Last week, US structured products professionals were stunned by the news that Morgan Stanley let go 34 of its 40 structured products personnel on Tuesday (April 22).
While The Street has grown accustomed to news of cuts in profitable structured products groups of the "lower" 5% to 10% of personnel (Lehman, Citigroup for example) given the deep pain most firms are experiencing as a result of proprietary subprime losses. But the Morgan Stanley news has profound reverberations and defies conventional thinking.
At first blush, it appears that the terminations involve mostly "inside" marketers -- those responsible for sales of structured investments to the former Dean Witter and Morgan Stanley private banking distribution channels. The surviving six appear to be third-party marketers, those responsible for developing new lines of business through independent RIA and regional BDs (a highly coveted group, that represents about 40% of structured products sales).
Bottom line: Morgan Stanley appears to be making a strategic decision that, internally, structured products can be still be sold effectively without the intermediation of 34 internal marketers -- but, as is often said, structured products are not bought; they are sold. The Morgan Stanley experiment will be closely watched by others with internal distribution to see if this is an astute cost-cutting move . . . or a misplaced over-reaction occasioned by its ongoing subprime woes.
SPA-2008
Sunday, April 27, 2008
USA Today: "Gimmicks Not Good Investments"
Exchange-traded notes: Don't even think about it
by John Waggoner, USA Today
April 27, 2008
Wall Street has many useful maxims, such as "Don't catch a falling knife," "Don't fight the Fed," and "Count the silverware after the CEO visits." Now, it's time to add another: Beware of complex investments with cute names.
Wall Street has created a new generation of investments, called exchange-traded notes, or ETNs, which go by names such as BOXES, LUNARS, MITTS, PERQS and PISTONS. Except for the plainest of plain-vanilla ETNs, you should handle them like XPLOSIVs.
ETNs are a relatively new development. The value of an ETN depends on the movements of a stock index or, sometimes, even an individual stock. And, as you might have guessed from their name, ETNs trade on the stock exchange — typically, the American Stock Exchange.
In those respects, ETNs are fairly similar to their cousins, exchange-traded funds. But ETNs have a big difference: They are debt securities, not equity securities. When you buy an exchange-traded fund, you're buying a slice of a diversified portfolio of stocks. When you buy an ETN, you're buying a promise — specifically, the promise that the issuer will pay the note according to the terms laid out in the ETN's prospectus.
Those terms can be simple or complex. Let's start with a simple one: The iPath Dow Jones-AIG Commodity Index Total Return ETN, which trades under the ticker DJP. The note pays no interest, but the issuer, Barclays, will pay a cash payment at maturity equal to the gain on the Dow Jones-AIG Commodity Index total return. The maturity date is June 12, 2036.
You can sell the note before it matures, at which point you'll get whatever other investors feel it's worth. As of Thursday, its value was up 9.2% in 2008.
Jeffrey Ptak, Morningstar's director of ETF research, likes DJP because it does a better job tracking the index than an ETF can. A fund has to use futures and other investments to track the commodity index. Because a note isn't a fund, it doesn't have to line up investments that mirror the index. All it needs is the promise to pay according to the index's movements.
As a way to get broad exposure to commodities, Ptak says, DJP isn't bad. The index the note uses is well-diversified, and the overall cost to investors is decent. "I think it could be cheaper, but it's hardly expensive," he says.
The more complex ETNs can be complex indeed. Consider the Capital Protected Notes based on the Morgan Stanley Capital International Europe, Australasia and Far East stock index. The notes trade under the ticker EEC.
Here's the deal: Like DJP, EEC pays no interest over its term, which began May 23, 2005. Each note was issued at $10. When the note matures on Dec. 30, 2008, the underwriters will pay note holders $10 per note. This is where the "capital protected" part comes in: If you hang onto the note, you'll get your money back.
The trade-off is that you give up some of the potential gains from the EAFE index in return for the capital protection. In this case, you give up quite a bit. The note takes the index level at four different dates and averages them together. The percentage difference between the average of the four dates and the starting date is your return.
In a rising market, your gains from this ETN will be considerably lower than if you had simply bought an ETF that tracked the index. (The average will be smaller than the difference between the start and end point.) Given this snakebit market, you might think that the smaller returns are a good trade for preserving your principal. Should the market soar, however, you'll probably feel considerable buyer's remorse.
ETNs have a few other considerations:
• Counterparty risk. As we mentioned earlier, an ETN is backed by a promise. Although the issuers of these notes are large, financially strong firms, you should be aware that, at least until recently, everyone thought that investment bank Bear Stearns was financially strong, too.
• Tax risk. The IRS is reviewing the tax treatment of ETNs and may consider taxing ETN profits as interest, rather than at lower capital gains rates. Already, the IRS has ruled that single-currency ETNs will be taxed at ordinary income rates.
• Commissions and expenses. ETNs are generally cheaper than mutual funds, but you'll have to pay a commission. Your broker may tell you that you can buy an ETN on its initial offering with no commission, but that's not entirely true: The commission is part of the initial offering price.
Generally speaking, the more complex the deal, the more you should avoid it. "The structured notes are getting gimmicky," says Harold Evensky, a financial planner in Coral Gables, Fla. Gimmicks are not good investments.
Although you may well find notes that suit your overall investment outlook, bear in mind that the firms that offer ETNs aren't looking to lose money on the deal. It's a bit like betting against the house at a casino. So stick with simple ETNs, or stick with ETFs. The top-performing ETFs are in the chart.
John Waggoner is a personal finance columnist for USA TODAY. His e-mail is jwaggoner@usatoday.com. The source for this article can be found by clicking here.
by John Waggoner, USA Today
April 27, 2008
Wall Street has many useful maxims, such as "Don't catch a falling knife," "Don't fight the Fed," and "Count the silverware after the CEO visits." Now, it's time to add another: Beware of complex investments with cute names.
Wall Street has created a new generation of investments, called exchange-traded notes, or ETNs, which go by names such as BOXES, LUNARS, MITTS, PERQS and PISTONS. Except for the plainest of plain-vanilla ETNs, you should handle them like XPLOSIVs.ETNs are a relatively new development. The value of an ETN depends on the movements of a stock index or, sometimes, even an individual stock. And, as you might have guessed from their name, ETNs trade on the stock exchange — typically, the American Stock Exchange.
In those respects, ETNs are fairly similar to their cousins, exchange-traded funds. But ETNs have a big difference: They are debt securities, not equity securities. When you buy an exchange-traded fund, you're buying a slice of a diversified portfolio of stocks. When you buy an ETN, you're buying a promise — specifically, the promise that the issuer will pay the note according to the terms laid out in the ETN's prospectus.
Those terms can be simple or complex. Let's start with a simple one: The iPath Dow Jones-AIG Commodity Index Total Return ETN, which trades under the ticker DJP. The note pays no interest, but the issuer, Barclays, will pay a cash payment at maturity equal to the gain on the Dow Jones-AIG Commodity Index total return. The maturity date is June 12, 2036.
You can sell the note before it matures, at which point you'll get whatever other investors feel it's worth. As of Thursday, its value was up 9.2% in 2008.
Jeffrey Ptak, Morningstar's director of ETF research, likes DJP because it does a better job tracking the index than an ETF can. A fund has to use futures and other investments to track the commodity index. Because a note isn't a fund, it doesn't have to line up investments that mirror the index. All it needs is the promise to pay according to the index's movements.
As a way to get broad exposure to commodities, Ptak says, DJP isn't bad. The index the note uses is well-diversified, and the overall cost to investors is decent. "I think it could be cheaper, but it's hardly expensive," he says.
The more complex ETNs can be complex indeed. Consider the Capital Protected Notes based on the Morgan Stanley Capital International Europe, Australasia and Far East stock index. The notes trade under the ticker EEC.
Here's the deal: Like DJP, EEC pays no interest over its term, which began May 23, 2005. Each note was issued at $10. When the note matures on Dec. 30, 2008, the underwriters will pay note holders $10 per note. This is where the "capital protected" part comes in: If you hang onto the note, you'll get your money back.
