Investors Warm to Structured Products, Private Trusts

Investors are looking more and more at structured products and private trusts in order to handcraft risk and return on investments, according to panelists at the NorthStar Summit. The summit brings together investors and advisors and is currently underway in Nashville, Tennessee.

Although banks no longer offer some types of structured products - like swaps on hedge funds - in the wake of Dodd-Frank, it is still possible to provide structured products on top of mutual funds and managed accounts. As investors hunt for return, financial engineers seem willing to find new ways to meet that demand.

"Structured products can be used to craft a return profile from a specific exposure. They can also give investors an alternatives-like investment with a structured payout, which makes it appealing for certain types of investors," said Michael Macchiarola, a lawyer with Cadwalader, Wickersham & Taft in New York.

He adds that there is still some risk, however, because there is no guarantee if a structured product were to go on to the secondary market. Even with this risk, panelists which included Macchiarola, and bankers from the structured products group at Barclays, say they have seen an interest in the offerings - especially from managed account holders.

"Structured products have a defined lifetime, and certain exposures may be more suitable as a structured product than in a '40 act wrapper," said Chris Burke, a vice president at Barclays. These offerings can give investors access to MLPs or commodities without having direct exposure to the underlying investment, for example.

It is also worth noting that as banks have pared back their retail structured products business, and their ability to provide structured products with hedge funds, the growth of their use with managed accounts seems to reflect the choices of investors simply running out of other options.

Private trusts have also become more popular as investor demand grows. Private trusts give investors the ability to take more or different types of risk than traditional trusts, placed in the hands of big bank trustees, have in the past. This can be appealing for high net worth investors. According to the panelists, investors are looking for any structure that allows them to enhance returns in a still tepid market. (opalesque)