest rate risk. Market interest rates may rise while the rate of return on the Equity Private Placement Annuity is locked in. Fixed income products with longer terms to maturity are usually more sensitive to changes in interest rates. One method of hedging interest rate risk during a volatile rate period is to build an annuity ladder by buying a series of annuities over an extended period of time, thereby rate averaging the changing interest rates.
Equity Private Placement Annuities are monetized in U.S. Dollars. Foreign buyers may be subject to currency exchange risk.
Equity Private Placement Annuities typically must be held to term and therefore are not liquid investment, however payments may be transferred to beneficiaries.
How are the Interest Rates Set?
The first thing you will notice about an Equity Private Placement Annuity is that the fixed interest rate is much higher than that of other fixed products. That rate is determined by several factors, including current market conditions, length of payment terms, and carrier ratings.
Due to the fact that these annuities were acquired previously and may already have been annuitized, certain attributes are already fixed and cannot be changed. It is precisely this characteristic that enables the annuity to yield higher rates of interest.
It is not a customized product, nor is it an off the shelf one; Equity Private Placement Annuities allow you, the client, to choose the vehicle that best suits you in terms of length of payment period and amount.
For example, you can create an income stream that provides monthly payments for 20 years, annual payments for 10 years, or even weekly payments for 15 years. If your income needs are not immediate, you are able to defer payments for months, or even years.
This is a very potent and dependable retirement vehicle, which is not easy to find these days.
Private Placement Variable Universal Life (PPVUL)
PPVUL’s allow for the net premium to be invested inside a separate segregated account unexposed to the carrier’s credit risk.
Assets are invested as directed by the policyholder into qualified investments.
Since investments are wrapped inside an insurance policy, their gains are shielded from taxes.
Because of the use of Off- Shore insurance companies that are not subject to the burdensome state and federal regulations which can add tremendous cost to policies, these policies are also not subject to state premium taxes and federal excise taxes. Investors in Off Shore policies are not restricted by SEC regulation or the limited choices of domestic insurance companies.
The benefits of a PPVUL include tax-deferred compounding of investments, tax free loans to access cash if desired, designation of trusted investment manager, selection of custodian bank, flexibility of premium structure, and assets shielded from creditors.