The trade-off is that you give up some of the potential gains from the EAFE index in return for the capital protection. In this case, you give up quite a bit. The note takes the index level at four different dates and averages them together. The percentage difference between the average of the four dates and the starting date is your return.
In a rising market, your gains from this ETN will be considerably lower than if you had simply bought an ETF that tracked the index. (The average will be smaller than the difference between the start and end point.) Given this snakebit market, you might think that the smaller returns are a good trade for preserving your principal. Should the market soar, however, you'll probably feel considerable buyer's remorse.
ETNs have a few other considerations:
• Counterparty risk. As we mentioned earlier, an ETN is backed by a promise. Although the issuers of these notes are large, financially strong firms, you should be aware that, at least until recently, everyone thought that investment bank Bear Stearns was financially strong, too.
• Tax risk. The IRS is reviewing the tax treatment of ETNs and may consider taxing ETN profits as interest, rather than at lower capital gains rates. Already, the IRS has ruled that single-currency ETNs will be taxed at ordinary income rates.
• Commissions and expenses. ETNs are generally cheaper than mutual funds, but you'll have to pay a commission. Your broker may tell you that you can buy an ETN on its initial offering with no commission, but that's not entirely true: The commission is part of the initial offering price.
Generally speaking, the more complex the deal, the more you should avoid it. "The structured notes are getting gimmicky," says Harold Evensky, a financial planner in Coral Gables, Fla. Gimmicks are not good investments.
Although you may well find notes that suit your overall investment outlook, bear in mind that the firms that offer ETNs aren't looking to lose money on the deal. It's a bit like betting against the house at a casino. So stick with simple ETNs, or stick with ETFs. The top-performing ETFs are in the chart.
John Waggoner is a personal finance columnist for USA TODAY. His e-mail is jwaggoner@usatoday.com. The source for this article can be found by clicking here.
Tuesday, April 22, 2008
Tim Andrews on the Structured Funds' Landscape (Euromoney)
By Timothy Andrews, Scotia Capital
Special to Euromoney, Published April 2008
The structured fund derivatives landscape has evolved substantially in recent years with an estimated current notional size of over US$700bn globally. An increasing number of treasurers, portfolio managers and other investors are seeking increased returns through exposure to alternative assets via a variety of fund-linked derivatives products. Common fund-linked derivatives products include various options, total return swaps, portable alpha strategies and structured notes. These products can be linked to single hedge funds, fund of funds, fund indices or a basket of the same (each a ‘reference fund asset’).
1. Black-Scholes call options
In the basic form of a ‘plain vanilla’ or ‘black-scholes’ call option referencing a reference fund asset, an investor purchases an over-the-counter call option by paying a premium amount to the financial institution (the ‘bank’) on the trade date. The strike price of the call option is typically fixed either ‘at’ or ‘out of the money’ at inception. The call option is structured to be ‘European style’ which means the investor can exercise the option only at maturity. The cash settlement amount, if any, owed by the bank to the investor at maturity is equal to the amount by which the net asset value of the reference fund asset exceeds the strike price of the call option. In some cases, the call option may also be physically settled where the investor would pay the strike price to the bank and receive physical delivery of the reference fund asset. To the extent that the net asset value of the reference fund asset was less than the strike price, the option would expire worthless and the investor would lose the premium paid at inception.
2. Accreting strike call option structures
The accreting strike call option (‘ASCO’) is among the most widely used fund-linked derivatives today. Take the example of an investment manager looking to launch a leveraged fund (the ‘leveraged fund’) to raise additional capital. Assume the leveraged fund offers investors US$3 of exposure to the underlying reference fund assets for every US$1 invested, or ‘three times’ leverage. Suppose the leveraged fund has US$100m in new subscriptions.
Under an ASCO structure, the leveraged fund would purchase a cash settled over-the-counter call option from the bank for premium amount equal to the US$100m in subscription monies and receive a notional exposure to a basket of reference fund assets equal to US$300m, equating to three times leverage. The bank would most likely hedge its position on a ‘delta one’ basis by purchasing US$300m of the reference fund assets, but could also hedge via another derivative.
For Tim Andrews' full article on the structured fund landscape, click here.
Special to Euromoney, Published April 2008
The structured fund derivatives landscape has evolved substantially in recent years with an estimated current notional size of over US$700bn globally. An increasing number of treasurers, portfolio managers and other investors are seeking increased returns through exposure to alternative assets via a variety of fund-linked derivatives products. Common fund-linked derivatives products include various options, total return swaps, portable alpha strategies and structured notes. These products can be linked to single hedge funds, fund of funds, fund indices or a basket of the same (each a ‘reference fund asset’).
1. Black-Scholes call options
In the basic form of a ‘plain vanilla’ or ‘black-scholes’ call option referencing a reference fund asset, an investor purchases an over-the-counter call option by paying a premium amount to the financial institution (the ‘bank’) on the trade date. The strike price of the call option is typically fixed either ‘at’ or ‘out of the money’ at inception. The call option is structured to be ‘European style’ which means the investor can exercise the option only at maturity. The cash settlement amount, if any, owed by the bank to the investor at maturity is equal to the amount by which the net asset value of the reference fund asset exceeds the strike price of the call option. In some cases, the call option may also be physically settled where the investor would pay the strike price to the bank and receive physical delivery of the reference fund asset. To the extent that the net asset value of the reference fund asset was less than the strike price, the option would expire worthless and the investor would lose the premium paid at inception.
2. Accreting strike call option structures
The accreting strike call option (‘ASCO’) is among the most widely used fund-linked derivatives today. Take the example of an investment manager looking to launch a leveraged fund (the ‘leveraged fund’) to raise additional capital. Assume the leveraged fund offers investors US$3 of exposure to the underlying reference fund assets for every US$1 invested, or ‘three times’ leverage. Suppose the leveraged fund has US$100m in new subscriptions.
Under an ASCO structure, the leveraged fund would purchase a cash settled over-the-counter call option from the bank for premium amount equal to the US$100m in subscription monies and receive a notional exposure to a basket of reference fund assets equal to US$300m, equating to three times leverage. The bank would most likely hedge its position on a ‘delta one’ basis by purchasing US$300m of the reference fund assets, but could also hedge via another derivative.
For Tim Andrews' full article on the structured fund landscape, click here.
LATEST POSTS: SPA Blogsite, April 2008
Structured Products Association Annual Conference 2008
For full coverage of SPA-2008 from Prospect News:
Click here for Day One (Wednesday, April 9, 2008)
Click here for Day Two (Thursday, April 10, 2008)
FINAL DRAFT: SIFMA Principles for Distributor-Individual Investor Relationship -- On March 20, 2008, SIFMA and ISDA circulated the latest draft of the proposed "Principles for Managing the Distributor-Individual Investor Relationship," a set of voluntary guidelines on the marketing of structured products to individual investors. Last chance to comment.
Andrew Scherr on the Agony and Ecstasy of Structured Products (Euromoney) -- "Financial weapons of mass destruction " in the eyes of Warren Buffett, feared by government regulators, banned from the general public, and lampooned by politicians, academics and media. And yet, despite all of the foregoing . . . the U.S. Structured Products industry is . . . exploding.
Some RIAs See Structured Products as Key Strategy (Investment News) -- A small but growing number of advisers are turning to derivatives-based strategies. "We're taking risk off the table by replacing equity exposure with principal protection and buffered notes" said Frederick Wright of Smith & Howard Wealth Management.
SPA-2008 Day 2: Future Challenges, Opportunities (Prospect News). Mutual funds have put up a "very aggressive lobbying position" against exchange-traded notes (ETNs), said Adrienne Browning of Deutsche Bank. "In Congress right now, the fight is going on," said Ray Shirazi of Cadwalader, but HSBC's Eric Miller said, "Structured products has arrived … beating closed-end funds in issuance" n 2007.
SPA-2008 LeadingEdge Award Winners (Prospect News Special Coverage) - Steve Braverman of MyCFO Harris Bank, Frederick Wright of Smith & Howard Wealth Management, Tom Balcom of Financial Planning Association, Tony Proctor of Proctor Financial and J. Scott Miller of Blue Bell Private Wealth Management are winners of the first SPA LeadingEdge Advisors Awards, presented by Raina Mathur of Societe Generale.
