Challenge: Diversify Your Investments

The Solution

It is the opportunity to expand your range of investment possibilities while retaining ownership of your securities portfolio.

John Shareholder just spoke to his licensed advisor and was advised to purchase an oil and gas limited partnership. John had $150,000 of a stock he'd held for some time, but preferred not liquidate it if possible, losing all rights to any future value in the portfolio. The minimum investment in the gas partnership was $100,000 per unit.

With one of our securities finance or stock loan programs, he could in effect be in "both places at once." He could obtain a limited-recourse loan at up to 95% of the market value of his securities. If it rose in value, he could participate in the upside. If structured with an option as a hedged portfolio loan (or hedgeloan), and for whatever reason he was forced to default, he could exercise his right to surrender the shares and would owe nothing more unless the exercised option was insufficient to cover the remaining loan liability. In any event he would own at least $100,000 in the oil/gas partnership without having had to sell his securities first with our institutional loan program. At all times the securities would remain in the client's title and account.

Behind the Numbers:

Example:

• $150,000 @ 85% advance yielded $127,500 to put into his oil and gas project.
  
  
• Using his $150,000 stock position for a stock loan yielded more than the $100,000 needed to enter into the non-marginable investment. At the end of five years if it has performed at a minimum of 8% in this example, he would have gained 8% on his $150,000 position (minus interest) paid at approximately 4.35% (for this example) from the oil and gas project.

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