I was looking at a list of funds which had large movements over the past month and the Pru 3Plus fund caught my eye. There was a drop of almost 40% from the previous month’s valuation.
In case you are not aware, the Pru 3Plus has a structure similar to structured products like Pinnacle 9. The capital is at risk if there are more than X number of defaults from the underlying 100+ entities. Mathematically, this occurs when the subordination level reaches 0%.
The price history of Pru 3Plus is as follows:
100 (Jun 08)
100 (Jul 08)
89.6 (Aug 08)
54.8 (Sep 08)
20.9 (Oct 08)
21.3 (Nov 08)
24.0 (Dec 08)
22.7 (Jan 09)
14.1 (Feb 09)
The drop in valuation in September 08 was partly due to the default of Lehman Brothers, which bought the subordination level down from 2.824% to 2.674%. Kaupthing Banki HF defaulted in October 08, which reduced the subordination level down to 2.083%.
While there has been no notice from Prudential of any further defaults since then, the huge valuation drop in February is certainly cause for concern.