SPA-2008 - Distributors: SPs Market 'Vibrant, Innovative' (Prospect News) - "The ETN market is a growing vibrant area," said Som Seif of Claymore Investments in Canada, but despite rising innovation, the market is still reverse convertible-driven, said Guy Gregoire of Pershing LLC.
Structured Products on . . . the Job Market? (Business Week) - New financial products linked to the nonfarm payrolls data are the first of several the Chicago Mercantile Exchange plans to launch.
Structured Commodities Boom: Buyer Beware (Reuters) -- Investors pouring money into structured commodities may be concerned after the collapse of Bear Stearns, and some risk-prevention features in such structured products.
ETNs' Steady Growth Pose Threat to ETFs, MFs (Investment News) -- "ETNs are definitely a threat [to mutual funds and exchange traded funds]," said Jeff Ptak, director of exchange traded securities analysis at Morningstar Inc. of Chicago.
SPA-2008: ETNs Elude Tax Strictures (Investment News) "You are not likely to see anything happen on this in 2008," said Thomas Humphreys, a partner at Morrison & Foerster LLP in New York.
Goldman's Golden Duo to Form $1B Hedge Fund (Bloomberg) Josh Birnbaum, whose bearish mortgage derivatives trades propelled Goldman's $11.6 billion last year, plans to form a $1 billion hedge fund.
For full coverage of SPA-2008 from Prospect News:
Click here for Day One (Wednesday, April 9, 2008)
Click here for Day Two (Thursday, April 10, 2008)
FINAL DRAFT: SIFMA Principles for Distributor-Individual Investor Relationship -- On March 20, 2008, SIFMA and ISDA circulated the latest draft of the proposed "Principles for Managing the Distributor-Individual Investor Relationship," a set of voluntary guidelines on the marketing of structured products to individual investors. Last chance to comment.
Andrew Scherr on the Agony and Ecstasy of Structured Products (Euromoney) -- "Financial weapons of mass destruction " in the eyes of Warren Buffett, feared by government regulators, banned from the general public, and lampooned by politicians, academics and media. And yet, despite all of the foregoing . . . the U.S. Structured Products industry is . . . exploding.
Some RIAs See Structured Products as Key Strategy (Investment News) -- A small but growing number of advisers are turning to derivatives-based strategies. "We're taking risk off the table by replacing equity exposure with principal protection and buffered notes" said Frederick Wright of Smith & Howard Wealth Management.
SPA-2008 Day 2: Future Challenges, Opportunities (Prospect News). Mutual funds have put up a "very aggressive lobbying position" against exchange-traded notes (ETNs), said Adrienne Browning of Deutsche Bank. "In Congress right now, the fight is going on," said Ray Shirazi of Cadwalader, but HSBC's Eric Miller said, "Structured products has arrived … beating closed-end funds in issuance" n 2007.
SPA-2008 LeadingEdge Award Winners (Prospect News Special Coverage) - Steve Braverman of MyCFO Harris Bank, Frederick Wright of Smith & Howard Wealth Management, Tom Balcom of Financial Planning Association, Tony Proctor of Proctor Financial and J. Scott Miller of Blue Bell Private Wealth Management are winners of the first SPA LeadingEdge Advisors Awards, presented by Raina Mathur of Societe Generale.
SPA-2008 - Distributors: SPs Market 'Vibrant, Innovative' (Prospect News) - "The ETN market is a growing vibrant area," said Som Seif of Claymore Investments in Canada, but despite rising innovation, the market is still reverse convertible-driven, said Guy Gregoire of Pershing LLC.
Structured Products on . . . the Job Market? (Business Week) - New financial products linked to the nonfarm payrolls data are the first of several the Chicago Mercantile Exchange plans to launch.
Structured Commodities Boom: Buyer Beware (Reuters) -- Investors pouring money into structured commodities may be concerned after the collapse of Bear Stearns, and some risk-prevention features in such structured products.
ETNs' Steady Growth Pose Threat to ETFs, MFs (Investment News) -- "ETNs are definitely a threat [to mutual funds and exchange traded funds]," said Jeff Ptak, director of exchange traded securities analysis at Morningstar Inc. of Chicago.
SPA-2008: ETNs Elude Tax Strictures (Investment News) "You are not likely to see anything happen on this in 2008," said Thomas Humphreys, a partner at Morrison & Foerster LLP in New York.
Goldman's Golden Duo to Form $1B Hedge Fund (Bloomberg) Josh Birnbaum, whose bearish mortgage derivatives trades propelled Goldman's $11.6 billion last year, plans to form a $1 billion hedge fund.
FINAL DRAFT: SIFMA Principles for Distributor-Individual Investor Relationship
On March 20, 2008, SIFMA and ISDA circulated the latest draft of the proposed "Principles for Managing the Distributor-Individual Investor Relationship," a set of voluntary guidelines on the marketing of structured products to individual investors. SPA members are advised to review these principles as soon as possible and provide comments to jmaurello@sifma.org.
The following is the introduction to the principles, which can be found on SPA's website by clicking here.
The following is the introduction to the principles, which can be found on SPA's website by clicking here.
The distributor-individual investor relationship should deliver fair treatment of the individual investor. Individual investors need to take responsibility for their investment goals and to stay informed about the risks and rewards of their investments. Distributors can play a key role in helping them achieve these objectives.
In light of the increased interest in structured products as part of individual investors’ investment and asset allocation strategies, it is important for firms to keep these principles in mind in their dealings with individual investors in structured products. These principles complement our recently released, "Retail Structured Products: Principles for Managing the Provider-Distributor Relationship," available at the websites of the five sponsoring associations, which focus on the relationship between manufacturers and distributors. These principles apply to the relationship between the distributor and the individual investor.
Although these principles are aspirational in nature and do not create enforceable obligations or duties, firms involved in the distribution of structured products to individual investors are encouraged to reflect these principles in their policies and procedures. Further, each firm is encouraged, given differing regulatory environments and both cultural and client base differences, to consider the extent to which the firm should adapt these principles to its particular circumstances.
Overview
The term "structured products" refers to a variety of financial instruments that combine various cash assets and/or derivatives to provide a particular risk/reward profile that allows investors access to broader investment opportunities. The return of a structured product is usually derived from the performance of one or more underlying assets. Examples of underlying assets include, but are not limited to; interest rates, a particular equity or debt instrument, a basket of securities, a securities index or indices, an individual commodity or commodities, a commodities index, an individual currency or currency basket or any combination thereof.
Some structured products offer full or partial principal protection, while others have no principal protection. Some offer a yield; others do not. It is possible that the value of an individual structured product may not increase as much as the underlying asset, or may decrease more than the underlying asset. Some structured products offer individual investors access to new asset classes that can help with portfolio diversification.
Structured products can be more or less risky than other investment products such as equities, fixed income products, or mutual funds: there is no necessary link between product complexity and investment risk - complex products, may be low risk, and non-complex products may entail high risk. It is important that an investor understands the role in an investment strategy that can be played by any particular structured product in light of the investor’s specific investment objectives, risk tolerance, and investment horizons.To review the full March 20, 2008 draft of the SIFMA-ISDA-SPA "Structured Retail Products Principles, click here.
To make any comments, suggestions or recommendations, email SP-Principles@structuredproducts.org as soon as possible.
Monday, April 21, 2008
Andrew Scherr on the Agony and Ecstasy of Structured Products (Euromoney)
by Andrew ScherrSpecial to Euromoney Publications
with the Structured Products Association
“Financial weapons of mass destruction ” in the eyes of Warren Buffett, feared by government regulators, banned from the general public, and lampooned by politicians, academics and media, Structured Products are a market under assault. Even the name, “Structured Products” connotes something unnatural concocted in Dr. Frankenstein’s laboratory. Academics and populists have lined up pointing at fees, disclosures, return characteristics, and relative performance. Structured Products are held responsible for market dislocations, bank failings and all forms of economic turmoil including the current credit crises.
