Liontamer in the news

Sunday Star Times 29 June 03

Taming risks for investors - structured products have uniquely New Zealand focus

Garry Sheeran (Financial Reporter, Sunday Star Times)
29 June 2003

A new local investment management company is offering capital-protected investment products designed specifically for the New Zealand market.

Also known as structured products, they have been sold to investors in New Zealand since the mid-1990s, but have always originated from overseas and mainly from Australia. The only local exception has been a structured product series produced for the BNZ by former development manager Laetitia Peterson.

Peterson quit BNZ last month to set up the first Kiwi company, Liontamer, whose sole focus is developing structured products for local investors. The popularity of structured products has soared recently because of the capital protected, or capital guaranteed, element common to most.

Global sharemarkets have slumped in recent years and many investors have lost heavily. But Peterson said capital protection was not the only attraction of Liontamer's structured products. "They are also simple and tax efficient for investors," she said. Tax efficiency comes through the products being structured as Australian unit trusts, which provide breaks for Kiwi taxpayers and which are used by product providers besides Liontamer.

Simplicity lay in the fact that people were investing in a product that has fixed rewards and risks, said Peterson. "Investments are 'structured' because the returns investors receive and the risks they face are fixed at the beginning of the investment," she said. "You know exactly how your investment will perform, in terms of potential upside and downside."

Finance industry sources say one of the reasons New Zealand has lagged the rest of the world in producing structured products was that it did not possess the expertise to put them together. However, Peterson's work at BNZ and previously with Goldman Sachs in New York, and studies in Chicago (the home of derivatives) and her homeland Belgium have established her as a local expert in her field.

Working with her in Liontamer is Kiwi Janine Starks who worked for six years in the structured product market in Britain with the powerful Chase de Vere advisory group and former Bankers Trust business development manager Michael Lodge.

The three have invested more than $200,000 into their start-up business, and recognise it may be some time before they see a return on their investment. "But we are here for the long term, and are happy for that," said Peterson. "We want to move the (structured products) market in New Zealand forward. We're playing catch-up with the rest of the world."

She said Britain was a good example where structured products had taken off. Last year alone more than 300 structured products were launched by 68 providers. It was now an $18 billion market, with sales having doubled in the last five years. Lodge said with $100b in managed funds and bank term deposits in New Zealand, there were opportunities to grow structured products to around $10b over the next decade.

Peterson said Liontamer's ability to compete successfully with capital protected products from big banks and institutions lay in the company's size. "We're small and agile, we know the market and we know structured products," she said.

Liontamer's first product follows the fortune of the MSCI World Index, which measures the fortunes of global sharemarkets. Investors' money is pooled and used to buy equity-linked notes which are issued by giant global investment bank Morgan Stanley which hedges its own risk in the derivatives market.

The value of the notes reflects the value of international shares as measured by the MSCI World Index over seven years. If the index doubles during that time, so will an investor's original deposit. If the index falls, investors will still get their deposit back, plus 1% for each of the seven years' term of the investment.

Managed fund research house FundSource chairman David van Schaardenburg said the popularity of capital protected products in the current investment climate was understandable. But he said investors paid a price for the protection afforded through structured products - usually in the form of dividends forgone to pay for the insurance premium. If investors wanted security, they should invest in a cash fund; if they were willing to invest in global shares, they could use an ordinary index global share fund which would allow them to benefit from dividend payments.

Liontamer said while it would be giving up around 1.5% in dividends after tax a year, that was compensated for by no annual management charges on structured products.

Peterson said work on the next Liontamer product was already under way, and there was also the possibility they could manufacture products for banks and big institutions.