Property assets are to be included within the 60% equity cap for medium-term Sandler investment prod...
Property assets are to be included within the 60% equity cap for medium-term Sandler investment products.
In its response to the Sandler consultation paper, the Treasury last week said the conventional treatment within the life field is to bracket equity and property exposure together and it planned to extend this treatment to the new suite of medium-term Sandler products.
The Treasury said the 60% equity cap offered the probability over the medium term of returns exceeding those on deposits without leading to high price volatility.
Such an outcome was more likely to be attractive to investors who were unable to balance the risk of price volatility with substantial cash holdings, it said.
In order to reduce the probability of significant short-term capital loss, the Treasury also proposed to introduce diversification requirements based on risk-reducing principles. One principle would require that products be designed for the cautious, five to 10-year term investor, in order to prevent firms developing high-risk strategies.
A specified minimum equity level would not be required but diversification across asset classes would mean that all funds should have some equity exposure, according to the Treasury. There would be no additional quantitative limits on the funds and no specific limits on fixed interest exposure. However the requirement for cautious investment strategies meant the Treasury did not expect investors to be exposed to a high proportion of either long-dated or sub-investment grade bonds, as well as high-risk equities.
Similarly, it said derivatives can only be used for the purposes of efficient portfolio management.
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