UBS is preparing to launch its first structured fund in Singapore later this month offering exposure to the commodities market. The fund will employ over-the-counter options, according to officials at the firm.
Min Park, managing director and Asian head of equity risk management in Hong Kong, explained the prices of many commodities have risen in recent years on the back of tight supply and growing global demand, and this has led to commodities and commodity indices attracting attention as an alternative asset class. Dubbed Lantern Premium Income Commodity Fund, the structure will be denominated in Singapore dollars and linked to the performance of the Dow Jones AIG Commodity Index. Downside risk is limited via OTC put options which are set quarterly at 90% of the current value and are financed by premiums from selling calls--which may also generate additional yield for investors. Dividends totaling 8% are expected the first year and are paid quarterly.
The fund is managed by subsidiary Lantern Structured Asset Management Limited, which was set up in Ireland at the end of last year by UBS for structured product launches, similar to SG Corporate & Investment Banking's established Lyxor Asset Management arm. The deal will be sold through DBS and Standard Chartered branches.
Looking ahead, Park noted the firm intends to launch additional structured funds in the Lion City in the coming months. "This is our first foray in the local retail market in Singapore and we certainly have plans to launch additional funds," he added.
