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Breathing Life Back into Structured Products


									Product Trends

Breathing Life Back
  into Structured
                    In response to what has been one of its most challenging years ever,
                    Australia’s structured products industry is gearing itself up to bounce
                    back as it tries to cater to the changing appetite among an ever-more
                    cautious group of retail and wholesale investors.
                    Written by Andrew Crooke

The last 12 months can rightly boast the                                                         closest thing to a structured product that
development of some cleverly-designed and                                                        investors will consider.”
pioneering structured products. But 2008 will
most likely be remembered for how the wild                                                       Chugh says that a lot of investors are waiting
swings in what have been highly-volatile                                                         on the sidelines, so manufacturers and
markets have taught the industry and its                                                         distributors aren’t seeing much inflow into
investor base important yet tough lessons                                                        products. “This was especially the case in
about the products and structures which                                                          June,” he says. “Normally we would see a lot
work under certain conditions, and about                                                         of leveraged trades such as structured
those that don’t.                                                                                products to take advantage of tax breaks. But
                                                                                                 this year, everybody suffered in terms of low
In turn, issuers have in many cases been                                                         sales. Investors are steering clear of leverage
working hard to reshape their product                                                            generally as market sentiment remains poor.”
development and business strategies to
capture new opportunities in what continues                                                      Suzanne Salter, head of structured
to be a highly-competitive industry.                                                             investments for Commonwealth Bank of
                                                                                                 Australia (CBA), agrees: “In the world of the
“The correction in the markets, combined                                                         unknown, a known and attractive yield [as a
with the challenging investment climate, have                                                    result of the credit crunch] resonates quite
weeded out the products and structures           Allen McCristal, Barclays Capital               well with investors.”
which weren’t good for the market, either
because they were too highly leveraged, or                                                       Yet while the hunt is on for structured
the underlying asset classes were unable to                                                      products with features that imitate a term
withstand the volatility, or the banks had      and those products that perform and have         deposit for the time being, as the market
simply priced in some very high fees,” says     history will benefit.”                           stabilises product providers expect to see
Harvi Chugh, chief executive officer of 100X.                                                    more active asset-allocation decisions being
“This has been good from the point of view of   For the time being, across most markets and      made.
creating better and more client-centric         most investor groups, there is reluctance to
products going forward, as well as focusing     taking any risk at all.                          “It will be important for issuers to provide
providers on risk management.”                                                                   investors access to new product which
                                                “We see a lot of portfolios moving into either   assists them in improving portfolio
Adds Allen McCristal, head of structured        cash or cash-style products, which isn’t         diversification,” says Travis Miller from
sales for Barclays Capital in Australia:        surprising really,” says McCristal. “Investors   Deutsche Bank’s Australia-based structured
“Everyone will surely now evaluate the          seem to be only cautiously looking at            sales team. “More than ever before, the
product, its structure and the underlying       alternatives, but to many it is off-limits. So   current market has demonstrated that a
exposures a lot more closely. Volumes will be   apart from commodities and diversified fixed     diversified portfolio is the primary tool in
down for a number of years I would suggest,     income, a cash-plus product might be the         portfolio risk management.”

                                                                                                                                    Product Trends

 Michael Elsworth, Lonsec                          Michael Clapham, Credit Suisse                      Suzanne Salter, CBA

