UK

HSBC offers low-cost protected retirements funds with exposure to global equities

Published: 19 May 2009

HSBC this week (20 May) launches five new unit linked Protected Retirement Funds aimed at trustees of occupational pension schemes.

These funds are designed to allow investors to maximise their exposure to potential growth in global equity markets, while protecting capital against downward trends through the use of CPPI*. If held to maturity, investors will get back 100 per cent of the value of contributions made, plus 100% of any investment gain achieved while exposed to global stock markets. The funds offer varying close-ended maturity dates, phased in five-year periods from 2020 to 2040.

Pension contributions will be invested in a portfolio of performance and protection assets where the dynamic allocation between the two will be determined on a daily basis by algorithm rather than by any active management - the obvious advantages being lower cost and the added benefit of downside protection.

Payments into the Protected Retirement Funds, through a Trustee Investment Plan, can be made as single premium contributions, regular contributions or both. Since the formulaic approach to management enables charges to be kept to a minimum, the annual management charge (inclusive of the cost of protection) will be a market leading rate of 1 per cent.

Protected equity funds have been around for some time in the retail world but investors have often been faced with entry costs, minimum contribution levels and high fees. HSBC is now offering a series of funds to the institutional market that will be easy to understand, provide real value, and are daily priced and dealt.

Peter Cox, Head of Defined Contribution Services at HSBC Global Asset Management, said: "Not all DC investors are comfortable with volatility with past performance being a key driver in contributions continuing to be paid. The 'fear of regret' emotion probably prevails more so now in savers minds than at any point before. These funds have, therefore, been launched at the right time to appeal to cautious investors."

Ian Martin, Head of Retirement and Life Investments, HSBC Insurance UK, said: "The Protected Retirement Funds are ideal for investors who want to save for their future while insuring against the risk of losing some of their hard-earned savings and investment returns in increasingly difficult markets. The funds offer our customers a unique combination of 100% protection of their capital at an affordable price with significant global equity exposure for both regular and lump sum pension savings."

HSBC believes these funds will provide cause for pension savers to be more confident and proactive about their retirement savings, amid an environment where participation/subscription rates are insufficient and almost 90% of scheme members elect to take the default option.

Media enquiries to:
Jenne Mannion on +44 20 7024 0444
jenne.mannion@hsbc.com

Jane Crookbain on +44 0 207 024 0412
Jane.crookbain@hsbc.com

Footnotes:

The Protected Retirement Funds are provided and managed by HSBC Life (UK) Limited, part of HSBC Insurance. The underlying fund manager with regard to the performance asset is HSBC Global Asset Management.

* CPPI (Constant Proportion Portfolio Insurance) enables maximum stock market exposure, while maintaining a minimum guaranteed return at the end of a period. The structure is comprised of 'protection' and 'performance' assets which are rebalanced on a dynamic basis depending on market performance. CPPI is rules-based.

Exposure to global equities is gained via an HSBC Life Global Equity Index Tracker Fund. This fund offers investors the opportunity to grow their money in line with the performance of various regional indices that represent company shares from around the world. Around half of the shares will be in UK companies.

The protection assets consist of cash and fixed income instruments specifically developed for this purpose are provided by HSBC. These instruments are designed to generate the returns required to provide at least the protected unit price for each plan.

How it works: Each Protected Retirement Fund will be made up of one or more sub-funds called 'Plans'. Following the launch of the Protected Retirement Funds, contributions will be allocated to Plan 1 for each fund and invested in an investment portfolio comprising performance assets, which give exposure to global stock markets, and protection assets.

During the term of each Protected Retirement Fund, HSBC adjusts the allocation of investments for each Plan between the performance assets and protection assets to ensure that HSBC is able to pay the protected unit price for the Plan on the maturity date. Over the term of each Protected Retirement Fund, it is expected that contributions will be invested in one or more different Plans. The number of Plans for each Protected Retirement Fund will typically depend upon the length of the term, performance to date and market conditions during that period.

HSBC Global Asset Management

HSBC Global Asset Management manages assets of USD375.03 billion (as at end January 2009). Through its network of offices in over 20 countries around the world, HSBC Global Asset Management develops strong relationships with corporates, institutions and financial intermediaries of all sizes and types. HSBC Global Asset Management acts as the global representative of its specialist investment businesses. HSBC Global Asset Management is part of HSBC Global Banking and Markets, a division of HSBC Holdings plc. For more information see www.assetmanagement.hsbc.com

HSBC Insurance

HSBC Insurance provides policies in over 40 countries and territories to its personal, commercial, corporate, institutional and private banking customers. The diverse needs of its customers worldwide are recognised by HSBC Insurance and it offers products and services to suit them including: life assurance, general insurance, commercial risk and retirement provision. Find out more at www.hsbc.com/insurance

HSBC Holdings plc

HSBC Holdings plc, the parent company of the HSBC Group, is headquartered in London. The Group serves customers worldwide from around 9,500 offices in 86 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa. With assets of US$2,527 billion at 31 December 2008, HSBC is one of the world's largest banking and financial services organisations. HSBC is marketed worldwide as 'the world's local bank'.