This fear and finger pointing is a natural response to the sweeping growth of the sometimes complex products that regulators, the media and some academics may not fully understand. When we see major hedge funds, banks and other participants disappear or become impaired overnight, it is enough to give even the most seasoned market participant pause and any segment of the market we do not fully understand becomes suspect.
And the U.S. Structured Product market has certainly blossomed. While already fundamental to European Investing, Structured Products have stormed Asia and are just taking a foothold in the U.S. where the market has been growing consistently at 60 to 80% per annum. Structured Products became deeply rooted in Europe during Unification as retail investors sought yield enhancement to counter falling bank interest rates. Next came Asia, as institutions sought principal protection on new asset classes. Canada and Latin America quickly followed. The U.S. however has been the slowest to adopt Structured Products in much the same way as it was late on the adoption of wireless telephony. With a well established infrastructure in place, it seemed less urgent to adopt the newest technology.
Furthermore, for Americans, Structured Products do not seem to make sense in the context of modern portfolio theory. To the extent that portfolios are allocated across markets based on their beta exposures, there is little room or understanding for an alpha exposure. After all, alpha is a zero sum game – or at least that is what the academics have said – and every positive alpha is offset by a negative alpha elsewhere. This is where the pendulum of active versus passive portfolios has again swung. Simply put, if you know a particular investment will pay off then go invest – otherwise, diversify.
And yet, despite all of the foregoing . . . the U.S. Structured Products industry is . . . well, exploding.
(Full article can be found on the StructuredProducts.org website by clicking here.)
Some RIAs See Structured Products as Key Strategy (Investment News)
Embracing strategies based on derivatives
Some advisers turn to structured products for risk management
By Jeff Benjamin
Investment News, April 21, 2008
A small but growing number of advisers are turning to derivatives-based strategies to help manage increased levels of market risk.
The structured-products industry, which experienced a 78% increase in sales last year to a record $114 billion, is uniquely poised for a growth surge, according to industry observers.
In the most general sense, structured products, which are created and backed by investment banks, involve the use of derivatives to meet specific investment objectives. Primary distinctions between structured products and mutual funds or exchange traded funds include a defined maturity date, a principal-protection option and the ability to be customized to a specific investor's view of the market.
The idea behind the strategy is to protect portfolios from a declining market.
"We're taking risk off the table by replacing equity exposure with principal protection and buffered notes" that are designed to limit downside risk, said Frederick Wright, chief investment officer at Smith & Howard Wealth Management LLC in Atlanta.
Mr. Wright, whose firm oversees $250 million in assets, was first introduced to structured products in 1999 but didn't get seriously involved until last year.
"It's a great risk-management tool, and it's an opportunity to be out on the leading edge as an adviser," he said.
Some advisers remain skeptical about the use of structured products as a risk-management tool.
For the full article in Investment News, click here.
Some advisers turn to structured products for risk management
By Jeff Benjamin
Investment News, April 21, 2008
A small but growing number of advisers are turning to derivatives-based strategies to help manage increased levels of market risk.
The structured-products industry, which experienced a 78% increase in sales last year to a record $114 billion, is uniquely poised for a growth surge, according to industry observers.
In the most general sense, structured products, which are created and backed by investment banks, involve the use of derivatives to meet specific investment objectives. Primary distinctions between structured products and mutual funds or exchange traded funds include a defined maturity date, a principal-protection option and the ability to be customized to a specific investor's view of the market.
The idea behind the strategy is to protect portfolios from a declining market."We're taking risk off the table by replacing equity exposure with principal protection and buffered notes" that are designed to limit downside risk, said Frederick Wright, chief investment officer at Smith & Howard Wealth Management LLC in Atlanta.
Mr. Wright, whose firm oversees $250 million in assets, was first introduced to structured products in 1999 but didn't get seriously involved until last year.
"It's a great risk-management tool, and it's an opportunity to be out on the leading edge as an adviser," he said.
Some advisers remain skeptical about the use of structured products as a risk-management tool.
For the full article in Investment News, click here.
SPA-2008 Day 2: Future Challenges, Opportunities (Prospect News Special Coverage)
By Aaron Hochman-Zimmerman
Prospect News Special Coverage
Structured Products Association Annual Conference 2008
For full coverage of SPA-2008 from Prospect News:
Click here for Day One (Wednesday, April 9, 2008)
Click here for Day Two (Thursday, April 10, 2008)
New York, April 10 – Moving into 2008 structured products issuers and dealers will have to ensure that clients are kept informed of what structured products can offer as well as deal with attacks from competitors, a panel said at the second day of the Structured Products Association summit.
Externally, the sector has come under fire by proponents of mutual funds who have put up a "very aggressive lobbying position" against exchange-traded notes (ETNs), which are not required to distribute income annually, said Adrienne Browning of Deutsche Bank.
Mutual funds are required to distribute earnings annually and are taxed accordingly. "In Congress right now, the fight is going on," said Ray Shirazi of Cadwalader, Wickersham & Taft LLP.
The Internal Revenue Service and the Treasury Department are currently accepting comments on ETNs and pre-paid forward contracts, Browning said.
Meanwhile, Rep. Richard Neal, D-Mass., who is "in the mutual fund district," according to Browning, has already introduced and is pushing HR 4912, which would require all ETNs to be taxed similarly to a mutual fund. "So that’s a big heads-up," Browning added.
‘Innumerable combinations’
Structured products must also contend with a supply chain that is unaware of the possibilities the products may offer or the pace of the new issue market. "Structured products really has arrived … Structured products has beaten closed-end funds in terms of size and issuance," said Eric Miller of HSBC.
"Investors do have a very good reason to look into structured products," he said, whether they want safety in terms of protection or FDIC insurance.
"As the baby boom generation ages, they will become more beta-phobic," said William Bamber of Bear Stearns, and a structured product could be engineered to suit that specific need.
"There’s almost innumerable combinations and permutations that we can dream up," he said.
Still, "education is what we all need to focus on before we can move to the next step," said Alexandre Ecot of Societe Generale.
Investors are becoming more sophisticated, Miller said.
Recently, "for the first time someone asked me what the CDS [credit default swap] is" for a structured product issuer, he said.
Many feel that "the Street has a better idea than the rating agencies" of an issuer’s credit, he said.
Favoring the simple
The panelists agreed that education is important, but creating products that are simple and transparent is important as well, said Stephanie Bosio of Calyon Securities. "Simple is beautiful," she said. Investors "tend to go for products that are all-in-one."
Success depends on innovation from issuer to wholesalers, brokers and investment manager, "the way it is in Europe and Asia. I actually believe there is not enough competition," she said, as it fosters innovation in a market that is far from saturated. "It all depends on us to make this U.S. market a big one," she added.
SPA president Keith Styrcula described the current credit crunch as a watershed event which may force investors to look away from traditional securities to more adaptive and flexible instruments going forward.
"We really have not come close to tapping the investor pool in this sort of market," HSBC’s Miller said.
Prospect News Special Coverage
Structured Products Association Annual Conference 2008
For full coverage of SPA-2008 from Prospect News:
Click here for Day One (Wednesday, April 9, 2008)
Click here for Day Two (Thursday, April 10, 2008)
New York, April 10 – Moving into 2008 structured products issuers and dealers will have to ensure that clients are kept informed of what structured products can offer as well as deal with attacks from competitors, a panel said at the second day of the Structured Products Association summit.
Externally, the sector has come under fire by proponents of mutual funds who have put up a "very aggressive lobbying position" against exchange-traded notes (ETNs), which are not required to distribute income annually, said Adrienne Browning of Deutsche Bank.
Mutual funds are required to distribute earnings annually and are taxed accordingly. "In Congress right now, the fight is going on," said Ray Shirazi of Cadwalader, Wickersham & Taft LLP.
The Internal Revenue Service and the Treasury Department are currently accepting comments on ETNs and pre-paid forward contracts, Browning said.
Meanwhile, Rep. Richard Neal, D-Mass., who is "in the mutual fund district," according to Browning, has already introduced and is pushing HR 4912, which would require all ETNs to be taxed similarly to a mutual fund. "So that’s a big heads-up," Browning added.
