UK market charges up to continental leaders

Positioned somewhere in the middle is not the ideal place to be when starting out as a funds boutique in the cluttered European market. But Blue Sky Asset Management, a structured products manager based in London, has set out its stall as just that. Chris Taylor, chief executive, and Mark Dickson, product development and operations director, were not put off by the general negativity swirling around the City when they launched Blue Sky during the scariest moments of 2007’s credit crisis. “We saw a gap in the market for an independent specialist with a proprietary research capability and, surprisingly, the industry dynamics means this is quite unique,” says Mr Taylor, who, like co-founder Mr Dickson, learned his trade in structured products distribution and development at HSBC Investments. Funded through personal money, the independent Blue Sky has a three-year business plan which Mr Taylor calls “relatively” conservative. “We will sink or swim on the merit of our investment proposition,” he adds nevertheless. What Blue Sky is proposing –­ highly researched stock-specific income and growth products with strong investment returns, its management reckons will help underpin the uniqueness of the Mayfair-based funds house. “The industry is currently polarised between big brand institutions and small asset managers, and we saw an opening somewhere in the middle for a different proposition, for a very hands-on specialist boutique.” Blue Sky received regulatory clearance from the FSA in December 2007 and has just launched its first structured product – The Protected Income Plan – offering an annual fixed income of 10 per cent based on a bespoke portfolio of major UK bank shares. “We’ve sought to dissect the indiscriminate and overenthusiastic selling off of all UK banks into a value proposition for investors,” explains Mr Taylor. This selling off, which came in the first instance as a consequence of the subprime exposures announced by global investment banks, has resulted in lower valuations in the shares of many UK retail banks. “We found a depressed valuation of certain stocks was leading to high dividend yields and we could use this – and the volatility of the UK banking sector – to turn things on their head,” says Mr Taylor. Information provided by Redtower, Blue Sky’s independent research partner, found an average dividend yield of 6.35 per cent for the UK’s big five banks in December and a price earnings ratio of below 8 per cent (7.89 per cent). “It was a good time to lock in this yield and deliver it to investors through accessing good value stocks,” says Mr Taylor. Completely safe And even allowing for falls of up to 65 per cent in one or all of the shares in the portfolio, the plan’s downside portfolio barrier level ensures a 100 per cent capital security. “This level of capital protection, coupled with high income, is unprecedented,” explains Mr Taylor. “Usually, increasing the level of investment income (10 per cent) would mean raising the portfolio risk, but we’ve, in fact, done the opposite.” Blue Sky is looking to add to its structured products range by launching asset allocation-themed growth funds in the first quarter of 2008. “Being a boutique means we can deploy products and ideas quickly and be more responsive to the demands of the astute investor,” says Mr Taylor. In addition to high net-worth individuals, Blue Sky will be targeting retail pensions (with self-invested personal pensions, or SIPPs, an important driver) and charities. But Blue Sky’s chief executive thinks 2008 could be the year of the structured product in the UK. “Everything is falling into place for the market,” he says. Research commissioned by the funds boutique suggests that the UK structured products market could reach £10bn (?13.2bn) in sales this year, compared with an estimated £7bn in 2007. “Investors and intermediaries are looking for wider access to structured products and it is obviously a good time to consider alternatives to traditional investments.”

Chris Taylor, Blue Sky