Daniel Sheard, manager of the pounds 5m Jersey-based Reserve Asset Fund, resigned as soon as the under-valuation of the fund was uncovered this month.
In an internal memo, Mr Sheard blamed the mistake that led to the mispricing of the Jersey cash fund on the pressure he was under managing Hypo Foreign & Colonial's much larger Higher Income Plan.
The Higher Income Plan has attracted almost pounds 500m from 70,000 investors. It uses derivatives to pay a high level of income - now 9 per cent. It has been subjected to intense press and regulatory scrutiny because of fears that investors' capital would be used up in an effort to maintain the level of income.
In the memo, Mr Sheard said: 'I was suffering from great pressure of work at the time as a result of my work with the Higher Income Plan and this was another problem with which I could not cope.'
Simon James, Hypo Foreign & Colonial managing director, said that Mr Sheard had invested in a fixed-interest security that was outside the spirit of the rules governing the fund. 'Daniel bought a short-term note in February with a maturity date in October. The note was priced accordingly.
'In fact, the character of that note turned out to be significantly different. It was a hybrid note, which showed the volatility of a 34-year bond.'
He said the value of the fund was hit by the turmoil in the bond market earlier this year, but it continued to be priced at a higher level.
'When Mr Sheard went on holiday the mistake was uncovered, and he was confronted when he came back. He immediately offered to resign.'Reuse content