"Banks need to provide innovative products to avoid getting stuck in a commoditised hell." This was the pull quote emblazoned across the front page of the FT Fund Management section of the Financial Times on May 9. The article detailed the findings of IBM's 2005 survey of European private banking, which found that 84% of banks questioned believe their clients are more risk averse than they were two years ago – despite the rebound in stock markets.
In another recent article, however, the FT was somewhat critical of structured products. It quoted Robert Lockie, a certified financial planner at London-based Bloomsbury Financial Planning, noting how "he has problems with structured products' lack of transparency, counterparty risks, frequent tax-inefficiency, and lack of dividends." Lockie essentially believes structured products have been in demand because of "a degree of desperation", the FT reported.
It's plain to see that structured products have a lot to offer, however – especially to those risk averse investors keen to avoid the "commoditised hell." In this issue we report on some particularly innovative products that also offer that all-important level of protection.
Axa Investment Managers and Dutch bank ABN Amro have, for example, launched a retail structured product linked to the performance of credit default swaps while Deutsche Bank, along with Abu Dhabi Commercial Bank, has just completed the first ever sharia-compliant transaction for high-net-worth clients, linked to a basket of commodities. In the US, meanwhile, Californian powerhouse Wells Fargo is looking to develop structured products linked to economic derivatives. These are exciting developments.
Less encouragingly, the closure and enforced receivership of Canadian hedge fund Portus has spread panic throughout Canada. Dealers there say it hasn't yet had an impact on other sales of hedge fund-linked structured products, but the episode has once again highlighted a worrying trend: Portus, like so many before it, misled investors with confusing and contradictory marketing materials.
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The week on Risk.net, July 7-13, 2018Receive this by email