2004 will be regarded as the year structured products went mainstream in America, according to the US Structured Products Association’s winter newsletter.
Sales of registered structured products were up more than 20% to more than $12bn.Large retail institutions such as Raymond James, DB Alex Brown, CSFB Private Client Services and Wells Fargo staffed their distribution channels with structured products experts for the first time, and news reports suggested that twice as many private investors held derivatives-based products in their portfolios than in 2000.
Investors are willing to trade away upside in return for capital protection, income, or capped leverage, said the association. The drivers to the trend are investors’ continued aversion to risk in a market characterised by sideways-trending equities and low interest-rates.
2005 will see exponential growth in hedge fund structured products, said the association, as US dealers learn how to model risk-reward profiles from their European competitors. The report also anticipates demand for ‘alpha transport’ (‘transfer’ in European parlance) structured investments among pension plans, family offices and institutional investors. And finally, if the SPA has its way, 2005 will be the year that best practices become a major focus of the US industry.