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Derivatives

Royal Liver Investigates Option-Based CPPI

Royal Liver Asset Managers is looking to structure an open-ended investment fund with an overlay of rolling options to provide protection.

Royal Liver Asset Managers is looking to structure an open-ended investment fund with an overlay of rolling options to provide protection. Adrian Bond, head of collective investments in Liverpool, U.K., said dissatisfaction with constant proportion portfolio insurance, a dynamic asset allocation method, is driving the innovation. The move is designed to eliminate the risk of all the assets in a fund being moved to risks-free investments if the target assets plummet.

The underlying strategy for the fund has not been chosen. Bond said Royal Liver is talking to banks about what assets will create the best volatility and participation levels for the option overlay. "We want a protected product with enough participation," said Bond.

One structurer noted this type of structure is common in other European countries, but CPPI has always been favored by U.K. managers. Retail fund managers in the U.K. are beginning to look for alternatives because of the complexity of the structure and concern over market timing issues (DW, 12/13).

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