Structured product providers are bullish that the recent growth in the sector will be maintained throughout the economic recovery as the products finally shake off the tag of ‘foul weather friends’.
However, many in the industry are also warning that the growth in demand may not lead to an increase in providers, and therefore no increase in competition, as a dearth of counterparties limits capacity for further expansion.
Some experts express the opinion that the number of providers in the industry remains fairly small due to “limited capacity on the bank side to act as counterparty”.
This month’s surveys into the structured products sector reveal that demand from consumers has increased during the past two years, prompting a large number of new product launches in recent months.
One of research websites tracked 514 new launches by the middle of May 2010, already more than half of the 956 that were launched over the whole of 2009.
And despite questions from some over whether now is the right time to invest in these products, the returns from which could wind up looking unimpressive if the markets take off through the recovery, providers remain confident that demand will remain.
A specialist in financial consulting considers that when the markets are coming out of a downturn, fear overtakes greed. The mood is cautiously optimistic but many people want to take advantage of any prospective growth whilst still protecting their capital.
There is also a general expectation that the optimistic mood will lead to more growth orientated structured products being launched in the coming months. This includes both riskier FTSE linked products, as well as those based on higher growth emerging market indices and more esoteric asset classes.
But while there is strong consensus that structured products will remain in demand, commentators believe that this will not necessarily lead to an influx of new providers.
Indeed, there are predictions by some that the industry could even see consolidation in the coming years. In the words of some IFAs the limited number of counterparties means the number of providers will probably come down in the coming years, as they are not going to compete against themselves.