‘Innumerable combinations’
Structured products must also contend with a supply chain that is unaware of the possibilities the products may offer or the pace of the new issue market. "Structured products really has arrived … Structured products has beaten closed-end funds in terms of size and issuance," said Eric Miller of HSBC.
"Investors do have a very good reason to look into structured products," he said, whether they want safety in terms of protection or FDIC insurance.
"As the baby boom generation ages, they will become more beta-phobic," said William Bamber of Bear Stearns, and a structured product could be engineered to suit that specific need.
"There’s almost innumerable combinations and permutations that we can dream up," he said.
Still, "education is what we all need to focus on before we can move to the next step," said Alexandre Ecot of Societe Generale.
Investors are becoming more sophisticated, Miller said.
Recently, "for the first time someone asked me what the CDS [credit default swap] is" for a structured product issuer, he said.
Many feel that "the Street has a better idea than the rating agencies" of an issuer’s credit, he said.
Favoring the simple
The panelists agreed that education is important, but creating products that are simple and transparent is important as well, said Stephanie Bosio of Calyon Securities. "Simple is beautiful," she said. Investors "tend to go for products that are all-in-one."
Success depends on innovation from issuer to wholesalers, brokers and investment manager, "the way it is in Europe and Asia. I actually believe there is not enough competition," she said, as it fosters innovation in a market that is far from saturated. "It all depends on us to make this U.S. market a big one," she added.
SPA president Keith Styrcula described the current credit crunch as a watershed event which may force investors to look away from traditional securities to more adaptive and flexible instruments going forward.
"We really have not come close to tapping the investor pool in this sort of market," HSBC’s Miller said.
SPA-2008 LeadingEdge Award Winners (Prospect News Special Coverage)
Improve education, standardize nomenclature, say investment advisors as issuer risks gain prominence
STRUCTURED PRODUCTS ASSOCIATION 2008 CONFERENCE
By Kenneth Lim
Prospect News, April 9, 2008
Issuers need to improve education resources, standardize nomenclature and address concerns about credit risk, a panel of investment advisors said at the fourth annual Structured Products Association Conference in New York on Wednesday, April 9.
Steve Braverman of MyCFO Harris Bank, Frederick Wright of Smith & Howard Wealth management, Tom Balcom of Financial Planning Association, Tony Proctor of Proctor Financial and J. Scott Miller of Blue Bell Private Wealth Management spoke to conference attendees shortly after winning in the first SPA LeadingEdge Advisors Awards.
Echoing sentiments mentioned by several other speakers at the conference, the advisors mentioned education as a key priority for issuers in reaching out to the advisor community. Many advisors remain unaware of structured products, the panelists said.
Many investors are also unfamiliar with structured products. For example, a common misconception is that a structured product is a win-lose battle between buyer and issuer, where a buyer’s loss is an issuer’s gain, Wright and Proctor said.
“I think there’s a need to address that skewed perspective,” said Proctor, who quipped that less education would actually keep his competitors away, on the sidelines of the conference. “The issuer is not taking a position . . . it’s not like in Vegas, where the house always wins. They [issuers] need to explain that we are simply providing a transaction.”
But getting issuers involved in education can be tricky, Miller said.
“Most of the education is done by someone who has something to sell,” he said. “And RIAs [registered investment advisors] are a special group of people, they all think they are smarter than everyone else.”
‘Too cute by half’
One way to ease the learning process is to standardize and simplify nomenclature. “Keep it simple,” Balcom said.
“Some of these are too cute by half,” Proctor said of the product names. “We are coming up with all these acronyms.”
Proctor added later: “One firm may call the buffered securities BUYS, another may call it something completely different. It makes our jobs so much more difficult…It’s not like just because you call it BUYS investors are going to want to buy it.”
The panelists nevertheless praised issuers for stepping up education efforts and helping to raise awareness of structured products.
“Now when I tell people about structured products, people are not saying that I have three heads,” he said.
Marketing material improves
Proctor also noted the growth in more-accessible marketing material.
“I think the issuers are creating client-friendly brochures more than they used to,” he told Prospect News.
Bear raises credit concerns
Issuer risk has reemerged as a key concern especially after Bear Stearns almost collapsed, the buysiders said.
“The biggest fear that I have . . . is the credit risk,” Miller said. “Thank goodness we have always been concerned about credit because we did own Bear.”
Miller said he was going to Hawaii when news broke that Bear Stearns credit was in trouble, and almost canceled his trip. But his clients’ credit exposure had been diversified beyond Bear Stearns and the bank was eventually bailed out, so Miller stayed in Hawaii.
But he said the important lesson for advisors is to spread their eggs. “There is no worse feeling when you are trying to hedge risks for your client,” he said.
For full coverage of SPA-2008 from Prospect News:
Click here for Day One (Wednesday, April 9, 2008)
Click here for Day Two (Thursday, April 10, 2008)
STRUCTURED PRODUCTS ASSOCIATION 2008 CONFERENCE
By Kenneth Lim
Prospect News, April 9, 2008
Issuers need to improve education resources, standardize nomenclature and address concerns about credit risk, a panel of investment advisors said at the fourth annual Structured Products Association Conference in New York on Wednesday, April 9.
Steve Braverman of MyCFO Harris Bank, Frederick Wright of Smith & Howard Wealth management, Tom Balcom of Financial Planning Association, Tony Proctor of Proctor Financial and J. Scott Miller of Blue Bell Private Wealth Management spoke to conference attendees shortly after winning in the first SPA LeadingEdge Advisors Awards.Echoing sentiments mentioned by several other speakers at the conference, the advisors mentioned education as a key priority for issuers in reaching out to the advisor community. Many advisors remain unaware of structured products, the panelists said.
Many investors are also unfamiliar with structured products. For example, a common misconception is that a structured product is a win-lose battle between buyer and issuer, where a buyer’s loss is an issuer’s gain, Wright and Proctor said.
“I think there’s a need to address that skewed perspective,” said Proctor, who quipped that less education would actually keep his competitors away, on the sidelines of the conference. “The issuer is not taking a position . . . it’s not like in Vegas, where the house always wins. They [issuers] need to explain that we are simply providing a transaction.”
But getting issuers involved in education can be tricky, Miller said.
“Most of the education is done by someone who has something to sell,” he said. “And RIAs [registered investment advisors] are a special group of people, they all think they are smarter than everyone else.”
‘Too cute by half’
One way to ease the learning process is to standardize and simplify nomenclature. “Keep it simple,” Balcom said.
“Some of these are too cute by half,” Proctor said of the product names. “We are coming up with all these acronyms.”
Proctor added later: “One firm may call the buffered securities BUYS, another may call it something completely different. It makes our jobs so much more difficult…It’s not like just because you call it BUYS investors are going to want to buy it.”
The panelists nevertheless praised issuers for stepping up education efforts and helping to raise awareness of structured products.
“Now when I tell people about structured products, people are not saying that I have three heads,” he said.
Marketing material improves
Proctor also noted the growth in more-accessible marketing material.
“I think the issuers are creating client-friendly brochures more than they used to,” he told Prospect News.
Bear raises credit concerns
Issuer risk has reemerged as a key concern especially after Bear Stearns almost collapsed, the buysiders said.
“The biggest fear that I have . . . is the credit risk,” Miller said. “Thank goodness we have always been concerned about credit because we did own Bear.”
Miller said he was going to Hawaii when news broke that Bear Stearns credit was in trouble, and almost canceled his trip. But his clients’ credit exposure had been diversified beyond Bear Stearns and the bank was eventually bailed out, so Miller stayed in Hawaii.
But he said the important lesson for advisors is to spread their eggs. “There is no worse feeling when you are trying to hedge risks for your client,” he said.
