SG to offer 'mountain range' funds in Asia

In mid-May, the French bank opened its Everest Guaranteed Fund to Hong Kong investors. This product combines views on both volatility and correlation, allowing the investor to receive a 100% guarantee on capital, as well as a series of locked-in coupon payments.

The four-year fund offers a guaranteed coupon for the first year - currently estimated to be between 5% and 8%, with the actual coupon to be set at the June 18 launch date - with locked-in coupons for the remaining maturity of the fund based on the worst performer in a basket of 15 blue-chip stocks. After the first year, investors receive a coupon of 8% if the underlying stocks remain flat, and a higher coupon if the worst performer rises. If one of the stocks falls by 50% or more, the coupon for that year will be zero, but a security trigger then kicks in, allowing the fund manager to replace this stock. Coupons in the third and fourth years are ‘locked-in’ so they cannot be lower than that of the previous year.

Another mountain range product to make its debut in the Hong Kong market is Altiplano, launched in the guise of SG’s Double Chance Guaranteed Fund last month after a month-long offer period. This fund offers a 200% return on capital over 4.5 years, or participation in the performance of a basket of 15 stocks with a 100% capital guarantee. Investors can achieve the 200% return if none of the underlying stocks falls below 62% of its initial value between November 2004 and November 2006.

Both funds have a shorter tenor than their European counterparts, a result of less stringent tax laws in Hong Kong, and Asian investors’ penchant for shorter-term investments, said Wilson Lee, senior vice-president of equity derivatives and structured products at SG in Hong Kong. “In Europe, if your investment is longer than seven years, you get a tax break. It’s a different story in Hong Kong and investors like investing for shorter periods of time,” he said.

So what of SG’s other European mountain range products – Himalaya, Kilimanjaro, and Annapurna? “We have a big range of products and structures we can use thanks to our financial engineers in Paris,” comments Nicolas Reille, senior vice-president of structured products, Asia ex-Japan, at SG in Hong Kong. “But we will try to find the ones that will be most successful in Hong Kong. We may have other products in the pipeline that are not part of this range of products.”