SPA 2007: Pension funds seen as next big buyer for fixed-income structured products, panel says

By Sheri Kasprzak

New York, March 27 - Pension funds may be seeking out more fixed-income structured products, according to a panel at the Structured Products Association's panel held in New York Tuesday.

"Our top focus for 2007 is pension funds," said Mitch Wonboy of UBS Securities, LLC. "We're competing with munis [municipals] here. As the market evolves we see pensions as the biggest growth area."

A resounding theme of education was also discussed with regard to getting pension funds to look at the structured products market.

"There needs to be some education," added Jason Manske of Credit Suisse. "We need to hold conferences like this and we need to talk to pension funds and talk to pension sponsors."

Manske said his firm feels that legal and accounting changes in the fixed-income marketplace will force pensions to look at the market.

Individual investors have also become more prominent in the market for fixed-income deals - which include transactions linked to underlyers such as interest rates and swaps - as structured products become more prominent and as investors become more sophisticated.

The panel said one of the challenges for the product class is the negative connotations of derivatives.

"Clients have typically viewed the 'd word' [derivatives] as a bad thing for institutional investors," said Manske.

Another market that may become more popular to avoid accounting challenges may be the structured notes repo market.

"In derivatives, you have the structured repo market and that would remove some of the accounting woes if you combine a traditional repo with a structured note to make it accounting friendly," said Wonboy. "We're even seeing it in Europe where there aren't as many regulatory issues."

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