PIMCO Europe is talking to investment banks about structuring capital-protected versions of its investment funds. PeterPaul Pardi, head of institutional remarketing for Europe in London, said the manager has been discussing methods of fund protection with several banks and has lined up distributors for the products. The protected funds could be rolled out in a matter of months, depending on the time required for the structuring and registration process.
"PIMCO will be the producer only," said Pardi, who added an investment bank that can structure the protected fund product and distribute it would be ideal. Pardi declined to name potential counterparties. PIMCO will likely sell the protected funds to high-net-worth individuals and will use the connections it has to private banking networks in Europe, which are familiar with its mutual funds.
PIMCO has EUR22.9 billion under management in Europe, but Pardi noted offering capital-protected investment in the funds could boost this significantly. "We are going after a different market segment," Pardi reflected. PIMCO will offer protected versions of its emerging markets and commodity funds and there has also been interest in its Euro bond fund, he added.
Mutual and hedge funds can be protected either by pricing an option on the fund and combining it with a zero coupon bond, or by a method known as constant proportion portfolio insurance. In CPPI, the investment bank dynamically moves the investment between a safe asset class, such as cash, and the risky asset, in this case the fund.
One bank sales official noted fund managers are coming around to the idea of capital-protected products linked to their funds. Fund managers are tempted because the structures add to the assets under management in the fund, and they also allow the fund manager to offer the same fund but with two different risk profiles, he explained.
However, some fund managers have found CPPI can create volatility in the underlying fund if the bank is required to move large volumes in or out (DW, 12/10). "We need to watch the interests of the underlying investor before we do new business," said Pardi.
