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Nov 27, 2005 8:45 pm

Read an article about the "coming wave" of structured products. Their point being that more and more financial companies will be developing structured products to offer their clients, in an attempt to differentiate themselves from their competitors. These products won't be portable and will carry high fees.


The article gave an example of one such product offered by the French bank, Paribus. The product offers these benefits:


UPSIDE: 125% of the performance of the S&P 500.


DOWNSIDE: Principal protection to a maximum of 30%. Should the S&P 500 lose 30.01+%, you lose 30.01+%.


No mention of fees or minimum investment amounts. However, the article mentioned that many structured products can be customized for a minimum of $10 million.


I know structured products have been around for awhile. But this article's point is that they believe these products will now become as prevalent as mutual funds and hedge funds.

Nov 27, 2005 9:01 pm

I have used structured notes in the past, but I'm not a fan. They're a niche

investment especially big banking clients.



They are part of the capital structure of the issuing institution, like any other

debt. In my experinece they are portable, but not at all liquid. Investors will

take a hit if they negotiate prior to maturity.



Also, they have complicated formulas to calculate present value. HSBC,

Credit Lyonnaise and UBS are big issuers.



Nov 28, 2005 10:23 am

Don't like 'em at all.  The investment bankers are the ones who really make out like bandits when these puppies are issued.


Poor liquidity if you want to sell before maturity, and very difficult to determine what they should really be worth.....these guys who trade them on the proprietary desks have all the information and all the calculation power to determine their fair value.  Hardly a fair market.


UBS has been doing these for years, and pushed them real hard at US advisors since the PaineWebber buyout.  Yet, the sales force never really seemed to embrace them.  Hmmmm.....


Merrill was also big in this area in the retail arena.

Nov 28, 2005 5:34 pm
joedabrkr:

Don't like 'em at all.  The investment bankers are the ones who really make out like bandits when these puppies are issued.


Poor liquidity if you want to sell before maturity, and very difficult to determine what they should really be worth.....these guys who trade them on the proprietary desks have all the information and all the calculation power to determine their fair value.  Hardly a fair market.


UBS has been doing these for years, and pushed them real hard at US advisors since the PaineWebber buyout.  Yet, the sales force never really seemed to embrace them.  Hmmmm.....


Merrill was also big in this area in the retail arena.



While at PW/UBS the company started trying to push these things down our throats. At one point the manager of our office told me no more seminar money unless I helped him out. I answered, OK, no more seminar money. I told him I couldn't recommend something I couldn't explain and I couldn't explain these things because I didn't understand them myself. I left the firm in 03 and at that time all these programs were trading at significant loses. It's one thing to lose money in a stock, the client will understand. It's another to lose it in a hybrid hedge product that the client never would have come close to buying without a big push from a self serving advisor. The best part was listening to the suits from HQ brag about how we never pushed proprietary product. They said it with a straight face.

Nov 28, 2005 9:42 pm
tjc45:
joedabrkr:

Don't like 'em at all.  The investment bankers are the ones who really make out like bandits when these puppies are issued.


Poor liquidity if you want to sell before maturity, and very difficult to determine what they should really be worth.....these guys who trade them on the proprietary desks have all the information and all the calculation power to determine their fair value.  Hardly a fair market.


UBS has been doing these for years, and pushed them real hard at US advisors since the PaineWebber buyout.  Yet, the sales force never really seemed to embrace them.  Hmmmm.....


Merrill was also big in this area in the retail arena.



While at PW/UBS the company started trying to push these things down our throats. At one point the manager of our office told me no more seminar money unless I helped him out. I answered, OK, no more seminar money. I told him I couldn't recommend something I couldn't explain and I couldn't explain these things because I didn't understand them myself. I left the firm in 03 and at that time all these programs were trading at significant loses. It's one thing to lose money in a stock, the client will understand. It's another to lose it in a hybrid hedge product that the client never would have come close to buying without a big push from a self serving advisor. The best part was listening to the suits from HQ brag about how we never pushed proprietary product. They said it with a straight face.



Totally true about the "we never push prop product" b.s.!