Privalto plans new structured product range

Exclusive: A major European bank is planning to launch a range of capital protected products.

BNP Paribas’ OEIC arm, Privalto, is designing its next generation of structured funds with a capital guarantee, to be launched in quarter two this year.

Alex Godsell, part of the Privalto sales team, said that the company will be consulting with advisers and investors over the next few weeks to ascertain what kind of underlying assets they want.

He added, “We are looking to launch a fund or two with 80-100% capital protected. We are looking to see what there is demand for.”

Privalto has not yet decided how the products would be backed, with options such as a proprietary strategy or gold backing being considered.

However, the move may not be welcomed by all, as Matthew Woodbridge, head of investment products at IFA Chelsea Financial Services, said he has not seen a huge demand for capital protected products recently.

“Investor psychology is that when markets are really low they want capital protected products, but what they really need is non capital protected,” he said, explaining that this would give investors more exposure to potential upside growth.

Godsell said that advisers will typically consider this type of fund when balancing risk, adding, “Compared to a lot of the funds available and used by IFAs at the moment, these do play quite an important role in portfolios.”

Privalto previously launched two 100% capital protected funds in 2008, the Privalto Stabiliser Protected and Plus Protected funds, backed by BNP Paribas and government bonds.

The return on these is 100% of capital plus 150% and 180% respectively of the benchmark, the BNP Paribas Millennium 10 Europe Excess Return index. These six year products mature in 2014 and Godsell said that any new products would have a similar term.

But, he said, the investment horizon now is very different to when these products were launched.

“At the moment, the market is very difficult,” said Godsell. “We are looking at more volatile markets and lower rates. That means making protected funds of this kind is more difficult.”

Woodbridge said that while advisers may be looking to shore up portfolios with structured products, clients’ understanding of how they work is vital. He added that how the product is guaranteed is important and counterparty risk must be considered.

“As long as people understand them it’s fine, but people may think that capital protected means more certainty,” he said.

The FSA is due to give feedback into its structured products consultation by the end of March following concerns over weaknesses in the design and approval processes for the financial instruments.

Scrutiny of structured products is necessary due to their increased popularity and complexity, the regulator said.

aimee.steen@ft.com