SPA Conference: Experts are cautiously optimistic on growth, products' penetration

By Emma Trincal

New York, March 25 - The Structured Products Association seventh annual conference kicked off with experts' predictions and statistics on global and U.S. sales of structured products during a panel on the state of the industry.

Speakers said they had a more optimistic outlook on the market for 2010 but they remained cautious after a very difficult year during which sales of structured products declined in many parts of the world.

No growth in 2009

"There was zero growth in 2009" with global assets staying at about $1.6 trillion, said Joe Burris, head of Americas at Arete Consulting..

"Last year, new sales simply replaced maturing products," he said.

Burris noted that most assets remained tied to fixed income, an asset class that "doesn't generate ongoing fees but that has the potential for ongoing rollovers."

Assets in the Americas, including the United States, Canada, Mexico, Chile and Brazil, represented $350 billion.

The U.S. portion of that amounted to $267 billion, he said, or 76%, according to Arrete Consulting's latest figures from Wednesday.

Sales declined by 27% last year globally.

The Americas saw a 15% decline of its sales but it was far from being in the worst spot, with Hong Kong sales dropping by 87%.

France posted a 37% decline while the United Kingdom did particularly well compared to most countries, showing a 47% growth in sales last year, Burris said.

Recovery in 2010

Despite last year's difficult market, Burris was optimistic for this year in all geographic regions. "We expect a modest recovery in 2010," he said.

Burris said that his firm predicts right now a 9% rise in sales on a global scale in 2010.

The Americas will be the region with the strongest growth rate, he said, predicting 14% in growth for this region versus only 9% and 8% for Asia and Europe respectively.

Burris said that his projections are based on monthly sales trends and on the reasoning that "a lot of investors will rollover in new products."

Burris noted that the United States saw a recovery in sales and a renewed investor confidence since last year.

"The U.S. has bounced back from the low activity seen at the end of 2009," he said.

Looking at last month's data, Burris said that U.S. structurers conducted 713 launches and sold $4.5 billion in structured products.

"This is very much of an uptick compared to the same period last year," he noted, saying that in February 2009, the United States saw the launch of 409 products for $1.98 billion in sales.

Room for improvement

Tim Mortimer, managing director at Future Value Consulting, said that in the recent months, optimism has been evidenced by the fact that new products have hit the market and that more advisers and investors have adopted the investment class.

However, Mortimer remained cautious, stressing the importance of educating the salesforce by giving advisers the analytical tools that can help them make the most rational decisions for their clients.

"Sales volumes are reasonable but there is still a long way to go for the industry to reach his potential," said Mortimer.

"There is still a need to get structured products as a core choice for many more advisers than is the case currently.

Analytical tools needed

For Mortimer, education needs to be "generic" and consistent."

"Advisers need to be able to conduct an analysis of structured products, Cusip by Cusip in a consistent way," he said.

Mortimer said that advisers need to think of structured products as "negotiated contracts with defined returns," adding that, "Structured products are somewhere between an insurance contract and a truly liquid instrument."

Investors and advisers need to have the necessary analytical tools to evaluate a product, including "standard performance metrics," and "probability of returns," he added.

They also need to be aware of credit risk, he noted.

They must understand fees and pricing on the primary and secondary market.

Finally, investors and advisers must be able to picture "what will the inclusion of a structured product do to a portfolio," he said.

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