Troubled Times Set In                             hurt a lot of peoples’ products, especially         terms and the market will suffer accordingly
A quick review of why appetite for structured     protected equity loans,” says Michael               over the long run.”
products has been so muted in recent months       Clapham, Credit Suisse’s head of equities
finds a combination of negative factors which     derivatives marketing for Australia and New         Indeed, various regulatory and tax problems
came together in a relatively short period of     Zealand.                                            over the last year — including those to do
time.                                                                                                 with DPAs and instalment warrants —
                                                  “[The budget announcement] caught                   have thrown under the spotlight the need
First, explains Paul Cordeiro, director, retail   everybody off-guard, and created some               for an effective and ongoing dialogue
structured products for ABN AMRO in               inconsistencies as well as confusion,” adds         between the authorities and the industry
Australia, given that everyone had been           Michael Elsworth, head of ratings of debt and       in relation the structured products market,
expecting bullish asset markets pre-June 30       structured products at Lonsec. “While we            says Lynch.
this year, all the products had been designed     review products on whether they stand on
around bullish markets, and were reliant on       their own merit, rather than just for tax           A further noteworthy development has been
markets going up. But the run-up to June 30       considerations, tax issues are going to remain      the impact on the corporate balance sheets of
really highlighted the fact that investors are    important going forward.”                           a number of the dominant players, therefore
very conscious that returns are unlikely to be
very high over the next five years. “That
uncertainty drove volumes of structured
product sales down to about one-third
compared with the same period in previous
                                                  “Everyone will surely now evaluate the product, its
years,” he says.                                  structure and the underlying exposures a lot more closely.
A second reason for the fall in volume was
                                                  Volumes will be down for a number of years I would
market volatility, which has had a significant    suggest, and those products that perform and have
impact on existing transactions, says
Cordeiro, especially CPPI structures where a
                                                  history will benefit.”           – Allen McCristal, Barclays Capital
lot of deals have deleveraged a lot, thus
causing advisers and end-investors to
reconsider these trades.                          If these changes continue to apply on               limiting what they can do in terms of products,
                                                  products going forward, manufacturers will          says Clapham. “Investors have become
A third issue, he adds, has been the              need to tweak products to try to make them          extremely wary about products issued by
dependence of structured products on asset-       more tax effective, he adds.                        certain organisations and are therefore doing
based lending. Yet this year, with interest                                                           a lot of due diligence.”
rates on lending products exceeding 10 per        According to David Lynch, director of policy at
cent, coupled with low expected growth, the       the Australian Financial Markets Association,       Planning New Products
expected returns weren’t there in the same        the Budget decision is predicated on an             So where does all this leave opportunities
way. “That decimated the typical run on tiered    incorrect assumption that the capital               going forward?
products,” says Cordeiro.                         protection component of a protected equity
                                                  loan typically eliminates credit risk on the loan   In general, with investors seemingly looking
Other market players agree that probably the      principal. “Amending legislation has yet to be      for safety, some market participants say it
biggest change in the market this year was        introduced and, as yet, we don’t know if the        appears they are not too concerned about
the change that the RBA made to the capital       government will reconsider the proposed             returns in real terms being low — as long as
protected borrowing rate, by moving it from       change in light of the industry submissions to      they are not negative. “This is important
the indicator variable rate for Personal          it,” he explains. “If the Budget decision is        because people are currently focused on
Unsecured Loans - Variable Rate of 13.4 per       confirmed through legislation, the tax-             preserving wealth rather than creating
cent to the Variable Rate for Standard            adjusted cost of capital protection for geared      wealth,” says Bill Fuggle, a partner of Baker &
Housing Loans of 9.4 per cent. “That change       investments will be excessive in economic           McKenzie in Sydney.

Product Trends

That might quickly change, however, once                Over the medium to long term, Keary says he           McCristal says Barclays has for several
there is a sense that the worst has passed.             foresees an increase in the use of structured         months been developing a platform which
“Investors will then be looking for bargains            products generally, but in addition to                soon will be launched. “The platform will
and will be prepared to take more risk by               simplification there will also be a real              house a number of funds currently in
investing in ‘value’ products that try to take          requirement for them to be based on clear             designed all of which will all be open-ended.
advantage of assets that have been                      themes and strategies, and therefore be               Some will have quant-based rebalances that
oversold,” says Fuggle. “Initially people               research-led. “Accompanying this will be a            provide alpha tilts,” he explains. “The first will
might do this via capital protected products.           big focus on explaining to advisers, and              be a diversified fixed income fund which is not
However, elements of the market will want to            therefore end-clients, how different types of         a ‘structured product’ per se, but the
move straight to leveraged unprotected
exposures as there may be a perception that
the bargains won’t last for very long.”

