Platinum Capital Management has established a single premium offshore bond that features a capital guarantee of 110 per cent.
The Platinum protected plus fund has a five-year term and is registered in the Cayman Islands. It invests mainly in zero-coupon US Treasury bonds, with around 15 per cent going into a portfolio of 12 hedge funds.
The company already has two similar funds which have a capital guarantee of 100 per cent over seven and 10 years respectively. It constructed the Platinum protected plus fund around an idea suggested from its Japanese office, which had requests from its clients for a fund offering slightly more than the return of their original capital.
Zero-coupon US Treasury bonds were chosen because they have a high credit rating, so investors are not exposed to high risks of default. The portfolio of hedge funds is aimed at boosting the returns. They will be chosen after intense research and will be managed by different fund mangers. The main hedge fund strategy used will be long and short equity.
Craig Reeves, managing director at Platinum Capital Management, says that even if the value of the hedge fund portfolio is wiped out, the US Treasury bonds will cover the 110 per cent capital guarantee.
This fund could attract high-net-worth clients who may be put off equities in the current climate and who want capital security with some return on top. However, some potential investors may still equate hedge funds with high risks, even if they are attracted to the bonds in the portfolio.