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Rothschild&#39s Loan and Guarantee Scheme which was withdrawn in December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


community.”


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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