Kleinwort Benson Private Bank has entered a total return swap to leverage its exposure to falling equity markets. In the swap a Kleinwort fund receives 252% of any fall in the FTSE 100 and Standard & Poor's 500 indices over the next two years.
The swap only accounts for 15% of the notional size of the fund and the remainder is in collateral. The reason for this structure is so the fund can be classified as an Undertaking for Collective Investment in Transferable Securities III vehicle, explained Jonathan Kent, deputy cio in London. The remainder of the capital is used as collateral.
Kent said the structured fund is a bespoke deal for an institutional client, which will use it in discretionary funds. The private bank entered the swap with its sister organization Dresdner Kleinwort Wasserstein, according to Kent, who declined to elaborate on the rationale for the choice of counterparty.
