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Further-nationalised RBS pushes derivatives

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UK - Royal Bank of Scotland (RBS), which was further nationalised today after making its biggest loss in history, is looking to roll out more so-called ‘dynamic strategies', a breed of structured products, for pension funds who seek alternatives to hedge funds.
 
The rule-based strategy, which has been running for two years, is said to promise daily liquidity and a capital back guarantee, and is dubbed dynamic despite officials saying it is invested "without emotions".
 
RBS is now targeting its offering at pension funds who want to allocate more to alternatives, but who have in recent months been put off the risks of hedge funds.
 
"Generally, the wrong clients have bought the wrong products," saids Moritz Seibert, the London-based head of RBS' exotic equity pricing team - which prices the structured products RBS sells in Europe but also develops the products.
 
He concedes offering complex derivatives to institutional investors is usually "a no go", and structured products in general have lacked in performance.
 
That said, Seibert claimed there was no ‘Madoff-risk' - since RBS is a bank and not a fund - and there are no ultra-high-risk strategies.
 
RBS has won a mandate from an institutional investor in Asia, who opted for the product because its equities and fixed income ratios had been used up and it was not able to sell any of its hedge fund holdings.
 
"Legally, they are allowed to put it into their equity space," added Seibert, who thinks this might be another benefit for pension funds.
 
Seibert concluded by stating RBS now wants to offer the product to pension funds and other institutions in Europe.

The announcement comes today at the same time as RBS revealed it expects to report a deficit, before write-downs, of between £7bn and £8bn for 2008 - heading for its biggest loss in history.

The UK Treasury has also swapped £5bn of preference shares for ordinary shares, taking its stake in RBS to nearly 70%.

Elsewhere, the Punter Southall Group (PSG) announced it has formed a partnership with London-based hedge fund specialist Fortune Asset Management, subsidiary of Close Brothers, in the provision of hedge fund services.

"The collaboration between PSG and Fortune will provide PSG's UK customer base with the full complement of Fortune's research, advisory and product expertise with a specific focus on innovative, highly liquid investment solutions," the group said in a press release.

As part of the strategic partnership, at the end of January 2009, Fortune will take over the management of io Alternative Investment Strategies' three Irish listed funds (Grenfell Defensive Equity Fund, Grenfell Low Volatility Fund and Grenfell Select Opportunities Fund) from the previous sub-investment manager, Grenfell PAI Limited.

Fortune has entered into a sub-investment management agreement with the investment manager of the three funds, Grenfell PAI Guernsey Limited.

If you have any comments you would like to add to this or any other story, contact Carolyn Bandel on +44 (0)20 7261 4622 or email carolyn.bandel@ipe.com

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