UK - A fund has been launched to provide pension fund investors with a high-quality investment strategy intended to deliver better yields than those available from bank deposits and money market funds.

The Payden Sterling Reserve fund will invest in a diversified portfolio of high-quality, sterling-denominated securities including gilts, supranationals, agencies and corporate bonds. 

The fund has an AAA rating from Standard & Poor’s.

Robin Creswell, managing principal at Payden & Rygel Global, said: “Given today’s extremely low interest rates and prospects that more than £5bn of local authority deposits may be ready to roll over in the next few months at very low rates, this is an opportune time to offer this fund.

“For the first time in a number of years, the UK interest rate curve has a steeply positive slope, rewarding investors with better yields for longer-dated maturities.

“We have repeatedly been told investors are interested in finding good alternatives to bank deposits and money market funds in the current environment, and this fund addresses that demand.”

According to Creswell, institutions are suffering pressures from different directions while trying to achieve their objectives of capital security, liquidity and yield.

In many cases, he said, counterparty lists have been reduced dramatically to just half a dozen or fewer. 

“Furthermore,” he added, “those acceptable counterparties know how desirable they are as a deposit-taking institution, and either demand unattainably high minimum deposit balances, or offer rates as low as 30 or 40 basis points.

“As an alternative, clients have turned to money market funds, which provide counterparty diversification. 

“However, these funds are now under extreme pressure as their guidelines have become increasingly restrictive, and yields after fees are approaching a zero return.”

The Irish-listed UCITS fund will offer daily liquidity, with a minimum initial investment of £1m.

Portfolio statements will be updated daily, with fund holders able to access this information online.

The fund will be FSA-authorised from 22 June.

 

Topics