A few of the Vox FP team attended the SRP Americas Conference in Chicago last week to discuss the Structured Products market, with practitioners from issuers, distributors, and regulators.
Here are our top three takeaways:
- The market is fundamentally sound.
Panelists shared positive statistics to show solid fundamentals for the Structured Notes market.
Average returns since 2010 have been 7.26% per annum. Around 40% of Structured Notes generated an average return of over 10% per annum, showing that these products deliver a positive return and are correlated with equity markets performance. And although one in six products generated a negative return, most of these structured notes performed better than a direct investment in their underlying. Source: SRP – Structured Notes Performance Review USA 2007-2018.
- The rise of integrated platforms for Structured Product distributors is changing the business model.
Integrated platforms allow advisors to monitor structured notes for their clients, analyze trends, and trade.
Panelists agreed that there are significant benefits in using such platforms. For example, they can be used to satisfy regulation risk like MIFID2’s PRIIPS rules. Additionally, platforms can be used to provide sophisticated risk analysis around structured products – potentially using internal analytical models, like Monte Carlo simulation, provided by issuer firms.
Panelists also welcomed pricing tools for evaluations – live price discovery provides great value.
There were conflicting opinions on whether the future of platforms would inevitably threaten the role of financial advisors in the Structured Products market. However, many agreed that migration of assets from passive to active management has been enabled by advances in computational power.
As ResonanceX CEO, Guillaume Chatain shared, “There currently is a need for financial advisors for Structured Products.” Brandon Igyarto, Managing Director of JP Morgan echoed the same sentiment when he said you can “use technology to tell the story, but technology will not replace advisors.”
- There are scalability concerns around Europe’s Structured Notes market.
Panelists shared that 18 months into the MIFID II implementation, issuers in Europe are concerned about the scalability of their operations and whether their current processes will handle the increase in deal volumes that Europe and Asia, in particular, are seeing from an increase in smaller-sized retail investor flow.
The European markets’ more encompassing protection and regulation, including MiFID II requirements for Key Investor Documents (aka PRIIPS KIDs), are magnifying this challenge.
If you’re looking to streamline the production of your Structured Notes documentation, check out Opal. Opal offers a flexible and extensible solution to quickly and automatically create structured notes deal documentation, including term sheets, pricing supplements, and KIDs, from Microsoft Word templates. You can learn more here.