HSBC Asset Management has entered equity call options to structure a capital guaranteed fund referenced to the FTSE 100. Bryan Greener, head of product development-global products, said the fund, dubbed the Safe Haven Growth Fund, gives 100% capital protection as well as guaranteeing 100% participation in gains in the index. HSBC anticipates taking out similar options in order to roll out more products in the coming months.
The options will trigger after two years if the FTSE 100 is up by 20% and investors will get their investment plus the 20% appreciation. Similarly after four years, if the index returns 40% the fund will wind up and pay investors the performance to date, said Greener. If the index does not hit either of these triggers the investors get their capital, plus any appreciation in the index, after six years.
HSBC bought the options from several counterparties in order to satisfy legal diversification requirements, said Greener. The firm also entered an interest rate swap to convert the floating LIBOR-based coupon on medium term notes--used to provide the guarantee--to a fixed rate.