For those clients who are still keen to look at
                                                        “We are seeing more demand among HNW clients at the
wealth-creation products, manufacturers must            moment rather than at the retail end. It seems that HNW
first overcome various issues which have
arisen with these types of investment — for
                                                        investors are more prepared to take a view, and they are
example, multiple sell triggers, clients going          more interested in shorter-dated products, as well as
into cash, or just not understanding what
happens to the products in a down market.
                                                        those which generate income or a coupon.”
                                                                                                                 – Paul Banks, Goldman Sachs JBWere
As a result, many providers say they are
getting a lot of requests for products which
are transparent, which is what Cordeiro at              structured products fit within portfolios, and        rebalancing nature of the fund could construe
ABN AMRO says the bank has been busy                    whether they should be seen as topping up             it a structured product.”
working on recently.                                    an existing asset class or whether it is a new
                                                        asset class replacing an existing one.”               He adds that the bank is also looking at
Adds Craig Keary, head of distribution and                                                                    launching a fund that will reference Barclays
sales for equities at Westpac Institutional             Index products also make sense in this                Capital Global Carbon Index. “So while
Bank: “For the wealth-creation products, I              environment, says McCristal at Barclays               interest in structured products has been
think there will be a focus on simplification           Capital. “For retail investors, designing funds       muted throughout the course of this year,
going forward, both from the regulators’                around Barclays Capital indexes, which are            there is still selectively a place in ones
perspective and also the end-investors’                 either high beta or alpha-style indices, have         portfolio for these types of exposures.”
perspective. Both sets of parties will demand           the benefits of transparency and daily
simple explanations on product                          liquidity. The open-ended nature of them with         In relation to tax-driven strategies, the tax
characteristics such as what the products               daily liquidity seems to be popular in the            treatment of an investment in the mindset of
actually do and how they behave.”                       Australian market.”                                   Australian investors is, and always will be, a

      A New Role for Protection
    The growing awareness and focus on methods of capital protection, and           Travis Miller, Deutsche Bank: The credit crunch has impacted protection
    the subsequent impact each method can have on performance, has been             strategies over the last 12 months, although more recently the interest
    one of the most important talking points in the Australian structured           rate environment in Australia has also had a significant impact on
    products space in the last 12 months. Several market participants share         protection strategies and pricing. This can be seen both in existing and
    their views about the role protection will likely play going forward, and       proposed products. For example, on existing CPPI trades the fall in
    what the new generation of capital protected structures might look like.        interest rates has led to an increase in the bond floor, which has
                                                                                    increased the probability of a deleverage event. Also, in pricing of new
    Paul Banks, Goldman Sachs JBWere: There is definitely a lot more                zero-plus-option-type payoffs, a higher zero level has resulted in less
    interest and awareness now from both advisers and end-clients about             proceeds being available to purchase optionality.
    how protection is achieved. For example, there is always a distinction
    made between CPPI and zero-plus-call structures, and recently there has         Capital protection continues to be a significant requirement in the
    been more interest in zero-plus-call structures, where investors can lock       Australian structured products market. However, investors who buy
    in participation rates upfront and therefore get more certainty. Even           capital protected product need to be aware that they are putting their
    though the high volatility has increased the option costs which underlie        principal at risk to the credit quality of the capital protection provider.
    zero-plus-call structures, the fact that there is participation locked in up-   Moving forward, I expect there will be increased scrutiny on the
    front has been an attractive feature overall for clients.                       quality of the protection provider, particularly by more sophisticated
    This growing awareness and focus on methods of protection, and the
    subsequent impact each method can have on performance, has been                 In general, capital protected structures will look very similar to how they
    one of the most important things which has happened in the last 12              have previously looked. While the pay-offs created within these
    months in the Australian structured products industry; it started last year     frameworks will always evolve, if investors break structures down to their
    and we have continued to experience the impact during this year                 component parts, the protection element will likely be a variation of a
    particularly in relation to those products really seen the effects of it this   zero, a dynamic hedge or an explicit guarantee.

