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Fund managers set to fight for &#39baby bond&#39 default fund

Fund managers could find themselves competing with each other to win the mandate to manage the default option for the Government&#39s child trust funds.

The Treasury, which first mooted the idea of child funds in the recent Savings & Assets for All paper, is looking to create a default investment option for parents who do not want to take responsibility as to where to invest their child&#39s money.

But while National Savings is the most likely candidate to run the default administration, the management of the money looks set to be contracted out to a UK investment house.

As a result, the majority of the baby bond market could conceivably drop straight into an individual fund such as the M&G British opportunities or Jupiter UK growth funds.

The successful investment house would secure a continual multi-millionpound annual inflow of funds under management but would initially make very small margins or even sustain a loss on the mandate.

M&G director of sales & marketing opportunities Jeffrey Mushens, who has been closely involved in the Treasury consultation on the scheme, believes that a default option will be crucial to the success of the scheme.

He says: “I suspect that a parent&#39s mind is not on financial matters when you have just had a baby, so I think there has got to be a default option.

“We think it would be quite wrong for the default to be anything but equity. As the research by Autif recently showed, equities have way outperformed cash over the longer term.”

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