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Concern over special sits split

Skandia is in discussions with Morgan Stanley over concerns that clients in a structured product linked to Fidelity special situations could be disadvantaged by the portfolio being split.

Morgan Stanley underwrites the capital guarantee on the Skandia protected portfolio, which took in millions of pounds and gives exposure to a basket of funds, including Anthony Bolton’s special sits, with capital protection.

Fidelity is splitting the fund – and client unitholdings – into two next year. One portion will continue as it is and the other will take on a pan-European mandate, with Bolton running one half until 2007.

Skandia is concerned the risk profile of the pan-European mandate could affect the structure of its capital guarantee.

Fidelity head of financial institutions Michael Jones says if Skandia wants to maintain exposure to the UK portion, it will have to sell the other half and switch over. This will incur a cost, however.

An alternative would be to set up a synthetic fund hedging against the two Fidelity funds but this would be difficult given the contrarian nature of the way they are run.

Skandia head of structured products Jasper Thomas says: “Changing the fund’s objective could impact on volatility and we are in discussions with Morgan Stanley.”

Jones says: “As far as we can, we will not disadvantage existing investors.”

Chelsea Financial Services bond manager Matthew Woodbridge says: “Everyone will want to reinvest back into the Bolton half, which Fidelity does not want, so there will be a cost.”

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