Annual gross sales and assets invested in retail structured products in Canada (USDbn)

Canada’s retail structured products market began to evolve from the guaranteed investment certificates (GIC) market in the early 1990s. Growth accelerated as principal-protected notes (PPNs) grew in popularity in 2006 and 2007. In 2008, Canada was impacted by the global financial crisis and falling world equity markets. While the Canadian banks were generally less directly affected by the crisis, investor confidence was nevertheless severely dented. This, together with local factors such as the cashing out of a number of popular portfolio insurance (CPPI) products, led to an overall decline in sales that year of 11.3%.

In 2009, the Canadian structured retail products market was pulled down by the PPN segment, which experienced a 68% drop in sales in the aftermath of the Lehman Brother’s collapse, as investors focused on counterparty risk. In the first two months of the year the market faltered as volatility and record-low interest rates increased the cost of principal protection. Confidence seemed to desert both issuers and investors, as demonstrated by the absence of some issuers and extended offer periods for some products.

Overall, however, sales fell over 39% in the year to just CAD 8.961bn (USD 8.541bn) as issuance fell 14.5% to 864 products. The long-term nature of many products, however, meant the Canadian market’s total assets under management had still increased by 9.2% by the end of 2009 to CAD 66.4bn (USD 63.2bn).