SPA Conference: Market participants optimistic for 2014 but 'next level' remains elusive

By Emma Trincal

New York, March 10 - Optimism was discernible as participants discussed distribution during the SPA 2014 Annual Structured Investments Distribution Conference held in New York on Monday. But several attendees said that the industry had not yet reached the "next level."

In an exclusive interview with Prospect News, Keith Styrcula, chairman of the Structured Products Association, explained how the structured investment market sought to follow the lead of giant industries such as exchange-traded funds and mutual funds.

"We are approximately a $100 billion industry. The ETF space is a multi-trillion industry. If we could reach the half a trillion mark, it would be a good start," he said.

Momentum

Styrcula said that he had many reasons to be optimistic.

"The most exciting thing is momentum," he said.

"The mood of the market is ebullient on the distribution side where we see a breakthrough on how people perceive the potential offered by our industry.

"We're seeing a lot of distribution channels focusing on structured investments. Why are they doing that? Because they've had very successful experience with structured notes and investors keep coming back.

"It defies the logic that we're just pushing the products for the sake of commissions. That's not what's happening here. It's not that advisers find new investors and sell them the products. It's that investors keep coming back. It's a vindication of the investment class as an alternative to beta investing and vanilla investing."

A market downturn may bring opportunities to the industry given that structured investments can offer downside protection, he said.

"We're off to a great start. The first quarter is very encouraging. Maybe people are more cautious as we've reached the fifth anniversary of the bull market. People are talking about correction. That's when structured investments come into their own as a way of taking advantage of the market," he said.

Not there yet

But the industry is not yet at the "next level," he added.

"We need more publicity. Everybody is attributing our new success to education.

"But how do we move on to the next level? That next level requires standardized documentation, a nomenclature. Issuers have to come together and create a consensus to move this market to the next level."

During the "Distribution" panel in the afternoon, Styrcula gave more details on the nomenclature, which would allow investors to read the features of different products listed under a codified, uniform terminology adopted by all sellsiders and used across the industry. This idea, which Styrcula said is regularly discussed, has not really made noticeable progresses yet.

"Having a consistent nomenclature has been discussed each year at these conferences and we've been moving toward that goal. But it hasn't happened yet," he said during the panel.

Styrcula called for a vote asking the audience if the "nomenclature issue should be resolved." As most hands rose, he said that "The vote was yes, unanimously."

Part of the "issue," he said, was that firms had a "silo" methodology.

"We should get a core group together and fund it." But cost was the main obstacle at a time when "everybody is getting squeezed" and "we have the headcounts," he said.

During the same distribution panel, Staci Goins, head of structured products distribution at BB&T Capital Markets, expressed some optimism.

"2013 was a little bit challenging, especially on the CD side. I attribute this decline to the competition from other products, in particular fixed and index annuities," she said.

"But 2014 is starting out really great for broker dealers. I'm optimistic and as interest rates and volatility pick up, things will get better."

Access

The final panel at the conference touched upon the issue of growth as well.

"When you look at the volume of mutual funds, annuities, we still have a long way to go," said Raul Perez, director at BNP Paribas during the final panel called "Closing Thoughts: The Path Ahead."

Matching the underlying asset or underlying strategy with investors' demands was in his view a significant factor for the growth of industry, in his view.

"Structured products are an access vehicle. It's a way to capture an investment style and what you want to do with it. It gives you content. If you have good content, the demand will follow. Maybe it's research content. Maybe it's dynamic allocation, maybe it's based on trends. But if issuers provide more content, products will be disseminated to brokers," he said.

"The next step is speed. The whole world of structured products is going to go electronic. It's going to be the next step. We have to strive to find out how we can get information much faster and get compliance and legal [departments] happy."

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