Fabian DePrey of RBC Capital Markets explains some of the current trends in structured products in Asia, including what private banks now expect from product manufacturers, and how to ensure suitability.
Date: Jan 2012
Tags: Structured products, Liquidity, Suitability
The problem before 2008 was that investors were focused on pure yield-enhancement products where they were trying to make as much money as possible, he explained.
Today, said DePrey, investors are looking for more liquid structures on underlyings they know well, and where the pay-off structures are a lot simpler.
This indicates a return-on-investment approach more than just yield enhancement, he added.
Expectations of product manufacturers
In the post-financial crisis environment, private banks expect three things from product manufacturers, said DePrey.
First, they increasingly look for a solid rating from the issuer. Secondly, they expect a lot of flexibility in the level of service they get. And thirdly, competitive pricing remains very important.
At the same time, DePrey added that a key element of service requirements today is liquidity.
For instance, many people think that a structured product has a fixed maturity, but it is important to ensure liquidity throughout the life of the product to enable private banks to buy back the product at any time, depending on market circumstances, he explained.
Ensuring suitability
According to DePrey, product providers can always help the private bankers to understand the various structured products better and help them explain them to the end-client in a clear way.
This involves various education efforts and developing marketing materials to explain the products effectively.
