Singapore gets first directly marketed offshore fund

AIG will distribute a Deutsche yield-enhancement fund to retail investors.

Singapore has allowed the direct marketing of offshore funds for over a year now, although only late last year did it expand this to money from the Central Provident Fund scheme. Now AIG is to distribute what is claimed to be the first offshore fund recognized for public distribution under Singapore's Securities and Futures Act.

Although AIG will sell the fund under its own name as the AIG Yield Enhancement Fund and via its own distribution network, including banks such as Maybank and Standard Chartered, it is actually a creation of Deutsche Bank and comes from its Xavex line of Luxembourg-listed SICAV funds, says Vinod Aachi, head of Deutsche's relative value group in Singapore.

This is the second Xavex product to reach Asia as Deutsche already sells an equity-linked fund via Nanshan Life in Taiwan. The firm is also looking at possible products to sell to Hong Kong.

The yield-enhancement fund will invest in Aa1/AA or Aaa/AAA-rated bonds, then swap those with Deutsche Bank for 25 names further down the yield curve, as low as Ba3/BBB-rated. Deutsche enjoys the risk and return of the higher-rated paper, while the investor gets the higher yielding, if riskier, exposure. The bank then can enjoy making a spread while Singaporean retail investors get access to a bond fund with relatively high yield.

The fund will have a lifespan of 4.5 years and is denominated in Singapore dollars. Total commissions and fees are decided by AIG but range from 130-170 basis points, plus 15 basis points for service and tax.

Aachi could not comment on why Deutsche Bank decided to distribute via AIG rather than Deutsche Asset Management, except to say it is possible to use DeAM for future products. One reason may be that this is a retail product, and DeAM's strength is institutional.

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