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Matthew Hunt, principal at Prospect, said the Deposit Alternative portfolio would invest in low-risk strategies offering returns based on manager skill or market inefficiencies.

Mr Hunt said there were growing fears from investors over risks associated with equities and even bank deposits.

“In the present environment where people are worried about having bank deposits, people are seeking security.”

Mr Hunt said the new portfolio would invest in high-quality corporate bonds, life settlements and collateralised loans, generating a return of 7-8 per cent in the current market.

“We wanted to look for something that gave clients strong diversification in markets that were uncorrelated with equities in particular.”

Mr Hunt said recent difficulties facing the banking sector should make investors more cautious in their investment strategies in the current environment.

“When people start to worry about the security of banks, they should also be worried about the security of products underwritten by the banks,” he said.

The life settlements strategy generates returns by acquiring US life policies, maintaining premium payment and then collecting the value of the policy at its maturity.

Mr Hunt said: “People have raised some issues about why you shouldn’t buy life insurance policies off people.

“But this is facilitating people paying for medical bills or last holiday.”

The practice is common in the US, and the risk of a company defaulting is very low due to regulations governing life insurance.

Mr Hunt said collateralised loans were also presenting very good returns at the moment, as traditional sources of capital dried up. “What we’re buying is well-diversified funds of managers who are lending to small and medium enterprise businesses with strong collateral,” he added.

Responses to the product had been “very positive” from investors, Mr Hunt said.

He added that a number of IFAs had already shown an interest in the portfolio.

“It’s not risk-free, but we have analysed the risks associated with each strategy, we have stress-tested this and we are confident over 12 months we will not get a negative return for this investment.”

Corporate bonds had been stress-tested over 25 years, Mr Hunt said.

Performance data for life settlements and collateralised loans was unavailable.