Piton's Fixed Income Structured Notes

While most structured notes rely on broader index-linked products, Piton Investment Management is solving for double-digit yields through bespoke single-name structures built around high-conviction equity picks. In our conversation with Kris Konrad from Piton Investment Management, we explore how this innovative approach is creating attractive risk-reward propositions for yield-hungry investors seeking alternatives to conventional high-yield investments.

1. What motivated Piton to launch its fixed income structured notes program?

Through some of our original partners of Piton, we came to know and love Halo Investing and their structured note platform, especially because of their customization component. Having always been involved in managing and trading individual equity portfolios, we saw the opportunity to use their platform to create structured notes around our high conviction names, especially the ones with high levels of implied volatility and create very high coupon paying notes. This is a natural fit for our clients who generally come to us looking for yield solutions.

Program Launch Motivation:

• Leveraged existing equity portfolio management expertise

• Target high conviction names – high vol/high coupon

• For yield-seeking client base

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Q2. How does Piton's approach to structured notes differ from what's commonly available in the market?

I would say we're definitely more bespoke, especially with the single name approach as opposed to the broader index notes, which are typically found in most dealer monthly calendars. Piton is more focused around creating structured notes around high vol names that we think are fundamentally or thematically attractive.

Market Differentiation:

• Bespoke single-name approach vs. broader index notes

• Focus on high-volatility, fundamentally attractive names

• More customized

• Institutional approach rather than retail-oriented productsducts

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Q3. What is Piton's value proposition when it comes to structured notes?

I think our value proposition is to design and create yield products that offer better risk reward than other high yield alternatives. We are regularly structuring notes that pay monthly coupons well into the double digits. And we do this often names that we are attracted to, both from a price standpoint but also growth standpoint. And with the embedded protection that we structure into our notes, we are willing to take those bets in return for yields that well exceed most conventional high yield sectors of the market.

Value Proposition:

• Attractive risk/reward vs. other high yield alternatives

• In many cases, double-digit annualized coupons, paid as frequently as monthly

• Embedded protection features for calculated risk-taking

• Yields exceeding most conventional high yield market sectors

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Q4. What specific market inefficiencies or client needs are you addressing with your structured note offerings?

In general, our clients are looking for yield and that's why they come to us. In terms of inefficiencies, most private wealth platforms are inundated with the same boring retail oriented structured product offerings. Most use coupon contingencies in order to increase yields so that they appear somewhat attractive, and every dealer is trying to sell the same structure. We try to take a more institutional approach by building custom single name structures off the names that we have conviction over just like any typical equity manager. And when you do this off high vol names, the result is notes with dramatically higher coupons, higher protection, and guaranteed coupons, which we typically structure to pay all of our clients on a monthly basis.

Addressing Market Gaps:

• Address universal client demand for high yield solutions

• Countering asaturated market of boring retail structured products

• Custom single-name structures based on name conviction

• Dramatically higher coupons

Q5. How do you balance innovation with risk management in your structured note designs?

We are constantly watching a large list of names that our clients own in equity portfolios, and we feel are well-suited for structuring notes around, but typically, only a handful at a time are attractive from a point of entry. We try to be patient and we try to capitalize on events that push names into our “go zone”. So long as our thesis and belief in the name remains intact, we will execute on those ideas. In terms of risk management, if names we own don't perform the way that we thought they would, we certainly have the ability to apply risk mitigation overlays to hedge away some of the binary risks that is typical with notes that have specific price barriers. This is through the use of listed options, either outright or in the form of option spreads, and it's generally at or near the final maturity of the note itself, which is really the only time in which a negative mark is actually realized.

Innovation & Risk Management Balance:

• Constant monitoring of an extensive list of companies, select only attractive entry points

• Patient approach - capitalize on market events when in the "go zone"

• Further risk mitigation ability through listed options and spreads

• Focus hedging near stated note maturities with protective overlays for underperforming positions

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Disclaimer

Structured Notes are complex products and are not suitable for all investors.  Before making any investment decision, you should carefully consider the investment objectives, risks, charges, and expenses before investing.  This and other important information are included in the Structured Notes’ offering documents.   The investment strategies discussed are strictly for informational purposes and should not be construed as a recommendation to buy or sell. For further information regarding Piton Investment Management, LP, please see our Form ADV at https://adviserinfo.sec.gov/firm/summary/282517.