Skandia Investment Management is considering launching a retail fund which may use derivatives to offer investors exposure to a basket of mutual funds. Skandia has had success with its Protected Portfolio Investment, a capital-protected multi-manager fund structured by Morgan Stanley, which has a Guernsey special purpose company wrapper. But Jasper Thomas, head of structured products at Skandia in Southampton, England, said the firm is looking to roll out this type of fund-linked structure to a wider range of investors through a transparent, retail-friendly European fund wrapper, known as UCITS III.
Funds which comply with the Undertaking for Collective Investment in Transferable Securities are suitable and familiar to European retail investors, but have to satisfy certain requirements, such as daily NAV. UCITS III allows fund managers to include derivatives as investments within the fund, and Thomas thinks a variation of Skandia's PPI structure might work. In the PPI deal, Morgan Stanley writes a call option on a basket of investment funds and couples this with a zero coupon bond to provide capital protection. "We are looking very closely at UCITS III," said Thomas. Skandia is still working to resolve some of the difficulties of launching such a UCITS fund, including the increased compliance cost it would incur, but he added, "We hope to be able to move this forward over the next couple of months."
