Smart Thinking... Better Value... Less Risk
If we think of a Lego building block set and the various different coloured blocks in it-each different colour of block represents a different level of structured product
'riskiness' -classifying the risk and reward of the range of structured product offerings from Product Innovations/Plan Manager.
The Product Innovations structured products are ranked by 'riskiness' - each Series offered by the chosen Plan Manager will offer different maturity dates, differing levels of market participation and pay-off, and be linked to various asset classes.
So the risk graded colour coding approach adopted by Product Innovations is based on measuring total 'RISKINESS'.
The following is a break down of the different levels of risk that can be attributed to a structured product.
The 'BLUE' Lego block RISKINESS rated Products:
These represent the lowest 'riskiness' ranking of products that can be included in the SATELLITE component of the overall Portfolio strategy.
Offering low to moderate total product 'riskiness', with medium to lower expected returns although not expected to be highly variable. Some potential capital loss but probably unlikely and if so expected and understood
The 'YELLOW' Lego block RISKINESS rated Products:
Implying a medium to low chance of capital erosion (say 10%) and a medium-to low rank in terms of potential 'capital shock'
-i.e., this may be material but NOT unexpected. A chance of a reasonable to high expected total
return (e.g., direct investment in hedge 'fund of funds' type returns) but this total expected return may be quite variable and should equate to at least the risk free return.
The 'GREEN' Lego block RISKINESS rated Products:
Attributing a medium to high total 'RISKINESS' ranking.
A quite high chance of capital shock- and a medium chance of a loss or erosion of some capital (say a 1 in 5 chance at maturity) while offering the potential of total returns being in excess of equity type returns, a high probability the total returns will be significantly better or worse than the 'risk free rate of investment'
i.e., these total returns should be expected to be variable.
The 'RED' Lego block RISKINESS rated Products:
These products are ranked highest risk under the Product Innovations 'riskiness' classification system.
This colour coding will be applied to truly RISKY products with highly variable returns, that are expected to be significantly higher on average than the 'risk free rate' (circa expectation of private -equity type returns) with a loss or erosion of capital being a distinct possibility and this may be of an unexpectedly severe magnitude.
These products ranked as RED Lego blocks should constitute a maximum of 5% of the total model investment portfolio.
