Westpac considers cap guarantee funds

Australian bank Westpac plans to start launching capital guaranteed funds into the Australian market-place within the next 12 months, according to Stephen Eakin, head of equity derivatives at Westpac in Sydney.

The bank is currently assessing demand among Australian retail investors, but its plans to begin launching funds have been boosted by the acquisition of Rothschild Australia Asset Management in April. The deal to join the two companies' fund management businesses into a single unit was completed in early June, and will combine Rothschild’s 1000-plus independent financial advisors with Westpac’s 765 financial advisors and planners. "At the moment, we are looking into what type of capital guaranteed funds will be successful, but you will see Westpac develop capital guaranteed products over the next 12 months,” said Eakin.

Australian investors have so far resisted the lure of capital guaranteed products, so popular elsewhere in Asia-Pacific, and particularly in Hong Kong, where capital protected funds accounted for 90% of net fund sales last year. SG Australia, a division of French bank Société Générale, is so far the only bank to issue guaranteed funds in the form of its Capital Protected Equity-Linked Securities (Capels).

However, Westpac has already launched deposits linked to the performance of an underlying asset with a 100% capital guarantee. The participation and range deposits – the performance of the former is linked to an underlying asset, the latter gives an greater yield if the underlying asset remains within a defined range - were launched three months ago and have seen significant interest from Westpac’s customer base, says Eakin. The bank is also looking at widening the availability of these products to a broader customer base. “We've been offering the participation and range deposits for around three months, and we've been distributing them mostly to existing customers. But we are reviewing that at the moment to actually roll them out through external distribution and a wider customer base," said Eakin.