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30th January 2010
Private Capital Management
By Max Johannes

Every managed private capital investment arrangement is or should be tailored to meet the needs of the asset owner and the annual rates of return should meet the expectations of the client. No managed private capital investment arrangement is committed by shopping in a managed private capital investment supermarket where a managed arrangement may be plucked from the shelf as one might do with investment banks such as Merrill Lynch, JP Morgan, Schroders, etc. The search for a legitimate private investment arrangement is not conducted by telephone or mail-order. In all private capital management scenarios the principals must come face to face with the parties directly engaged in managed private capital investment.
There are common traits in preparing for entry into a managed arrangement because the compliance issues for all asset owners, who are subjected to severe and thorough in-depth investigations, determine who the owner might be; from where did the asset originate; how did the owner purchase the asset; how long has the asset been owned by the owner; and, how did the owner earn the money to purchase the asset are questions that all clients must answer before the client is approved and ultimately introduced to a managed private capital investment arrangement. This investigation takes place after compliance tests the asset to prove its location, its market value and that it is an asset that is good, clean, cleared, non-criminal origin, legally obtained. Approximately 90% of the interested clients never pass the strict compliance underwriting requirements for a normal private placement capital management arrangement, which occurs after all of the written details have been submitted and reviewed by both compliance and the manager.
If every item on the compliance agenda is approved and all items must be approved, then and only then would the asset owner and one chosen colleague be invited to the manager’s bank to execute the management document where the annual rates of return are finally agreed. Until that time, all else is rhetoric. No intermediaries are permitted to go beyond the point of compliance and underwriting and no intermediary is ever mentioned or noted in the official agreements between the client and the manager. Only the manager may bind the entire transaction and only the manager has the authority to validate the annual rate of return, which is fixed inside the bank and noted in the official agreement executed at the closing. The intermediary cannot be paid a fee directly from the managed proceeds since the intermediary, if there is one, is not part of official private capital management agreement so the intermediary must rely on the client to pay the intermediary… unless previously acceptable alternative procedures are adopted where we pay the intermediary that is completely guaranteed.
When an asset owner directly engages in the process of dealing person to person with an approved representative of the manager of the managed private capital investment arrangement, one must be prepared to subject oneself to very strict rules and regulations and if one qualifies for the manager’s arrangement, one must be content to receive the benefits for only one fiscal year and never again be permitted to participate in just such a programme. There are never extensions.
 
 
The above is a concise but accurate definition of the final requirements of a private placement capital managed programme, which I shall identify as INSTITUTIONAL. I write this because there is a new programme via a Re-Insurance Company that I will refer to as RE-INSURANCE HOLDING COMPANY (RIHC), which comprehensively differs with the items noted above and which may continue on for more than one fiscal year, perhaps as long as five to ten years.
The RIHC compliance scenario is less strict in its underwriting and intermediaries are both welcomed and protected for the valuable contribution they make to a private capital managed investment arrangement. In this scenario the client may assign Powers-of-Attorney to trusted associates who would carry out all of the requirements of entry to a private capital managed arrangement. The client need not be burdened with these procedural matters. And intermediaries may receive their just compensation directly. Client assets need not be moved from their current depository and ill-liquid assets are encouraged to participate in the RIHC scenario for a number of reasons noted herein below.
The reasoning behind this flexibility is that the client or client’s intermediary, in this scenario contracts with a Re-Insurance company to accept the client’s ill-liquid asset for addition to the company’s financial statement in exchange for the use of the insurance company’s liquid assets that may be exchanged with a sister insurance company where they may be then placed into a private capital managed investment arrangement. RIHC controls or co-operates with at least two dozen other insurance companies and two hedge funds to facilitate the mix and match effort of ill-liquid asset with liquid assets. The RIHC scenario results in the insurance company engaging a private capital managed investment manager in order for the client to realise a better than average annual rate of return on the monetary value of their assets.
The RIHC scenario is much simpler in preparation. The asset must be confirmed as authentic; is located where it is represented to be; and that the depository institution would vouch in writing for both the authenticity of the owner of the asset and the asset’s value Safe keeping Receipt (SKR). Hard copy documents are required but notarised copies of the original documents may substitute for original documents.

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