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Capital protected income fund arrives

With the popularity of capital protected funds it is little surprise that a manager has rolled out a capital protected income fund.

Wednesday, November 30th 2005, 6:40AM

With the popularity of capital protected funds it is little surprise that a manager has rolled out a capital protected income fund.

The first on the block in New Zealand is the PINS fund from Sydney-based manager Absolute Capital.

PINS is essentially a multi-manager international fixed interest fund with capital protection from Dutch bank ABN Armo.

The fund will use 20 specialist managers to invest in credit markets around the world. Absolute’s role is managing the managers.

Managing director Deon Joubert says these managers will invest in a range of credit instruments. He stresses it is not a collateralised debt obligation (CDO) investment.

“Our product is not a CDO.”

Absolute’s role will be in manager selection and monitoring. Joubert says there are four key reasons to use PINS.

The first is that it is a product for uncertain times, and the capital protection is a “very important way to minimise risk.”

He says Absolute have been watching what has been happening in New Zealand with the likes of the capital protected funds from Liontamer and has observed they are resonating with advisers and investors.

He says the fund is being launched in New Zealand before Australia, partly because of the interest rate market, but also because investors understand this type of product.

The second reason is its attractive yield. The fund aims to pay 9.25% annually (paid each quarter) and there is potential upside of another 18% over the term of the fund.

This comes about as investors who hold PINs at the end of their term will be entitled to share in any excess returns on the credit and other investments at the end of the term of PINs, with a maximum additional final interest payment to investors of 18% of the principal amount of PINs.

Assuming that comes through the annual average return will be 10.95%. The third point is the fee structure within PINS.

Joubert describes it “back-ending” most of the management fees. While Absolute gets paid a small on-going management fee, the bulk of its payment comes at the end of the term.

He says the structure being used is relatively new to the retail market, but has been used more commonly in the wholesale or institutional market.

“We have attempted to align our interests with investors,” he says.

While investment banks tend to take their fees out upfront, Absolute is locked in for seven year until it gets the bulk of its fee. “We are locked in for the full seven year period,” Joubert says.

“Only if we (as managers) have done well and have investors done well, will we get paid.”

One of the things that has put investors off Australian based managers is their lack of service in the New Zealand market and their seeming willingness to exit the market (or downgrade their service) when things slow down.

Joubert says Absolute has demonstrated on-going support to the New Zealand market over the years, and the structure of PINS reinforces that commitment.

He says that because the manager doesn’t make its money until the end of the seven-year term then it will continue to support the market.

“Our commitment to the New Zealand market is a strong one, one which is going to last into the future.”

The fund is open until December 16.

Absolute is looking to raise around $50 million and says this will be a mix of institutional and retail money.

Once it is closed, PINS will be listed and traded on the stock exchange’s NZDX market.

The principal of the fund has been rated by two agencies. Moody’s have given it a AA3 rating and Fitch a AA-.

« Absolute Capital to launch PINs product In New ZealandOMNIMax Professional Reviewed »

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ANZ 8.64 7.84 7.39 7.25
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BNZ - Mortgage One 8.69 - - -
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CFML Loans 9.45 - - -
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China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 7.04 - -
Co-operative Bank - Owner Occ 8.40 7.24 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.74 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
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HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
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ICBC 7.85 7.05 6.75 6.59
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Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.25 7.79 7.55
Kiwibank - Offset 8.50 - - -
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Resimac - LVR < 90% 9.84 9.09 8.59 8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
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