Permuto Capital Revolutionizes Equity Investing with Blockchain-Powered Unbundling of Common Stock
In a pioneering move poised to reshape the landscape of equity investing, Permuto Capital is introducing a groundbreaking product that unbundles the dividend and capital appreciation components of common stock. This innovative approach, reminiscent of the Treasury STRIPS program of the 1980s, seeks to unlock greater value by catering to distinct investor preferences. Pending SEC approval, Permuto plans to launch with Microsoft (MSFT) as its initial offering, paving the way for a potential paradigm shift in how investors approach equity ownership.
Similar to the concept of separating the interest and principal payments of Treasury bonds, Permuto divides a single share of common stock into two distinct certificates: a "dividend certificate" and an "appreciation certificate." The dividend certificate entitles the holder to all dividends paid on the underlying share, while the appreciation certificate captures the remaining value, namely the stock’s capital appreciation. This separation allows investors to selectively target specific aspects of equity returns, aligning their investments more closely with their individual risk and income objectives.
Previous attempts to unbundle stock components faced challenges related to complexity and cost. Permuto overcomes these hurdles by leveraging the power of blockchain technology and a single stock voting trust structure. The voting trust ensures regulatory compliance, while blockchain technology streamlines processes and dramatically reduces operational expenses, making this innovative approach economically viable.
Investors can participate in this new investment paradigm by depositing their existing Microsoft shares with a designated custodian. In exchange, they receive both a dividend certificate and an appreciation certificate, which can then be traded independently on traditional exchanges or decentralized marketplaces. This flexibility allows investors to retain, sell, or acquire either certificate without needing to own the underlying shares directly. Furthermore, investors holding both certificates can recombine them to reclaim a whole share of common stock.
Permuto offers investors the choice of holding their certificates through the Depository Trust Company (DTC) or on the Chia blockchain as Chia Asset Tokens (CATs). The CATs offer the advantage of 24/7 trading on decentralized marketplaces, eliminating the constraints of traditional exchange operating hours and trading halts. The cost efficiencies of blockchain technology are further reflected in dividend distribution. While DTC-held certificates receive 80% of the dividend payout, with Permuto retaining 20% for processing, CAT holders receive 90% due to significantly lower blockchain-related costs. This difference in payout ratios is expected to influence the relative pricing of the certificates across different trading venues.
A simplified valuation example illustrates the potential of this approach. Assuming a Microsoft share price of $429, an annual dividend of $3.32 growing at 5% annually, and a discount rate of 8%, the present value of the dividend stream over 30 years is approximately $45.46. This implies a yield of 6.6% on the dividend certificate. The appreciation certificate, representing the remaining value, would then be priced around $383.23. This example demonstrates how investors can dissect and value the distinct components of a stock, enabling them to strategically allocate capital based on their individual investment preferences.
Permuto’s innovative approach empowers investors to fine-tune their portfolios by directly targeting specific risk and return profiles. Investors seeking consistent income can concentrate on dividend certificates, while those focused on growth potential can prioritize appreciation certificates. This granular control over investment exposure represents a significant advancement in portfolio management.
According to Trent Martensen, Co-CEO of Permuto Capital, this new product empowers investors to optimize their risk exposure for a given return requirement, a long-sought-after goal in portfolio construction. By partitioning common shares into separate dividend and appreciation components, Permuto provides investors with the tools to achieve greater precision in aligning their investments with their specific objectives.
The launch of Permuto certificates marks the realization of concepts discussed in financial circles for decades. By leveraging cutting-edge blockchain technology, Permuto brings to market a standardized product that offers investors unprecedented control and flexibility in navigating the equity markets. This innovation promises to reshape the investment landscape and unlock new value for investors seeking more refined control over their portfolios. As the financial industry continues to evolve, Permuto’s approach could pave the way for a new era of customized investment strategies. The unbundling of common stock represents a significant step forward in providing investors with the tools they need to achieve their financial goals with greater precision and efficiency. This development offers intriguing possibilities for the future of equity investing and may inspire further innovations in financial product design.
