Monday, December 23, 2013

LP bonds are oversubscribed!

La Papillion is now officially a fund manager.

I don't know whether this is a good development or not...I'd like to see it as a positive one. Before you start thinking I've joined some fancy company as a employee, nah, I'm not. I've simply the fund manager of my parent's retirement money. This follows my post a week earlier regarding an assignment that my mum tasked me to do. Following some readers comments that I should issue my own LP bond with a fixed rate and a term, I've decided to do it because I think I should confidently be able to beat the fixed deposit rates offered now (around 0.25% to 1.25% pa) and yet also be able to provide them security by guaranteeing that the capital that they had trusted with me will be returned as and when they require. Seems like I've built a certain trust level with my parents because ultimately, the security of the bond is as safe as the issuer - which is me.

The terms of the bond are as follows:

1. Fixed guaranteed yearly interest of 2.0% pa, paid out per year on 1st Jan.

2. No fixed duration, which means it's perpetual until redemption by parents, or liquidation of funds by issuer (i.e. me). Before either can happen, there will need to be at least a 6 months notification to the affected party.

3. Non-guaranteed bonus per year, ranging anything from 0.5% pa to 2.0% pa. This is in addition to the fixed guaranteed yearly interest of 2.0% pa.

4. Capital guaranteed by me after a minimum period of 5 years. If they take out the capital before 5 years, any losses will be born by them. If they take out the capital after 5 years, I'll take the losses if any.

You thought a fund manager will be like this...nah, it's not fun but lots of hardwork

I've 50k at hand here sitting around for a week already, with possibility of another 40k to 100k coming in next year. Wow...I didn't know that they will be sold so easily after presenting to them the different options. However, I didn't do anything for a week so that I can approach this issue with a calm mind. First of all, I didn't know they had squirred quite a sum of money for retirement. This is probably good news for me because it means that I've got 3 layers of defense for any emergency medical fees - insurance under H&S, their retirement money, me and my brother's money. This makes the whole financial burden a lot easier to shoulder. Secondly, I can only guaranteed 50k at this point in time. If they wish to put in a total of 150k, I don't think I can guarantee that kind of sum. Hence, I suggested to them that they evaluate my performance first. If it's satisfactory and most importantly, that I'm confident that I can guarantee both the returns and the safe return of their money, then I'll take it. This is better for them and for myself.

In the coming days, I'll be thinking hard on my portfolio allocation. How much of the money should be allocated to bonds, fixed deposit/cash equivalents, equities etc. If anything, this 50k is even more important than my own 50k because I can lose my own money but I can't lose theirs. 

Now, if only bankers would think like that, we'll have a lot more trust in them.


My 15HWW said...

Hi LP,

Only after being a fund manager then people will realise that CPF returns are not so bad after all.

I am also a fund manager for my siblings and I think I am a bit hard on myself by guaranteeing a 5% return every years for the past few years.

I think you will very likely be a better fund manager for your parents compared to other professionals out there.

All the best!

la papillion said...

Hi 15 HWW,

Wow, 5% guaranteed...I'm not sure if you've seen the worst market bear run where 50% of your invested money can be vanished. I don't think I'm confident enough to guarantee that. I'll rather put in a small guarantee of 2%, maybe I can hit 4-5%, then declare bonus of 1% (total 3%) and keep the 1-2% extra for the future so that this can be made sustainable. Like insurance, the good years will pay for the bad years :)

Anyway, you must have done it for a few years already, so you should know what you're doing :) What's your allocation for the different asset like? Can you share?

CreateWealth8888 said...

5% is quite tough.

I only offer 3.3%

la papillion said...

Hi bro8888,

Agree with you. I think 3+ % is more than reasonable, being twice that of fixed deposit rates with guarantee too. Can't find in the market haha

SGFT said...

Congrats and well done, LP.

Welcome to the world of managing families monies. It's different from managing your own money I am sure after my years of experience doing so.

Steady you still guarantee capital somemore with 2% returns fixed. I just simply told my parents, all your utilities bill and misc expense I will "Bao" without touching your savings.

I think when times are good, generating positive returns are not difficult. Times get tough when your parents are you are my capital still there when market crushes and goes into recession, I had "live" experiences during the GFC.

When you see their portfolio drop 50% even holding blue chip stocks, u will sweat as well. But with a clear mindset and strategy as well as balancing liquidity and returns at all time. We definitely can ride it through.

For my parents retirement fund so far since I starting tracking returns is around 5-6% per annum for the past 6 years. More than 90% comes from dividends. You can see my strategy already. I can't afford to take extensive risk and they need the income to sustain the lifestyle and expense.

Nevertheless I am very happy for you and looking froward to see you deploying the funds to good use. Surely you will be able to beat the annual payout of 2%! All the best!

la papillion said...


Haha, I wanted to match their usual expectations of fixed deposits, which had a guaranteed rate and a guaranteed capital, so whatever I have to offer have to match that too :) I think 2% pa guaranteed, I am quite confident to get it whether the market is up or down. Indeed, it's very different from managing my own money because I know I can stomach the downs - not sure if my parents can take it. I suspect not. I'm still planning the allocation but I'll have to do like what you do, almost all the returns coming from dividends. I've to play it safer because I'm the one guaranteeing the capital! Haha! So a huge % will be in corporate bonds/pref shares from banks/sg bonds.