For full coverage of SPA-2008 from Prospect News:
Click here for Day One (Wednesday, April 9, 2008)
Click here for Day Two (Thursday, April 10, 2008)
Sunday, April 20, 2008
SPA-2008 - Distributors: SPs Market 'Vibrant, Innovative' (Prospect News)
Structured products distributors see ETNs and Structured Products ‘vibrant’ despite competition, look for more innovation
By Aaron Hochman-Zimmerman
Prospect News Special Coverage
Structured Products Association SPA-2008 Conference
New York, April 9, 2008 – Structured products issues have seen competition from other types of securities as well as within structured products itself, a panel said at the 2008 Structured Products Association Summit on Wednesday, April 9.
Exchange-traded notes (ETNs) have come under fire for what are seen by some as unfair tax advantages, but Mike Forstl of Nuveen Investments said he feels internally “fully supported” to encourage the sale of ETNs.
“The ETN market is something we do see as a growing vibrant area of focus,” said Som Seif of Claymore Investments in Canada.
Currently, Canada and particularly Europe have allowed more innovative products to develop. “I would like to see some of that stuff in North America,” he said specifically about the European products.
Despite rising innovation, the market is still generally driven by the more traditional reverse convertible, said Guy Gregoire of Pershing LLC.
Also, many distributors of structured products work in open architecture or near-open architecture environments in which “there is no proprietary product,” said Gregoire. The system allows the freedom to select the product which will fill a gap in an investor’s portfolio, rather than favoring one over the other, he said.
The flexibility of structured products is, at times, undercut by wholesalers’ reluctance to change, Seif said.
The future of structured products is tied tightly to education and strong relationships between wholesalers and distributors, he added.
By Aaron Hochman-Zimmerman
Prospect News Special Coverage
Structured Products Association SPA-2008 Conference
New York, April 9, 2008 – Structured products issues have seen competition from other types of securities as well as within structured products itself, a panel said at the 2008 Structured Products Association Summit on Wednesday, April 9.
Exchange-traded notes (ETNs) have come under fire for what are seen by some as unfair tax advantages, but Mike Forstl of Nuveen Investments said he feels internally “fully supported” to encourage the sale of ETNs.
“The ETN market is something we do see as a growing vibrant area of focus,” said Som Seif of Claymore Investments in Canada.
Currently, Canada and particularly Europe have allowed more innovative products to develop. “I would like to see some of that stuff in North America,” he said specifically about the European products.
Despite rising innovation, the market is still generally driven by the more traditional reverse convertible, said Guy Gregoire of Pershing LLC.
Also, many distributors of structured products work in open architecture or near-open architecture environments in which “there is no proprietary product,” said Gregoire. The system allows the freedom to select the product which will fill a gap in an investor’s portfolio, rather than favoring one over the other, he said.
The flexibility of structured products is, at times, undercut by wholesalers’ reluctance to change, Seif said.
The future of structured products is tied tightly to education and strong relationships between wholesalers and distributors, he added.
Structured Products on . . . the Job Market? (Business Week)
A New Way To Play The Job Market -- But Will The CME's New Futures Product, Based On Nonfarm Payrolls Data, Allow Investors To Hedge Against Stock, Bond, Or Currency Market Jitters?
You may already feel your own job prospects are a toss of the dice. Soon, though, you'll be able to bet on the state of the whole U.S. job market.
Starting in April, average investors can express their views about where the economy stands through a new futures product based on one of the most closely watched economic indicators: the nonfarm payrolls data contained in the Labor Dept.'s monthly employment report. It is the first of several financial derivatives based on economic indicators the Chicago Mercantile Exchange plans to launch.
The exchange says the payroll futures will let investors hedge against stock, bond, or currency market jitters amid worries about an economic downturn.
Many traders and analysts, however, are skeptical the new product will be very popular beyond pure speculators.The nonfarm payrolls number instantly joins such unsexy futures products as butter, soybeans, and random length lumber. Released by the Bureau of Labor Statistics [BLS] the first Friday of every month, the payroll number measures the total number of U.S. workers, except those in government, farms, some nonprofits, and working for themselves at home. As such, it is seen by economists as a timely, reliable indicator of the health of the broad U.S. economy. When released by the BLS, the monthly payrolls figure often moves the stock market, especially if it offers up a surprise.
Future ChallengesFutures traders, of course, already bet on all sorts of predictable events: inches of snowfall, frost days, hurricanes. The concept of trading economic indicators is not new, either. Back in 2002, options based on the BLS jobs data were first traded in auctions hosted by Deutsche Bank (DB) and Goldman Sachs (GS). Today, a few economic and housing derivatives are traded on over-the-counter markets among banks and funds. But the price of those products can be skewed by things such as a participant's credit position and the limited number of possible buyers.
"What happens [with the OTC market] is that it's bilateral, and when credit dries up and you have less counterparties, the market becomes illiquid and less efficient," says Felix Carabello, director of alternative investment products at CME Group (CME), which is the newly merged Chicago Mercantile Exchange and Chicago Board of Trade.
Some argue the opaque and concentrated nature of the over-the-counter market for many derivatives products is partly responsible for the plunging values of many housing-related securities held by banks.
But there are other challenges for an economics-oriented futures product. Most obviously, there is no tangible underlying asset for the contract, like there is for gold or corn. A company that uses the futures contract's underlying product -- say, oil -- could take delivery of the commodity, though it rarely happens. No one produces or consumes the nonfarm payroll number. Hence, there is no steady demand from businesses who must buy the futures in order to keep their operations running risk-free.
(To read the complete article from BusinessWeek.com, click here.)
You may already feel your own job prospects are a toss of the dice. Soon, though, you'll be able to bet on the state of the whole U.S. job market.
Starting in April, average investors can express their views about where the economy stands through a new futures product based on one of the most closely watched economic indicators: the nonfarm payrolls data contained in the Labor Dept.'s monthly employment report. It is the first of several financial derivatives based on economic indicators the Chicago Mercantile Exchange plans to launch.
The exchange says the payroll futures will let investors hedge against stock, bond, or currency market jitters amid worries about an economic downturn.
Many traders and analysts, however, are skeptical the new product will be very popular beyond pure speculators.The nonfarm payrolls number instantly joins such unsexy futures products as butter, soybeans, and random length lumber. Released by the Bureau of Labor Statistics [BLS] the first Friday of every month, the payroll number measures the total number of U.S. workers, except those in government, farms, some nonprofits, and working for themselves at home. As such, it is seen by economists as a timely, reliable indicator of the health of the broad U.S. economy. When released by the BLS, the monthly payrolls figure often moves the stock market, especially if it offers up a surprise.
Future ChallengesFutures traders, of course, already bet on all sorts of predictable events: inches of snowfall, frost days, hurricanes. The concept of trading economic indicators is not new, either. Back in 2002, options based on the BLS jobs data were first traded in auctions hosted by Deutsche Bank (DB) and Goldman Sachs (GS). Today, a few economic and housing derivatives are traded on over-the-counter markets among banks and funds. But the price of those products can be skewed by things such as a participant's credit position and the limited number of possible buyers.
"What happens [with the OTC market] is that it's bilateral, and when credit dries up and you have less counterparties, the market becomes illiquid and less efficient," says Felix Carabello, director of alternative investment products at CME Group (CME), which is the newly merged Chicago Mercantile Exchange and Chicago Board of Trade.
Some argue the opaque and concentrated nature of the over-the-counter market for many derivatives products is partly responsible for the plunging values of many housing-related securities held by banks.
But there are other challenges for an economics-oriented futures product. Most obviously, there is no tangible underlying asset for the contract, like there is for gold or corn. A company that uses the futures contract's underlying product -- say, oil -- could take delivery of the commodity, though it rarely happens. No one produces or consumes the nonfarm payroll number. Hence, there is no steady demand from businesses who must buy the futures in order to keep their operations running risk-free.
(To read the complete article from BusinessWeek.com, click here.)
Thursday, April 17, 2008
Structured Commodities Boom: Buyer Beware (Reuters)
Tue Apr 8, 2008 7:40pm BST
By Barani Krishnan
NEW YORK, April 8 (Reuters) - Investors are pouring money into structured investment products linked to booming commodities like oil, gold and grains, drawn to features that protect capital from the volatility common in these markets.
