The Organization for Economic Co-operation and Development (OECD) is the latest institution to issue a warning about the supposed risks inherent in structured products. Last month, Adrian Blundell-Wignall, deputy director of the OECD Directorate for Financial and Enterprise Affairs, authored a paper that argued: "Structured products are passive in nature (unlike hedge fund active styles), focusing on providing returns for different risk profiles of clients. (Yet) these products have not been tested when major anomalies in volatility arise." What's more, structured products "are highly exposed to downward price gaps in the 'risky' assets used in their construction," Blundell-Wignall wrote.
Maybe. But haven't structured products already shown their resilience to adverse market movements? Corrections have come and gone, but the uptake of structured products hasn't suffered. Like other investments, structured products might take a hit following stock market falls or spikes in volatility, but derivatives-based investments frequently provide that all-important feature called capital protection - hardly a bad thing in such scenarios.
The OECD is right to acknowledge the need for better consumer education and protection. But its main point - that stress testing needs to be improved - is as obvious as suggesting that humans need to eat and drink, and not really worth mentioning.
I have to say, I'll miss reading such reports, as this issue marks the end of my tenure as editor of Structured Products. Since our launch in October 2004, I've seen the established markets mature and new markets emerge. From my vantage point, the continued uptake of structured products by US retail has been a real success story. And the current moves, on a global basis, towards more coherent marketing principles, a continued focus on client education and the rise of structured products ratings can only be applauded.
I leave the magazine in the capable hands of its publisher, Peter Petkov, and the new editor, Richard Jory. And before I sign off, I'd like to say what a pleasure it's been covering these markets, and how much I've enjoyed speaking with and meeting subscribers during the past few years.