                                                                                                                                            Product Trends

determining factor of its success. “Tax planning                                                             In terms of underlyings, Banks says he
is an important part of financial planning,” says                                                            continues to see interest across the equity
Salter at CBA, “however, it has been                                                                         and commodity markets, as well as growing
demonstrated that investments entered into                                                                   interest in FX markets, which is probably
uniquely for the purposes of a tax break are not                                                             reflective of the recent A$ volatility.
generally viable. Nonetheless, investments that
offer exposure to core assets, such as shares                                                                He also says there are good ways to capture
and property, and which allow investors to                                                                   value from current volatility. On one recent
reduce their tax liability, will always benefit from                                                         structure, for example, Banks says the bank
strong demand.”                                                                                              incorporated a cliquet option which capped
                                                                                                             performance and in doing so allowed it to
When it comes to structuring CPPI, Cordeiro                                                                  increase participation in the product to 100
says he is seeing investors want it to be over                                                               per cent. “This structure effectively used
more stable asset classes. “So CPPI over gold                                                                high volatility to the investors’ advantage,”
or commodities is not in demand as people                                                                    he explains. “As volatility increased, the
now better understand the risks and volatility                                                               cap generally increased which provided a
with CPPI,” he explains. “There is big demand                                                                greater potential return outcome for
for income products, and also those which                                                                    investors. In that particular deal, where
aren’t necessarily reliant on bullish markets.”                                                              volatility had spiked by the time we priced
                                                                                                             the product, the per annum cap which
As a result, he says he has been working on               Paul Banks, Goldman Sachs JBWere                   investors could achieve was relatively
hedge fund-linked products and fund of                                                                       high.”
hedge funds which can deliver reasonably
certain income and capital growth. “Actively-                                                                For Macquarie Bank, Kurt Jeston, division
managed fund of hedge fund strategies at                Paul Banks, executive director, structured           director in the equity markets group and head
this point in time make a lot of sense as they          product distribution at Goldman Sachs                of sales, says he is seeing interest in two
can exploit a lot of inefficiencies in the wider        JBWere, adds that in general, he has seen            specific product features in this market.
markets, and they are performing much                   interest in more vanilla-style products              “First,” he says, “market volatility typically
better than other asset classes such as direct          which have tended to offer investors the             creates increased interest in capital
equities or commodities, for instance.”                 chance to earn a coupon. “We are seeing              protected solutions that give investors a way
                                                        more demand among HNW clients at the                 to access markets which are volatile now but
Chris Rylands, head of research at Garnaut              moment rather than at the retail end,” he            where they foresee value over the medium to
Private Client Advisers, says he thinks there           explains. “It seems that HNW investors are           longer term.”
will be an increased focus on products that             more prepared to take a view, and they are
produce a yield or coupon. “Clients can                 more interested in shorter-dated products, as        Secondly, says Jeston, clients have been
better tolerate volatility in capital if they are       well as those which generate income or a             utilising products to get exposure to assets
getting some type of income.”                           coupon.”                                             which are uncorrelated to their existing

