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.
SPA-2008
Thursday, April 17, 2008
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.
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