When you are not guaranteed by guarantee?

There was an article on some alternative investment in the papers recently. It offers two guarantees to the product.

Firstly, it guarantees a 15%p.a. This is seriously good stuff!!!

When most sovereign funds struggle to return a double-digit growth consistently and our funds in CPF gives a guarantees a max of 4.5% p.a (T&C apply), this investment guarantees 15% p.a. Let’s look at our own GIC, the Compounded Annual Returns (& not annual returns) in SGD is 17% as dated the financial year ended in 2011. These returns were made possible after allocations were made to different asset classes and sectors which requires a significant amount of funding and hedging. While this investment may have some secret formula to do what it promises, I will still prefer to believe that anything that sounds too good to be true is usually too good to be true. Do read my another article titled “Elephants never forget“.

The second guarantee was capital guaranteed. This is another great stuff!!! Capital guarantee PLUS guaranteed 15% p.a! I may be wrong but if someone had told Warren Buffet about this investment, he may be tempted to close down his investment unit and just dump every single cent he have into this great stuff.

As I read on, it was reported that it was able to have capital guarantee because they had bought insurance for it. Now…this is interesting! I know hedging MAY allow capital guarantee but what kind of insurance can do that??? I found out that ” we have bought insurance against natural disaster strikes and wipe out the farm” & “the insurance also pays if there are frauds committed by the directors”….well, it’s not the exactly wordings but closed to it.

With that, how guaranteed is your guarantee?