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Concern at offshore geared returns

Concern is gathering in the offshore community that inv-estors may be

about to lose out because of purchases of some geared investment products.

Fears emerged after analysis of Channel Island merchant bank NM

Rothschild&#39s Loan and Guarantee Scheme which was withdrawn in December

after 14 months on the market. The scheme uses gearing in the hope of

pushing for higher returns from the investment.

But life offices and IFAs are concerned the returns used as examples in

Rothschild&#39s literature are based on investment returns of 12 and 15 per

cent despite the PIA&#39s UK projection rates for offshore products of 7 to 9

per cent.

The interest rate on the loan facility is based on Libor rates plus an

additional percentage of between 1.25 per cent and 2.25 per cent depending

on the loan size.

With interest rates expected to increase over coming months and equity

returns falling, it raises the possibil ity of investors receiving very

little, if any, return once inter est payments have been accounted for.

There are several similar schemes on the market which have added to concerns.

NM Rothschild & Son Channel Islands managing director Peter Rose says: “We

did not promote this product directly to the public. The scheme&#39s guide for

professionals was clearly targeted at the offshore professional adviser


Rose declined to say how many of the policies had been sold or how much

revenue was generated by their sale. NM Rothschild&#39s total lending to

customers last year was £168m.

Hambro Fraser Smith regional manager financial planning Patrick Murphy

says: “This type of scheme is not something we would be involved with at

all because of the excessive assumptions, the gearing levels and the risk

attached to the scheme.”

Scottish Equitable International personal investment development manager

Richard Leeson says: “We accept that this appeals to a small sector of the

market but it is not something we would ever get involved in.”


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