Editor’s letter



2005 promises to be an interesting year for the structured products market. Not least for the fact that everyone I spoke to this month had very different ideas about what interesting developments may occur. Some are adamant that commodity-linked products are in the ascendance; others remain to be convinced. As for hedge fund-linked products – the views are even more divergent. While some market participants are boasting about inventive new structures, others scoff at the very notion that investors will be tempted to ‘risk’ their hard-earned cash in anything associated with the misunderstood and ‘shadowy’ world of hedge funds.

But such views are as misguided as the suspicion being heaped on to hedge funds by the mainstream press. Encouragingly, more and more work is being done to create innovative fund-linked products. Last month, for example, HFR Asset Management and Dresdner Kleinwort Wasserstein announced US dollar and euro classes of what they believe is the first ‘himalaya’ structured product on a hedge fund index universe.

And investor education, too, could help eradicate hedge fund prejudice. London-based Pinder, Fry & Benjamin, for one, has produced a guide to hedge fund investing for its IFA clients, just ahead of the launch of its CPPI-based hedge fund product.

US investors also appear to be warming to the idea of fund-linked products, says a recent report from the Structured Products Association. In fact, US investors seem to be embracing structured products as a whole, with sales of registered products up 20% to more than $12 billion for 2004. It’s a welcome development and Structured Products will closely monitor the market’s growth throughout 2005.

Another hotly tipped growth region is eastern Europe. As we report in our cover story, the model that has evolved for structured products in the region is one of western European banks taking their tried-and-tested products and tweaking them to suit the eastern market. The strategy appears to be working. But lets hope that innovation, rather than mere replication, will win out.

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