But the global credit crunch means the safety of capital-protected products relies upon the credit-worthiness of the issuer. That could be a concern after last month's collapse of Bear Stearns (BSC.N: Quote, Profile, Research), once the No. 5 U.S. investment bank.
Also, some financial experts caution that the risk-prevention feature in such structured products will limit investors' gains if the bull market in commodities continues.
"Managing the credit risk in the structured products environment is critical, certainly in this environment," said David Krein, president at DTB Capital, a New York firm that specializes in putting together such products for clients.
The global financial crisis linked to defaults in U.S. subprime loans already has cost banks worldwide nearly $400 billion in write-offs. Analysts see no clear end in sight to the problem, even after casualties like Bear.
"To see Bear die wasn't surprising as almost every global financial stress kills off one big bank," said Richard Kang, a Toronto-based independent risk consultant for fund management companies. "But if another big bank goes, then the market for Wall Street-backed structured products might take a whack."
The Structured Products Association, an industry group in New York, says there is about $114 billion invested in the products now, up from just around $28 billion in 2003.
Commodity-related products account for about $55 billion of the market, says Barclays Capital, the biggest issuer of such products in the United States. The rest are linked to stocks, bonds and other securities.
For the full article by Barani Krishnan, click here.
By Barani Krishnan
NEW YORK, April 8 (Reuters) - Investors are pouring money into structured investment products linked to booming commodities like oil, gold and grains, drawn to features that protect capital from the volatility common in these markets.
But the global credit crunch means the safety of capital-protected products relies upon the credit-worthiness of the issuer. That could be a concern after last month's collapse of Bear Stearns (BSC.N: Quote, Profile, Research), once the No. 5 U.S. investment bank.
Also, some financial experts caution that the risk-prevention feature in such structured products will limit investors' gains if the bull market in commodities continues.
"Managing the credit risk in the structured products environment is critical, certainly in this environment," said David Krein, president at DTB Capital, a New York firm that specializes in putting together such products for clients.
The global financial crisis linked to defaults in U.S. subprime loans already has cost banks worldwide nearly $400 billion in write-offs. Analysts see no clear end in sight to the problem, even after casualties like Bear.
"To see Bear die wasn't surprising as almost every global financial stress kills off one big bank," said Richard Kang, a Toronto-based independent risk consultant for fund management companies. "But if another big bank goes, then the market for Wall Street-backed structured products might take a whack."
The Structured Products Association, an industry group in New York, says there is about $114 billion invested in the products now, up from just around $28 billion in 2003.
Commodity-related products account for about $55 billion of the market, says Barclays Capital, the biggest issuer of such products in the United States. The rest are linked to stocks, bonds and other securities.
For the full article by Barani Krishnan, click here.
ETNs' Steady Growth Pose Threat to ETFs, MFs (Investment News)
By David Hoffman, Investment News, April 14, 2008
As more companies begin to offer exchange traded notes, it's beginning to look like the small but growing ETN universe could one day be a competitor to mutual funds and exchange traded funds.
"ETNs are definitely a threat," said Jeff Ptak, director of exchange traded securities analysis at Morningstar Inc. of Chicago.
That's a problem for traditional asset managers because unless they partner with an investment bank, they may not be able to offer ETNs, which are actually debt instruments linked to an index.
Consequently, it's easier for an investment bank to bring an ETN to market than it is for a traditional asset manager.
A look at some of the companies offering ETNs illustrates the point.
UBS Investment Bank of New York, a unit of Zurich, Switzerland-based UBS AG, launched eight ETNs earlier this month. The UBS E-TRACS ETNs are the first of many the company hopes to launch before the end of the year, said Kurt Nelson, a managing director and head of ETNs at UBS.
Last month, Morgan Stanley of New York listed its first ETNs, the Market Vectors-Chinese Renminbi/ USD ETN and the Market Vectors-Renminbi/USD ETN.
Lehman Brothers Holdings Inc. of New York stirred things up in February when it launched Opta, an ETN platform, and three Opta exchange traded notes. The launch of Lehman's ETN platform followed the launch of the Elements ETN platform last August.
For David Hoffman's full article, click here.
As more companies begin to offer exchange traded notes, it's beginning to look like the small but growing ETN universe could one day be a competitor to mutual funds and exchange traded funds.
"ETNs are definitely a threat," said Jeff Ptak, director of exchange traded securities analysis at Morningstar Inc. of Chicago.
That's a problem for traditional asset managers because unless they partner with an investment bank, they may not be able to offer ETNs, which are actually debt instruments linked to an index.
Consequently, it's easier for an investment bank to bring an ETN to market than it is for a traditional asset manager.
A look at some of the companies offering ETNs illustrates the point.
UBS Investment Bank of New York, a unit of Zurich, Switzerland-based UBS AG, launched eight ETNs earlier this month. The UBS E-TRACS ETNs are the first of many the company hopes to launch before the end of the year, said Kurt Nelson, a managing director and head of ETNs at UBS.
Last month, Morgan Stanley of New York listed its first ETNs, the Market Vectors-Chinese Renminbi/ USD ETN and the Market Vectors-Renminbi/USD ETN.
Lehman Brothers Holdings Inc. of New York stirred things up in February when it launched Opta, an ETN platform, and three Opta exchange traded notes. The launch of Lehman's ETN platform followed the launch of the Elements ETN platform last August.
For David Hoffman's full article, click here.
SPA-2008: ETNs Elude Tax Strictures (Investment News)
By Jeff Benjamin April 10, 2008
Despite the best efforts of the Investment Company Institute to convince lawmakers to strip away the tax advantages of exchange traded notes, the structured products industry isn’t losing any sleep over the issue ... yet.
“You are not likely to see anything happen on this in 2008,” said Thomas Humphreys, a partner at Morrison & Foerster LLP in New York.
Speaking today at the Structured Products Association’s annual convention in New York, Mr. Humphreys explained that by zeroing in on ETNs, the mutual funds industry has effectively opened a broader debate over the tax treatment of all investment products.
The Washington-based ICI has been lobbying lawmakers to close a tax loophole that it claims gives ETNs an unfair advantage over mutual funds.
This effort was bolstered in December when Rep. Richard E. Neal, D-Mass., introduced federal legislation that would end the tax deferrals of ETNs.
The Internal Revenue Service has since opened the issue up to public comment until May 15, which Mr. Humphreys interpreted as meaning the IRS “doesn’t really know what to do.”
Part of the challenge of closing the loophole involves the link to a vast universe of other derivative products, according to Keith Styrcula, chairman of the New York-based Structured Products Association.
“The mutual fund industry was hoping for a rifle shot to take out ETNs, but it has instead introduced a wholesale look at all financial products,” he said.
“They’re now essentially faced with the challenge of going after a $500 trillion global derivatives market,” Mr. Styrcula added.
For the original source for this article, click here.
Despite the best efforts of the Investment Company Institute to convince lawmakers to strip away the tax advantages of exchange traded notes, the structured products industry isn’t losing any sleep over the issue ... yet.
“You are not likely to see anything happen on this in 2008,” said Thomas Humphreys, a partner at Morrison & Foerster LLP in New York.
Speaking today at the Structured Products Association’s annual convention in New York, Mr. Humphreys explained that by zeroing in on ETNs, the mutual funds industry has effectively opened a broader debate over the tax treatment of all investment products.
The Washington-based ICI has been lobbying lawmakers to close a tax loophole that it claims gives ETNs an unfair advantage over mutual funds.
This effort was bolstered in December when Rep. Richard E. Neal, D-Mass., introduced federal legislation that would end the tax deferrals of ETNs.
The Internal Revenue Service has since opened the issue up to public comment until May 15, which Mr. Humphreys interpreted as meaning the IRS “doesn’t really know what to do.”
Part of the challenge of closing the loophole involves the link to a vast universe of other derivative products, according to Keith Styrcula, chairman of the New York-based Structured Products Association.
“The mutual fund industry was hoping for a rifle shot to take out ETNs, but it has instead introduced a wholesale look at all financial products,” he said.
“They’re now essentially faced with the challenge of going after a $500 trillion global derivatives market,” Mr. Styrcula added.
