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TheStreet Open House

Beyond Bonds: Buyer Beware

If the investor's thesis proves correct, then the IRL will rise in value, potentially generating above market rates of return. Conversely, if the thesis is incorrect, as a result of the aggressive nature of IRLs, investors could lose the entirety of their investment.

The takeaway: Interest rate linked structured notes should not be compared to bonds, as they are mostly used as speculative instruments and in seldom cases as part of a complex hedging strategy.

Bank Loan Products

Typically reserved for institutions and ultra-high-net-worth individuals, bank loan products are just as they name implies -- the investor is the lender.

The investment into bank loan products, typically structured in a fund format, is capital used to offer loans and other lending structures to third-parties. Moreover, most of bank loan products are structured as leveraged loans, thereby greatly increasing the risk associated with these instruments. Popular funds in this space include PowerShares Senior Loan Portfolio (BKLN) and the SPDR Blackstone/GSO Senior Loan (SRLN).

The takeaway: While these instruments can have significant returns, the risk is highly dependent on the skill and due diligence capabilities of the manager. In other words, with interest rate risk you lose the opportunity cost of yield but with credit rate risk, you can lose everything.

At the time of publication the author held GS.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Oliver Pursche is the president of GGFS, a boutique money management firm headquartered in Suffern, NY. Pursche is in charge of all business operations and serves on the firms' Investment Committee, Executive Committee and Board of Directors. Pursche is also a co-portfolio manager of the GMG Defensive Beta Fund (MPDAX).

Over the course of his career, Pursche has had the pleasure of working for venerable firms, such as PaineWebber and Neuberger Berman, as well as taking graduate courses at the University of Pennsylvania's Wharton School of Business. Most recently, Pursche published his first book, Immigrants: Unleashing the Economic Force at our Door.

Pursche is a trilingual financial services executive with more than 20 years of industry experience. His professional focus is on improving organizational structures and efficiencies, particularly in sales and the sales & marketing area. In the case of GGFS, Pursche helped four-fold AUM and five-fold revenues, as well as double profit margins from 2005 to 2013. Pursche accomplished this mainly through sales coaching, re-engineering the marketing processes and having an absolute focus on ROI.

Pursche is a frequent guest on CNBC, Fox Business News and Bloomberg Television. He also writes weekly columns for The Wall Street Journal Trading Deck, Forbes.com, Minyanville and The Street.

Pursche serves on the Advisory Board of the Cherie Blair Foundation www.cherieblairfoundation.org, which focuses on helping women entrepreneurs around the world. He is a member of the New York City Ballet Serenade Society and a member of the Advisory Board at Gemini Fund Services.

Pursche lives in Fairfield, CT with his wife Virginia and their two dogs. For a more complete biography, visit http://about.me/oliverpursche. Follow him on twitter @opursche

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