Justin Beeton, JB Global: Traditional CPPI with the deleveraging effect          Bill Fuggle, Baker & McKenzie: Capital protection/guarantee strategies
has meant that investments have been allocated to cash, which is big risk        are still important and will probably become more important as people
if investors are exposed to a seven-year structured product investment.          transition from cash investment, to capital protected investments and
So I think the market will see a transition to the call-plus-bond structure,     then back to fully exposed investments as they move back up the risk
shorter timeframe CPPI structures, or CPPI with additional features such         curve. A lot of people have lost money in real present terms on capital
as minimum exposure levels.                                                      protected products using CPPI/CPPT/dynamic asset allocation
                                                                                 strategies, so more informed investors are looking for more pure
Suzanne Salter, Commonwealth Bank of Australia: I think capital                  guaranteed products. A more pure guaranteed product tends have a static
protection will come out of this market shake-up looking stronger than           bond amount to support the guarantee with the rest of the exposure being
ever as a value proposition, as investors have been reminded that                obtained using options or other synthetics. The maximum returns are
markets can correct quite strongly. Also margin calls have left a bad taste      muted with such products but such products are better at avoiding the
in some investors’ mouths and capital protection is a viable alternative.        deleveraging that can force CPPI/CPPT/dynamic asset allocation
                                                                                 strategies products into only the guaranteed component quite easily.
Craig Keary, Westpac Institutional Bank: For capital protected
products, it will be critical for advisers and providers to be able to explain   Michael Elsworth, Lonsec: Looking forward, I think capital protection will
going forward how the protection will work, and in what circumstances. It        evolve into a more open-ended style, and incorporated in a way that
may also be the case that protection becomes more tailored for clients.          means it can apply at any stage, not just at maturity.
For example, clients might opt for products with are 75 or 80 per cent
protected rather than 100 per cent protected; that would create a                Ben Davis, Zenith Investment Partners: We believe there will be a
significantly different cost and tax scenario as well. Apart from the            continued appetite for capital protected strategies and this demand may
traditional approach to protection, it may also become more common for           increase given that investors have experienced losses in recent periods.
structures to build into them a simple put option strategy into their loan;      The next phase of capital protected structures need to better deal with
that might be all a client needs.                                                current higher market volatility and avoid the risk of investors’ capital
                                                                                 being allocated to cash.

Product Trends

holdings. For example, he explains, a lot of                                                      adviser at Premium Wealth Management.
clients are telling him that commodities are                                                      “As a result, product providers need to assist
here to stay, especially in sectors such as                                                       existing investors by restructuring trades to
agriculture. “They are using structured                                                           increase equity participation, or risk losing
products to gain exposure to these assets                                                         these clients forever. Macquarie bank has
that are traditionally more difficult to get                                                      been active in doing this with one of their
access to.”                                                                                       reFleXion trusts.”

For Citigold’s Australian customers,                                                              Yet at the same time, he says there is also
meanwhile, chief product manager Gidon                                                            some concern now about the commitment of
Kessel says some of the savvier clients are                                                       some product providers to the market.
searching for pay-offs which go beyond
vanilla long strategies; rather structures that                                                   Plus, Lord says that the margins being
can take advantage and produce potentially                                                        received, while still considerable, will be
robust returns in this volatile and uncertain                                                     questioned like all other fees in this
market environment.                                                                               environment.