For the original source for this article, click here.
Goldman's Golden Duo to Form $1B Hedge Fund (Bloomberg)
April 17 (Bloomberg) -- Josh Birnbaum, one of the traders who led Goldman Sachs Group Inc.'s push into bets against subprime-mortgage bonds, has left the world's biggest securities firm and plans to form a $1 billion hedge fund.
Birnbaum, 35, confirmed his departure and declined to elaborate on his plans. He has told colleagues he expects his new fund will invest in mortgage assets, according to two people familiar with his thinking who declined to be identified.
At least 70 funds have been established during the past year by firms such as New York-based Goldman, Blackstone Group LP and Pacific Investment Management Co. to snap up cheap home-loan debt amid the steepest drop in U.S. home values since the Great Depression. Birnbaum helped Goldman offset losses on mortgage holdings and earn a record $11.6 billion last year.
``The question is really, `What's his encore?''' said Geoff Bobroff, a consultant in East Greenwich, Rhode Island, who advises asset managers.
Birnbaum and Michael Swenson, another structured-products trader, pushed for New York-based Goldman's bets on a subprime collapse with backing from Dan Sparks, its mortgage-department head, the Wall Street Journal reported in December. Michael Duvally, a company spokesman, declined to comment.
Reporting by Bloomberg's Jody Shenn. For the full article, click here.
Birnbaum, 35, confirmed his departure and declined to elaborate on his plans. He has told colleagues he expects his new fund will invest in mortgage assets, according to two people familiar with his thinking who declined to be identified.
At least 70 funds have been established during the past year by firms such as New York-based Goldman, Blackstone Group LP and Pacific Investment Management Co. to snap up cheap home-loan debt amid the steepest drop in U.S. home values since the Great Depression. Birnbaum helped Goldman offset losses on mortgage holdings and earn a record $11.6 billion last year.
``The question is really, `What's his encore?''' said Geoff Bobroff, a consultant in East Greenwich, Rhode Island, who advises asset managers.
Birnbaum and Michael Swenson, another structured-products trader, pushed for New York-based Goldman's bets on a subprime collapse with backing from Dan Sparks, its mortgage-department head, the Wall Street Journal reported in December. Michael Duvally, a company spokesman, declined to comment.
Reporting by Bloomberg's Jody Shenn. For the full article, click here.
Thursday, April 3, 2008
SPA-2008: The Final Agenda for April 9-10, 2008
For a .pdf version of the SPA-2008 Agenda, click here.
THE FOURTH ANNUAL STRUCTURED PRODUCTS ASSOCIATION CONFERENCE
Wednesday, April 9 & Thursday, April 10, 2008
Grand Hyatt Hotel, New York City
Day One (Wed, Apr 9): The Distribution Perspective
8:15 – 9:00 -- REGISTRATION and BREAKFAST
9:00 - 9:45 -- THE DEALERS - The Cause and Effect of the $114 Billion YearJennifer Zogg, E*Trade
Michael Leon, Northern Trust
Michael Prucher , Fidelity Investments
9:45 - 10:30 -- WHOLESALERS and the THIRD-PARTY CHANNELS
Scott Greenwood, JVB Capital
Kevin Mahon, Countrywide
Scott Colyer, FIS-AAM
10:30 – 11:15 -- NEW STRUCTURED PRODUCTS DISTRIBUTORS -- Opportunities and Challenges
Guy Gregoire, Pershing
Mike Forstl , Nuveen Investments
Som Seif, Claymore (Canada)
Jason Hubschman, DWS Scudder
11:15 - 11:45 -- Interactive Segment: SPA-NUMERIX STRUCTURED PRODUCTS IQ CHALLENGE
The audience competes with electonic devices to win an Apple iTouch and other prizes by matching wits and being fastest on the draw to answer brainteasers on the industry and the investment class from StructuredRetailProducts.com, InCapital and FIS-AAM Securities. Sponsored by NUMERIX.
11:45- 12:30 -- THE NEXT WAVE, Part 1 - Thinking Outside the Box
Kevin Ireland, ALPS
Ryan Johnson, Foreside Advisors
Steve O'Grady, Kellogg Group
12:30 - 1:45 -- LUNCH -- Click here for menu.
1:45 – 2:15 -- The First Annual SPA LeadingEdge Advisors Awards
co-sponsored by Societe Generale CIB
2:15 – 3:00 -- INVESTMENT ADVISORS - Looking Into The Future of Structured Products
Frederick Wright, Smith & Howard Wealth Mgmt
Steve Braverman, MyCFO Harris Bank
J. Scott Miller, Blue Bell Private Wealth
Tony Proctor, Proctor Financial
Tom Balcom, Financial Planning Association
3:00 - 3:20 -- UPDATE: SIFMA’S GLOBAL PRINCIPALS FOR STRUCTURED PRODUCTS
John Maurello, SIFMA
3:15 – 4:00 -- THE FIRST TRILLION: Structured Products’ Untapped Opportunities
Gerry Nowotny, Long Gray Line Consulting
Jaeson Dubrovay, NorthEast Pension Consultants
George Varinos, HSBC Halbis
Russell Kamp, INVESCO
4:00 – 4:45 -- Interactive Segment: SPA FIRST ANNUAL “ELEVATOR PITCH” COMPETITION
Hosted by John (JT) Tessar
Forget the Final Four, American Idol or the Democratic primaries – SPA-2008 is where the action is. SPA-2008 closes out Day One with your favorite Structured Products Marketers facing-off in an interactive competition to see who has the best 120-second pitch for a structured product. Your vote counts – with interactive touchpads.
5:00 - 6:30 -- SPA-2008 COCKTAIL RECEPTION: co-Sponsored by Barclays Capital
==============
==============
Day Two (Thur, Apr 10):
The Issuer Perspective
The Issuer Perspective
8:15 – 9:00 -- REGISTRATION and BREAKFAST
8:45 – 9:00 -- DAY 2 OPENING REMARKS9:00 – 10:00 -- DYNAMIC INDEXING & FUND LINKED STRUCTURES
Moderator: Ray Shirazi, Cadwalader
Bill Bamber, Bear Stearns
Adrienne Browning, Deutsche Bank
Laura Burns, Lehman Brothers
Joe O'Connor, Deutsche Bank
Muriel Asmar / Olivier Daguet, Societe Generale (TBD)
10:00 - 10:45 STRUCTURED PRODUCTS and the STATE OF INDEXING: “New and Novel”
David Blitzer, Standard & Poor’s
10:45 – 11:30 -- STRUCTURED PRODUCTS 2008 and Beyond: Experts Roundtable
Philippe el Asmar, Barclays Capital
Stephanie Bosio ,Calyon
Eric Miller, HSBC
Brian Jones, ABN Amro
Raina Mathur, Societe Generale CIB
11:30 – 11:40 -- Special Announcement – SPA and WSJ in Fall 2008
Steve Schwartzkopf, Wall Street Journal
11:40 – 12:30 -- TAXATION: Current Issues
Thomas Humphreys, Morrison & Foerster
John Rogers, U.S. Treasury
Mark Perwien, Goldman Sachs
Chris Pinho, UBS
12:30 - 1:45 -- LUNCH -- Click here for menu.
1:45 – 2:15 -- INNOVATIVE INDEXING – Going After the Mutual Fund Assets
Richard Ciuba, Dow Jones Indexes
Matthew O’Connor, Lehman Brothers
Serge Troyanovsky, BNP Paribas
2:15 – 3:15 -- CHALLENGES & SOLUTIONS: The Experts Speak
= EDUCATION: Allen Ferrell, Harvard Law School
= CREDIT: Martine Mills Hagen, Eksportfinans
= TECHNOLOGY: Mirko Filippi, Bloomberg
= RESEARCH: Tim Mortimer, Future Value Consultants
3:15 – 4:00 -- THE MARKET – Latest Reports on the Industry
Andy Awad, Greenwich Research
Joe Burris, Structured Retail Products, Arete Consulting
4:00 – 4:15 -- CLOSING THOUGHTS
Subscribe to:
Posts (Atom)
