The Singapore-based firm has raised $350m from the initial public offering of its second fixed maturity product (FMP) in Taiwan this year, according to a press release.
The six-year FMP has two unusual features for a product whose appeal to investors typically lies in a guaranteed fixed tenor and regular income distributions: the whole fund could be wound up earlier than scheduled and it only pays out once a year.
Although the final maturity date is 21 August 2025, the fund will be automatically redeemed on the last business days of August in 2022, 2023 and 2024 if the NAV reaches $11.8 or $12.4 or $13.6, respectively.
“It would be defaulted and mandated to the fund manager as an auto redemption term,” Xavier Meyer, head of distribution at Eastspring told FSA.
The portfolio’s average credit rating is BBB-, and it comprises 60 individual bond holdings, with exposure to 22 countries across emerging Asia, Latin America and Europe, Middle East and Africa.
Its yield-to-maturity will range from 6.2% to 6.5%, and the target annual payout yield for the first five years sequentially is 3%, 4%, 5%, 6% and 7%, and capital and the remaining income will be paid out on the 2025 maturity date, subject to the final NAV – although full principal repayment is not guaranteed, said Meyer.
A FMP’s fixed-term strategy helps investors lock in yields at current levels for a predetermined period against a backdrop of declining government bond yields, while a diversified portfolio of good quality securities aims to cushion the impact of any defaults and the short tenor should reduce interest rate risk.
Moreover, FMPs typically deploy a “buy and maintain” approach to avoid re-investment risk, and that will also mean lower transaction costs and total expense ratios compared with traditional bond funds.
Eastspring Taiwan received regulatory approval for its new product on 21 June and commenced marketing to retail and institutional investors in July. There are 17 distributors, including Bank of Sinopac, Chinatrust Bank and Standard Chartered Bank who are the key distributors, said Meyer.
Meyer said that the firm “looks forward to growing [its] FMP offerings and capabilities as [it] continues to develop innovative investment solutions suited to the current volatile market conditions.”
Foreign asset managers operating in Taiwan have launched around 20 FMPs domiciled onshore since June 2018, which accumulated NT$103.46bn ($3.3bn) in assets as of the end of June 2019, according to data from Morningstar Direct.
Of those products, 13 were launched this year and they have had total net inflows of NT$67.7bn.
Five foreign managers have taken advantage of the FMP craze, led by Invesco and Schroders, and including Eastspring which launched a $340m FMP at the start of this year.
In fact, the demand for FMPs throughout Asia has been strong, with several managers creating products either for the private bank or retail market.
Earlier this month, Invesco launched an SFC-authorised FMP and Aberdeen Standard Investments applied to the Monetary Authority of Singapore to sell an FMP to the country’s mass market, joining HSBC Global Asset Management, Hang Seng Investment Management, and Bea Union Investment Management which have also targeted retail clients.
Eastspring, which is the Asian asset management arm of Prudential, has not yet followed that route, but in July launched an FMP to high net worth individuals in Hong Kong, Singapore, the UK and the Middle East through Standard Chartered Private Bank, which raised around $417m from investors. Other managers that have targeted the Asian clients of private banks include Amundi, Aviva, BNP Paribas Asset Management and HSBC GAM.
FMPs have attracted interest from wealthy clients of private banks in particular, because they are often able to obtain leverage to boost the income payout.
