UBS Global Asset Management has structured an equity growth product with a novel feature that protects capital against inflation. The 15-year note is designed for French pension funds and insurance companies, but Bruno Servant, executive director at UBS GAM in Paris, said it will also be marketed to the private banking market and retail investors through corporate savings plans.
The products, called UBS Euro STOXX Inflation Garantie, uses constant proportion portfolio insurance to protect capital. UBS GAM has entered an inflation swap with UBS' investment bank to create the inflation-linked protection, according to Servant. In the swap, UBS GAM receives French inflation, minus tobacco. The invested capital is protected by dynamically moving it between a pool investing in a synthetic zero-coupon bond linked to the inflation swap and a pool that invests in the Euro STOXX 50.
"There's demand for longer structures," said Servant, who explained the French inflation swaps market is not liquid enough to support a product over 15 years. Servant expects to see more equity growth products with inflation-linked capital protection as inflation swaps liquidity improves. "I think it's only the beginning for such products," he added, noting pension reforms across Europe are iincreasing demands for structured products.The product closes to subscriptions on Dec. 27, 2006.