fund of with-profiTs funds designed to avoid over-exposure to single provider
Life assurance analyst Ned Cazalet is acting as consultant to a fund of with-profits funds.
The product has been launched by Circus Capital, a group with London and Hong Kong offices set up in 1999 that specialises in protected and military technology funds. Investors in the with-profits vehicle put their money into a fund that buys units in with-profits funds so the fund is the policyholder rather than the investor.
The aim of the Diversified Smooth Growth fund is to focus on financially strong life offices. Money will initially be split evenly between Norwich Union and Prudential. While the product will be priced on a monthly basis, investors will not be allowed to take their money out in the first year of investment and will be subject to penalties in the subsequent four years. Policyholders will also be subject to market value reductions if the underlying investments fall significantly.
Cazalet stressed the importance of stock selection when buying with-profits. He said: 'In the past some might have regarded one life company as being much the same as another in terms of financial strength, now it is important for intermediaries and investors to take care when choosing a with-profits provider.'
Director of Circus Capital Paul Robinson pointed to the dangers of being exposed to a single with-profits fund. He said: 'Anyone recommending a with-profits fund recently may be slightly nervous that they have picked one from a financially unsound company. Using a fund of with-profits funds allows advisers to show that they have exercised due diligence.'
The fund, which is available in euros and dollars is based in the Cayman Islands and is available under two charging structures. There will be a 1.25% annual fee on the fund under both charging structures, 0.25% of which will be trail commission for intermediaries.
For investors with $50,000 or more to invest, an institutional charging structure is available. Here there is no initial charge but intermediaries will receive 0.25% trail commission. Under the retail charging structure for those with $10,000 or more to invest the fund will pay 4% initial commission to advisers.
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£80bn funds under calculation