Circus Capital, a UK- and Hong Kong-based asset manager and provider of structured products, is offering new alternatives to Hong Kong and European clients stuck in low-performing with-profits funds offering by several British insurance companies offshore.

These are schemes sold by insurance companies that are 'with profits' because the asset managers smooth out returns, but because they are not marked to market on a daily basis, their actual performance is not transparent to investors.

These schemes were hot in the late 1990s, when the Nasdaq guided equity markets skyward and normally staid with-profits schemes were returning as much as 10% annually.

It became apparent however that the poor equity markets of 2000-2002 which asset managers were good and bad. Clerical Medical Insurance, for example, lost 24% in 2001 in one such scheme. Performance was compounded by the realization by these insurance companies that they had to meet impending guarantees and so moved substantial portions of these equities funds into bonds, an egregious case of style drift. In addition to Clerical Medical, other insurers managing turkeys included Scottish Mutual and Scottish Widows.

The situation became dire when investment advisors such as the disgraced Towry Law urged clients to use leverage, sometimes heavily, to invest in these bombs.

Clients stuck in these schemes can either sell out at a terrible loss, or stay and pray for a miracle upon maturity.

Circus Capital initially helped Towry Law structure some of these products that were then sold to investors in Hong Kong and Europe.

It also distributes its own with-profits schemes, but using asset managers at Norwich Union and Prudential, two UK insurers that have got it right and continue to enjoy strong performance.

Circus has been offering investors trapped in loss-making with-profits schemes an alternative: transfer into Circus' own Diversified Smooth Growth Fund, which invests in Norwich and Prudential with-profits schemes, without leverage. "Instead of selling, go to someone better," says Paul Robinson, managing director at Circus in Hong Kong. Investors in schemes with market-value adjustors (MVAs) can periodically redeem early.

Circus has set up a buy-out vehicle that buys investors' stakes at net present value. Investors may not realize their guarantee but they can get their money now and put it to work in better-performing vehicles, says the firm.

Now Circus is tweaking this offering, so that clients who decide to get out of undesirable schemes have to transfer assets to its own DSG Fund. They may now opt for a pure cash buy-out, says Harvey Athwal, new business development director.

Robinson estimates there remains around $1.5 billion left in Scottish Mutual with-profit schemes, and more at Clerical Medical.