He says such pay-offs/features may include:                                                       Adds Ben Davis, senior investment analyst,
market neutral “out-performance” structures                                                       structured products at Zenith Investment
(non-directional long/short); look-back            Andrew Lord, Premium Wealth Management         Partners: “Structured products need to
structures, which account for short-term                                                          demonstrate that they can justify the additional
volatility and reference lowest points of                                                         costs their structures provide over and above
underlying within specific window, with overall                                                   traditional open-ended products. With more
growth tone; swing structures (returns linked     In terms of innovation, Chugh says there are    specialised investment options now open to
to absolute movements of respective               also some interesting structures being          investors via traditional means, this presents a
underlying, which benefit the greater the         developed to try to capture market trends.      greater challenger than ever before.”
swing/movements of the underlying, up or          “For example,” he says, “barrier income-
down); absolute return fund-linked structures     yielding products and range accrual products    McCristal says there are two key things the
(linked to actively managed fund of hedge         to give investor higher yields in sideways-     industry must address. First, he says,
funds); and knock-in structures to provide        moving markets.”                                protected products need to have wide
contingent capital protection, with                                                               cushions between the risk free and risky asset.
considerable downside buffers.                    Chugh says that capital protected dollar-cost   “Some optically look sound but are in danger of
                                                  averaging has also been developed for those     hit bond floors or threshold management early
For the more conservative clients who are         investors who want to get into the market but   on in the investment,” he explains.
less inclined to give up their return, Kessel
says cash plus-style structures offering a
minimum return with some form of potential
upside are proving popular.                       “With equity participation in some products falling so
According to Chugh at 100X, a sector he is
                                                  dramatically over the last few months, some clients will
seeing interest in, and has provided pricing      never be able to make profit on those trades. As a result,
for, is banks, both in Australia and globally.
“Given how far valuations have fallen and the     product providers need to assist existing investors by
PEs they are trading at, the banks have           restructuring trades to increase equity participation, or
become very attractive. However investors
are still a bit wary of the banks, so we have     risk losing these clients forever.”
created capital protected structured products                                                – Andrew Lord, Premium Wealth Management
around banks so they can participate in the
upside and be protected from any potential
downside.”                                        are concerned that they don’t know where        Secondly and more elementary, he adds,
                                                  the bottom is so lack confidence.               choosing the risky asset is key as the
The resources sector is another which                                                             performance impacts the chances of hitting
investors have turned their attention to, he      In essence, there is a strong emerging focus    bond floors. “Therefore selection, due
adds, again as the prices have come off a         on strategies, he says, and which strategies    diligence and appropriate risk assessment of
little bit.                                       investors can employ to take advantage of       underlying is key.”
                                                  the downturn in the market to capture the
Elsworth at Lonsec predicts that the growing      upside and at the same taking only a            At the same time, the current global crisis is
appetite for theme-based products will            calculated risk.                                making investors also wary about the
continue, and as certain themes play out, he                                                      companies they ultimately own. “We ere
says issuers will have to act on them and         Regaining Trust                                 finding that more people are open to talking
offer relevant products to investors.             Before there is any chance of buyers of         to institutions with good credit quality like
                                                  structured products to re-emerge in any         Credit Suisse,” says Clapham.
Adds Salter: “Thematic investments will           force, manufacturers will need to restructure
remain popular as they aren’t too different to    existing trades which are now underwater.       He predicts that because of some of the
niche boutique funds that specialise in a given                                                   poorer features of a number of products
area, such as alternative energy or               “With equity participation in some products     being shown up in the current downturn, a
infrastructure. Thematic structured               falling so dramatically over the last few       number of series will struggle to sell going
investments can have a strong value               months, some clients will never be able to      forward: “Investors have seen the
proposition: research-based, ease of access,      make profit on those trades,” explains          deficiencies of some structures and have lost
low fees and minimum investments.”                Andrew Lord, principal and investment           money on them.”