Maybe for the next 50k, should my parents choose to park it with me, I'll offer another higher returns with exposure to equities...maybe i'll guarantee only 50% of capital lol

Sgft said...

Forget to say, your parents trust you more than mine. They gave me 30k only 9 years ago to start. I put everything in a structured deposit earning 3.5% a year with capital guarantee at maturity of 5 years just before GFC. Transfer the risk to the bank! Imagine I decides to invest in the "Lehman" or "lemon" bonds that yields 5-6%? My parents will not trust me with their money anymore.

At that time I dono who were lemon brothers so I didn't invest in when then damn banker approaches me. The SD that I invested in actually is a credit default swaps against the bond for 5 local companies. All too big to fail one so I went ahead. Being prudent goes a long way.

Serendib said...

Well done LP on selling the idea to your folks, I'm sure it'll be a win-win!

Singapore Man of Leisure said...

Merry Christmas LP!

It's nice to be accepted 3 times over isn't it?

Even more impressed with your cool-headedness - plans are plans; goals are goals. Track record is something else.

One step at a time. Like that Hokkien song - one step one foot print ;)

Have fun in 2014!

la papillion said...

Hi Sgft,

Wow..luckily you didn't sign up for the lemon brothers product, otherwise the trust lost will be harder to earn back than the 30k. I'll rmb your words that being prudent will go a long way :)

la papillion said...

Hi Serendib,

All thanks to you! You implanted that seed in my mind :) Thanks! But the work is just the beginning...I've compiled a list of all the pref shares and corporate bonds and sg bonds to shortlist the 3-4 instruments to allocate the funds :)

la papillion said...


Happy christmas to you as well :)

Being cool headed comes with life experience :) Not point being hero and die a zero lol! Will do as you say - take it one step at a time :)

CreateWealth8888 said...

For older folks who are scared by past market crashes; we can take their emotions out by offering them month fixed income like mini "Madoff Fund".

Every month, they see their money incoming in; likely no question will be asked.


My 15HWW said...

Hi LP,

They are my younger siblings so I am hoping that the higher returns would encourage them to spend less and save more.

There are certain "withdrawal conditions" that reduces the liquidity. The funds are not too large and they are co-mingled with my own funds. Guess about 70% invested in the markets?

Even my wife feels that 5% is too high too but hopefully, I wouldn't be subsidising them in the long run.

la papillion said...

Hi bro8888,

Haha, I agree with you :) If I say I'm going to invest in equities for them, they'll say no way! If I say I'll going to take the money and give them guarantee, they'll say please!

Now my dad is hurrying me and asking me when he can pass me the next tranche of money for me to invest....seriously, I don't dare to take so much haha

la papillion said...

Hi 15HWW,

Still, 5% is too much :) To encourage them, you should teach them how to do it instead of doing it for them ;) Goes a long way instead of handling the money for them. From my experience, if someone is taking care of it, you'll never learn to take care of things yourself :)

Sgft said...

Ya LP start small better, when you can handle 100k of their money. Give you another 200, this became just a number as you have a system and strategy in place to utilize their funds already.

Sooner or later you will grow comfortable handing more and more money. That's my experience so far.

On whether how much money you can manage eventually, haha have to test water first la. Grow your confidence, the rest will follow eventually.

Merry Xmas and Huat ah for 2014!

la papillion said...

Hi Sgft,

Thanks for your encouragement :) Merry xmas to you as well!

Numbers said...


Good that you are trust worthy and calm headed in your investing style.

If I was given the 50k, I can give the 5% interest, and will use the Options Strategy to safely get that return.

So, 20k (40%) will be invested in the collar strategy, where you get 3% conservatively every month, up to 9%. Potential loss is max at 10%, Min gain is 36%.

The rest of the money, 30k, will be put in govt bonds or fixed deposit for the miserable returns but act as war chest.

Overall, net gain due to the collar strategy giving a min of 36% per annum.

la papillion said...

Hi Numbers,

Wow, that's great if you know how to work with options...I don't :( If you guarantee me 5% plus capital guarantee also, I don't mind putting my money with you LOL

CreateWealth8888 said...

Me too.

I will handover my CPF OA balance to Numbers.

Let meet at Lawyer's office with Banker's Guarantee to sign the Agreement.


Numbers said...

LP & CW8888,

Haha, that guarantee is only valid if I was in the same shoes as LP, since it is managing for one's parents and need to be safe and sound, and no mgmt. fees.

If you are asking someone else to manage for you, you still need to pay mgmt. fee, so if I give you 5%, then I still need to take back at least 3% in mgmt. fees, haha! Net is you get 2% from me.

So I simply leverage on your money, and get about 34% per annum income from your money, while giving you 2% per annum, not a bad deal.

Unfortunately, SG don't have options, and the best options are usually traded in US.

But once you know the collar strategy, you can safely earn about 36% per annum on the conservative, which is not a big amount, as compared to the speculators in options expecting to earn xxx% or more, but most options expires worthless.

And this strategy works whether the market is moving up, down or sideways, since you are not the speculator, but simply collecting 'rent' up front, and let others speculate.

Or invest in an ATM machine that gives solid 20% per annum and very safe, but again, not in SG.

la papillion said...


Haha, I knew that's a catch somewhere! Oh well, I heard about options strategies from frens doing it, but never really go and dig deep into it.

Wow, didn't know atm gives such a high return. If only there's a carpark reit, I'll gladly invest in it lol