Schroder Investment Management has sold an innovative capital-protected target redemption note (TARN) in Hong Kong, which pays investors a coupon linked to both six-month dollar LIBOR and the Standard & Poor's 500. The note, structured in conjunction with UBS, pays investors a fixed 5% coupon for the first year of its maximum six-year tenor, but in subsequent years pays a coupon which represents the growth of the index as long as six-month dollar LIBOR stays within a certain range for a certain proportion of the year. If LIBOR moves out of the range in one year it could mean investors receive no coupon, even if the index grows. The product will mature when the investor has received a 20% return on the initial investment, which could potentially be reached at the end of the third year. If this is not reached before the end of the structure's term, it will continue to maturity.
John McLaughlin, head of structured investments in London, said Schroders chose to issue the product in Hong Kong because investors there have an appetite for TARNs. The TARN was wrapped as a U.S. dollar-denominated unit trust, said McLaughlin.
