Protected in principal

Banks are launching innovative new structured products that take advantage of an investment technique known as CPPI, which hedges risky assets against non-risky assets, thus providing leverage but also protecting principal. John Ferry reports

With corporate spreads now at such tight levels, the task of finding payoffs that will interest investors is particularly difficult for makers of structured credit products. But it is the structured product designer’s job to innovate and create marketable products, regardless of prevailing economic conditions.

In the credit derivatives arena, that currently means encouraging investors to either leverage up their exposures or directly take on more risk. This explains the current