IFA firm Lowes Financial Management is in talks with CitiFirst about launching a fund that invests in secondary market structured products.
When a client wants to surrender a structured product mid-term, the price can be low as it is inconvenient for banks and providers to buy back the investment.
Managing director Ian Lowes believes that a secondary market would save the bank/provider the inconvenience of buying back the plan, offer the client a higher surrender value as well as providing attractive investment opportunities for the fund.
He says the company does not want to encourage investors to consider structured products as anything other than fixed-term investments but wants to provide a solution above the default option for investors who need to surrender.
The fund would start with £10m seed capital and have the charges of a typical managed fund.
Assets within the fund will have a diverse range of counterparties and the fund is likely to be fully collateralised to negate counterparty risk.
Lowes says the firm has wanted to develop a secondary market for almost a decade and hopes to ultimately provide the facility for IFAs to tender their clients proposed surrenders via its comparison website Structured productreview.com.
He says: “We would like to develop a fund that concentrates on acquiring plans from those that wish to surrender, in much the same way as the second hand endowment developed. This will ultimately benefit the provider, the bank, the client and the market as a whole.”
Chelsea Financial Services head of investments Matthew Woodbridge says: “I think there is some good value out there and in principle it seems like a good idea.”