Based on the Portus et al experience what guarantee is there that you'll get back even the amount you invested, let alone earn any positive return?
Well, from what I heard, RBC, which issued a Norshield-based note, liquidated the note early and gave investors their NAV back not their principal. They could, of course, have simply appointed another investment manager, e.g. Northwater, which has been advising on the Portus "notes."
(Not sure how many bodies RBC threw over the side for not thoroughly understanding the Norshield structure: a poorly collateralized call option on managers that RBC in New York did, apparently, vet). As for the Pro-Hedge note based on Norshield, so far as I know, it will run its course: investors will get 100% at maturity, but alas no upside.
Still, with any of the notes, the banks' rep is on the line; they will pay out. Sort of like the lifecos had to with "vanishing premiums."
As for Portus, though, why SocGen was so hesitant to come forward as one of the ultimate destinations of investor money is a puzzle, since it clearly damaged their reputation with the institutional community. To be sure, they had no control over Portus, which may have sold forward its own management and incentive fees simply to reap the assumed future value now. (BTW, Nick Mancini has reappeared at Connor Clark and Lunn as President and CEO of Managed Portfolios.)
In any case, most of the Street stayed away from Portus would you invest with a hedge fund complex that promoted itself with ex-Navy Seals? and Portus went into the insurance channel instead. My gripe is that insurance advisors are more gullible (cf. vanishing premiums supra) because lifecos have always assumed vicarious liability (viz: ManuLife) and eaten their actuarial mistakes. As a result, insurance reps haven't quite cottoned on to the broker's however imperfect "culture of compliance." Sorta like Fulcrum types selling unregistered securities, or MFDA types using co-op arrangements to give "Dr" White a nescient and noisesome pulpit.
In one of the receiver/liquidator reports, there's Joseph Groia's notes to Manor: e.g., "shut down now, you're way offside." The tragedy is that the OSC didn't step in earlier. Other folks tried to say that, but Manor slapped them down with libel chill.
But apart from SocGen's noticeable reticence to fess up (they provided the guarantee as well as the investment platform that the Portus "trusts" were invested in, minus commissions, working capital, precious metals "hedges," undertaken by the investment manager, etc ), for the banks, manufacturing a PPN is the same as and done by the same team as an index or fund-linked GIC (and BMO has a dividend-fund linked GIC).
Even if the guarantee is good, you're almost 100% likely to be ripped off with PPNs. They do provide a good test for advisors. If they recommended them then you should probably get a new advisor.
Depends on what you're doing with them. If you've got $10m, want exposure, but don't want to risk capital, and you're 60, why not? Now if you're 60, have $100,000... I don't know. Remember, some folks lost big in the Nasdaq bust (I don't have Georges post on Nortel ready to hand, but I'm sure you'll dig it up).
I may not see the point, because I have a 20-year investment horizon and stick with value managers (well, er, ahem, mostly. I let Sprott and Norm Lamarche do my resource investments). But some folks are risk-averse.
The impression I get, however, is that, as with GICs, you probably want to build a ladder, plus diversify across four or five notes each year. (The option or dynamic leveraging structures can be quite complex, and if there's a butterfly in Beijing .... fractal disasters happen).
Me, I'm waiting for the full rollout of the RAFI/Arnott ETFs. Greater fool me, I suppose.