Cash is becoming the investment of choice in offshore bonds - at least in the short term - as discre...
Cash is becoming the investment of choice in offshore bonds - at least in the short term - as discretionary managers show reluctance to put high net worth clients into equity or bond funds in the current climate.
Nicholas Burton, head of marketing at Norwich Union International, estimated at least three-quarters of offshore bond business currently coming from discretionary managers is sitting in cash with a view to shifting into funds later.
He added that growing investor nervousness since the Northern Rock collapse meant cash holdings were now being split between a number of institutions to ensure the maximum level of safety. The Financial Services Compensation Scheme only guarantees the return of the first £35,000 deposited in the event of another bank failure.
"The big headline rates are probably from smaller institutions - local offshore banks in Dublin and the Isle of Man," he said. "The big names don't offer such good rates, so in order to get the best rate, high net worth investors are diversifying among a number of institutions, which is indicative of some fear still."
Burton said he expected to see much of this cash phase back into funds as the market settles. However, he added that deposits remain a legitimate investment choice within a portfolio bond, even if using a bond as a long-term home for large sums of cash might cause the life companies' actuaries sleepless nights. "My own view is you've got to trust advisers," he said. "If they're using your bond you should have a good enough relationship that you don't need to get the customer to sign something saying they intend to invest the cash eventually."
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