Customized Managed Returns For Your Clients

Fundamentally, structured notes enable investors to seek growth or generate income while providing principal protection. This concept of managed returns has grown increasingly attractive to investors.

Structured notes typically have a bond component and a derivative component. The bond is typically a zero-coupon bond that matures at face value; the derivative determines how returns are linked to an underlying asset or index. When the note matures, the bond normally pays back the principal (if principal protection is included, as is normally the case), and the derivative portion determines any amount of additional return.

These examples are for illustrative purposes only.

At maturity, if the market is down more than 30%, the client bears loss to the extent of the market. For example, in the unlikely event that the market would be down by 40%, the client would not get the final coupon and would get $600,000 returned for a loss of $400,000 at maturity. However, had the market been up on observation dates during years 1 and 2, the income they would have received would partially offset that loss.
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These examples illustrate structured notes’ ability to provide investors both downside protection and upside participation. Of course, the percentage of protection and participation, and the asset or index to which the derivative component’s return is tied, can vary and, in the case of Paragon Capital Management, be determined individually.

The key risks are credit risk, which is based on the issuer’s creditworthiness; liquidity risk, since structured notes are illiquid and selling before maturity can be difficult and potentially result in losses; market risk, meaning the performance of the underlying asset(s) can affect returns; and, for many structured notes issued on public calendars, limiting upside potential.

Credit Risk: We deal only with the most established and respected issuers and regularly review their credit ratings from the major rating agencies. Only in the extremely rare case of an issuer filing bankruptcy would credit risk be an issue.

Liquidity Risk: If faced with the need to sell a note before maturity at the discretion of the holder, we have been able to do so at current market value.

Market Risk: We employ our proprietary research and external research to assess the market dynamics attaching to any security, index or sector in which we invest on behalf of clients, taking into account our view of its potential performance over the term of the structured note we build. By the very nature of structured notes, we then seek to mitigate risk through principal protection.

Caps: Unlike many structured notes available publicly, we do not include caps on any of our structured notes. This brings to our clients the full upside potential of their investment.

The overwhelming majority of our structured notes are customized to the specific objectives of your clients. We work with the leading banks to create bespoke structured notes, with protection, appreciation or income and underlying assets determined by you and your client. Rather than buying from a product list and calendar determined by the banks for retail purchase (generally with a commission and a sales load), your client creates the structure and terms of the note, which they then purchase without a commission.

Structured notes from Paragon Capital Management are available to any investor.

The minimum investment for a Paragon Capital Management structured note is $500,000.

We believe that our structured notes can be useful in any context, and historically they have been used both as satellite and, increasingly, core investments. Their best use for your clients would of course be determined by you and the client.

Yes, our structured products are created with RIAs in mind. They are commission-free, fee-based investments.

There is a management fee that we discuss with RIAs and their clients at the outset of their exploring our structured notes.

Though structured notes have been available to investors since 1980, they tend not to be fully understood broadly, even within the investment community. Recent growth trends for structured notes suggest that once RIAs learn more about the product, they may find it to be useful and appropriate for many of their clients.

Visit paragoncap.com or click here where you will find in-depth information on the product and our offerings.