KBC Financial Products has been structuring products recently that offer investors a hybrid return from the equity, credit and hedge funds arena. Carlo Georg, managing director and head of trading in London, said investors have been steering away from single asset class products and in particular, the demand for equity products has plummeted roughly 50% over the past year because of investors' aversion to the equity markets.
The products, which can be structured as medium-term notes or funds, give the investor a capital guarantee and equally weighted returns from the three asset classes. The participation rate for investors varies depending on the maturity of the instrument, but is between 75-100% of the upside, according to Georg. The firm structures the product by purchasing zero-coupon bonds and writing options on behalf of the investors.
For the equity portion, the option is written on broad-based U.S., European or Asian stock market indices, such as the Dow Jones EURO STOXX 50. For the hedge fund portion, KBC selects a well-known manager of a hedge fund of funds, Georg explained. Investors receive an option written on KBC-managed bond funds for the fixed-income portion.
