How Would you manage this fund?

Let’s say someone offered you to manage their money for a year with below expectations. How would you do it?

Expectations:
You will guarantee SP500 return capped at 15% on the upside.
You will guarantee protection of first 10% from peak equity. Assume you can’t afford to eat that yourself. (Edit: or 10% of principal which is probably easier to do)
No management fees, anything above 15% is what you earn.
Client may not withdraw any money for the term.

https://cdn.bfldr.com/86JM1UOD/as/hhhzkk3cp3rjh4cjkrb4nsc/Transamerica_TSIA_Rate_Change_Flyer

 

in a separate account make a market in some illiquid instrument 50@55. in the managed account buy at 55 and sell at 50 until drained. reimburse managed account 10%

 

Ask Madoff. He might give you some hints.

 

look if it makes money clients will not want a withdrawal - right - so sounds like you're a scammer when you say

"Client may not withdraw any money for the term."

that sounds shady from the get go from a normal persons point of view.

 

Similar products are available from First Trust

https://www.ftportfolios.com/retail/dp/targetoutcomeuits.aspx

 

Make sure that they sign a sentence:

"Ability to lose ...(amount)"

That is the sentence that wealth management companies make sure that their clients sign.

If they do that you don't have to worry about anything.
If they don't, look for a other customer.

 

From what I understand, most desirable funds have some lock in period. If the fund is trying to achieve long term returns, it would not make sense take money from people who will need to withdraw soon. In this particular case, the annuity resets every year.

 

Looks like simple options. Imagine the fees they will rake.

 

This is a real product and I would like to know how someone can achieve this and make money. The insurance company is probably doing some swap with investment bank or something where they offload the risk. But if you are an individual, how would you structure something like this? You don’t know the path and you can’t eat the 10% yourself.

 

Buy an SPX zero strike call (OTC)
Sell an SPX 1y 15% call
Buy a SPX 1y 100%-90% putspread

The whole structure receives a credit which is the profit to the company.
The trick is that the client get the price performance of the SPX but not the dividends.