Financial crisis leaves structured products market facing tough times as clients limit exposure to risk
Private banks are facing a tough time in the structured products market with an increasing number of clients looking to limit their exposure to the continuing market turmoil and liquidity crisis.
'Clients are looking at de-leveraging and de-risking their portfolios with limited interest in new structured product ideas,' said Lionel Kwok, head of investment solutions, North Asia, at Credit Suisse private banking. 'Business flow from this structured product space has been slow.'
Already there has been a significant decline in demand for products such as principle protected notes, market linked certificates of deposit, reversible convertibles and return enhanced notes - all of which are structured to perform well in a bull market.
However, when markets turned, so did the prospects of these structured products. 'I can see why these products sold,' said Alex Boggis, director of Aberdeen Asset Management's Hong Kong office. 'They offered better returns than cash at seemingly no to very low risk, but the risk was always there, as is now apparent.'
However, Mr Kwok noted that demand for the financial tool was not completely dead either, with some private wealth clients still investing in this tool albeit in a risk-averse manner. 'In this uncertain market environment, most clients focus on simple products with less leverage, namely equity linked notes or a range of accrual callable notes on stocks that they are happy to hold even if markets go against them.
