SRP AMERICAS
SRP Americas 2022: good news for structured products A group of senior industry experts offered their views on the current state of the market across the continent and discuss opportunities, risks, and expectations in an increasingly volatile and competitive market during SRP’s Americas Conference 2022 to tailor the return to the view and sort of eliminate some of the tail risk, the main concern at Capstone Investment Advisors is inflation. “The number one theme across pods is inflation,” said Ilya Gofshteyn, head of macro strategy, Capstone Investment Advisors. “We spent a lot of time thinking about the implications of inflation and specifically, whether we're witnessing a regime shift.” According to Gofshteyn, there was an expectation last year that inflation was going to roll over and take the market back to an environment that resembles what we had in the last cycle, but it looks like that's not going to happen.
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arkets have performed sluggishly since the beginning of the year but sales and issuance in the Americas are up compared to 2021. Rates and volatility inform everything that structured products issuers do and this year has been one of rather rapid change, which requires people to innovate on the fly and figure out how they want to deploy structured products within their portfolios, according to Brandon Igyarto, managing director, J.P. Morgan (pictured). “With the market being down 20% that's really where a lot of our conversations start,” he said. “We are not changing our pathways, but we're reassessing based on the opportunities that are currently available. Over the last two years the trend was heavily towards income paying product because that's where the real need was, but with the markets being down people recognise there's an entry point opportunity, and potentially they also have more discount through the yield curve which can help to provide better optics longer term.” As issuers look at the market volatility and rates to see how best deploy new products in a portfolio, as well as other levers that they have at their disposal through the structured products toolkit
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“It seems we’re going to have elevated tail risks on both sides of distribution for years to come,” he said. “And if that's the case, you must position portfolios to protect yourself in an environment where the extremes are magnified and where the normal distribution is much narrower. That is good news for the structured products space because these products allow for a much more targeted and less sort of directional expression of views.” NOVEL ENVIRONMENT Richard Vagnoni, senior economist, Finra, noted that it has been 40 years since the market saw an environment like this - rising rates with inflation. “There's always a concern around rising rates since they were so low - this is a very novel environment, especially for a lot of new financial professionals as well as for newer investors who are not accustomed to seeing these kinds of markets,” said Vagnoni. “It's a concern from a regulatory perspective around complex products – it is important that investors understand what those products are and what they're offering. As an industry we have to make sure that people are educated, both the financial professionals who are selling these products, but also the investors to make sure that they get the outcomes that they expect.” The new environment has opened up a lot of opportunities for newer strategies or types of products and exposures, according to Vagnoni. “Structured products can be very flexible and adapt to different