                                                                                                                                        Product Trends

Clapham expects to see this create structural        Justin Beeton, managing director of JB              use structured products to replicate
changes in relation to the types of deals            Global, says he expects over the medium to          international exposure in a tax-effective way.”
which are brought to market. “There will be a        long term for structured products to attract
focus on products that have worked for               more investors. “Most [investors] have seen         A growing but noteworthy trend which has
investors in the past,” he says.                     how protection would have helped them in            gathered momentum in the last six to nine
                                                     the current market environment, and will            months is small dealer groups partnering with
A New-Look Market?                                   therefore want capital protection going             product providers to create more tailored
Ultimately, the rationale still there for retail     forward,” he explains. This will include a          products and structures.
investors to buy structured products within          demand for structured products within Self
their portfolios, say market participants, so as     Managed Super Funds (SMSFs), he says.               “The dealer groups will assess their client
providers address the various issues and             “SMSF money is not competing with other             demand and put together the relevant
concerns among investors, the market will            things for retail investors’ money given its        features of a product to suit a certain, smaller
evolve into something that might be more             compulsory nature, and I would hope that a          group of investors, before approaching a
resilient and able to weather future                 greater appetite among SMSF for structured          provider with the resources to do the
downturns.                                           products could offset the lower volumes in          structuring and use its balance sheet if
                                                     retail structured products in the short term.”      required,” says Elsworth at Lonsec.
“Going forward, we expect to see investors
using solutions that can be held in a portfolio      Until all this happens, however, since issuers      Beeton says JB Global is one firm which puts
during flat to down market environments,”            and dealer groups across the board are              together underlyings for a structured product
says Jeston at Macquarie. “Clients are               writing a lot less structured products              itself by finding a theme which its investment
certainly telling us that they still have appetite   business this year than over the last two           committee feels that client money should be
for structured products but they will be             years, Beeton expects to see some form of           following and promoting that through an
analysing them in more detail, just as               consolidation within the market, which he           appropriate structured product. He says the
investors do for all investments during times        says will hopefully bring down some of the          firm then approaches a variety of potential
of change.”                                          associated costs of protection and                  structuring firms to tender for the deal.
“I don’t think the industry can continue to rely                                                         Lonsec says such developments are a
on producing large volumes of similar kinds of       Keary at Westpac says he can see the                positive step for the market. “They lead to
products on a repetitive basis to be                 market getting to the stage where a client’s        more tailored products for investors. And
successful,” says Scott Farrell, a partner at        portfolio might include their holding of            while individual ticket sizes are smaller, deals
Mallesons Stephen Jaques. “Also, a close             Australian equities in a managed account, and       are more targeted and therefore it is easier
eye needs to be kept on regulatory issues            their international equities held via a range of    for everyone to see what works and what
and possible reforms, as these are expected          structured products in a managed account-           doesn’t work, to in turn create new
in various ways.”                                    type structure. “This will enable investors to      opportunities going forward.”

      Super Funds Present Growing Opportunity
   Senior market participants share their views on the importance of the       institutional pools, so the role of super funds continues to be very
   role of super funds to the structured products market over the next six     important. I would expect this to continue to develop, but it will be
   to 12 months?                                                               subject to the same risk/reward responses as the rest of the market.

   Andrew Lord, Premium Wealth Management: Product providers see               Craig Keary, Westpac Institutional Bank: Some of the more popular
   super funds as a growth area, possibly in line with DIY funds               products over the next six to 12 months will be those which work in
   mushrooming. But investors have experienced the dark side of                both a SMSF and non-SMSF environment, as well as those with
   leverage and will take sometime, if ever, to become comfortable with        exposures which can’t be replicated via managed equities or managed
   doing it within their super strategy.                                       funds. This lends itself to thematic investing where the themes are
                                                                               based on good quality research. We see the opportunity to therefore
   Suzanne Salter, Commonwealth Bank of Australia: Super funds,                package our research into wealth creation-style products backed by a
   including Self Managed Super Funds (SMSFs), have always been a              Westpac guarantee.
   large market segment due to the amount of cash they control and
   regular contributions they receive. Recent changes in the SIS Act           Kurt Jeston, Macquarie Bank: With beneficial taxation concessions
   allowing SMSFs to borrow opens up another avenue within this                available to superannuation funds and with a typically long investment
   segment.                                                                    horizon, we are seeing investors utilising structured products to gain
                                                                               exposure to global investment themes that fit this time frame and which
   Ben Davis, Zenith Investment Partners: Many structured products are         also have the benefit of capital protection. We are also seeing some
   especially suited to SMSF investors based on the ability to get access      super fund investors more willing to take longer term exposure on an
   to geared strategies. Lower tax rates applicable to SMSF investors also     unprotected basis where they are seeing markets currently offering
   means that structured products which provide their returns in the form of   good value.
   income (rather than capital growth) are better suited to super investors
   as opposed to personal investors on high marginal tax rates. As such,       Paul Cordeiro, ABN AMRO: There is growing sophistication and
   we believe SMSFs can play a pivotal role in the growth of this sector.      understanding among super funds of alternatives such as hedge funds
                                                                               and infrastructure, and of capital guarantees. There is more protected
   Bill Fuggle, Baker & McKenzie: Super money is the ultimate source of        product being developed for these clients, even over more traditional
   many investments in structured products, either directly or via other       asset classes such as long-only managed funds.


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