Barclays Capital has devised a with-profits alternative, in-cluding guarantees, which it is looking ...
Barclays Capital has devised a with-profits alternative, in-cluding guarantees, which it is looking to sell to life offices.
The group has devised the structure of the vehicle, which is effectively run as an open-ended structured product, but will not market the fund itself.
David Stuff, head of structured product sales at Barclays Capital, confirmed negotiations are in progress with a number of life offices and fund managers, including sister group Barclays Global Investors.
The G-Fund uses an Oeic structure and derivatives to offer up to 70% exposure to the returns from the FTSE 100 with the balance held in cash and a firm capital guarantee, which will be provided by Barclays Bank. There are no market value adjustments on the product.
The structure is highly flexible allowing groups buying the model scope to tailor it to their own clients' needs. For example, the guarantee can be offered within the fund or made available as a bolt on paid-for external option.
The latter option would enable groups to offer guaranteed or non-guaranteed versions of the same underlying vehicle.
The fund will carry a guaranteed minimum unit price, which will rise with the NAV and never be less than 80% of the highest ever value of the fund's NAV. The explicit third party guarantee enables the product to be labelled 'guaranteed' under Ucits II legislation and would also enable Barclays to receive ongoing returns from the funds it sells on to life offices via premiums for the guarantee.
The vehicle aims to smooth investment returns through reducing exposure to falling markets, holding cash and buying futures contracts on the FTSE. Under the technique, a variant of constant proportion portfolio insurance (CPPI), the fund's cash weightings will rise as the market falls and vice versa.
The investment management of the fund is based on Barclays Capital's in-house Perpetual Rolling Open Structure Protecting Equity Returns (Prosper) process. Prosper scales equity exposure according to the cushion between the current unit price and the guaranteed level. The cushion equals the difference between the present NAV of the fund and the guaranteed minimum NAV.
Barclays Capital intends investors in the fund will only be liable to CGT rather than CGT and income tax.
To ensure this, the distribution from the cash portfolio will either be so small as to just cover the fund's expenses, or be held offshore, so returns can be imported as capital gains.
Stuff noted the fund will avoid ever becoming permanently cash-locked, the main criticism of CPPI products, because the interest earned on the cash portfolio would push the NAV above the guaranteed level enabling the fund to gain equity exposure.
While equity exposure could be achieved through actively managed equity positions or a mixture of futures and equities, transaction costs, stamp duty and the bid/offer spread make it a less efficient option than derivatives unless the provider is confident any active equity component can consistently add alpha. However, if the fund has 50% equity exposure it can be sold within an Isa wrapper.
Barclays Capital has already sold its Prosper model on to Zurich IFA, on a non-exclusive basis. Zurich launched a fund in February with performance linked to the returns from three underlying Threadneedle funds rather than using derivatives. Zurich did not buy the G-Fund model, however.
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