Structured notes provide protection from downside risk for investors, but they have been burdened by high fees and limited liquidity. Halo Investing, a technology company based in Chicago, has created a platform to try to fix those flaws.
The goal of the new platform is to make structured notes, a complex investment option, available to to more investors, including the mass affluent, said Jason Barsema, president and co-founder of Halo Investing, an independent multi-issuer technology platform for structured notes.
Usually issued by banks and other major financial institutions, structured notes are debt obligations linked to the performance of an underlying asset, often a stock index or an exchange-traded fund, but with a buffer against market fluctuations on the downside. The downside protection makes this a good product for retirees who are living longer in retirement, said Barsema, a former private banker with Credit Suisse.
One of the problems with structured notes is that most investors have not heard of them or know what they are, and the notes are limited to ultra-high-net-worth investors or institutions that can that can buy notes valued in the millions from one issuer. The limited availability is tied to the labor-intensive nature of dealing with the notes, which results in high fees.
Through technology, Halo Investing provides access to notes issued by numerous banks on a single platform that can be used to buy and sell notes at anytime through the internet, Barsema said. Currently, most banks buy and sell these notes only at the end of the month to reduce handling costs.
Halo Investing is marketing its platform to broker-dealers who can buy notes for a minimum of $100,000. The notes can then be divided into various accounts, with buy-ins as low as $1,000.
Barsema said the firm hopes to reduce the minimum buy-in for brokers to $50,000 and offer notes issued by financial institutions other than banks through further technology advances sometime this year.
“Structured notes are designed to bridge the gap between the safety of bonds and the return of equities,” Barsema said. “We want to make this product available to the average investor.”