«Structured Products go Pension Funds»: systematic use of structured prod-ucts for an efficient portfolio
In turbulent times with negative interest rates and high volatility, investors in general – and pension funds in particular – face considerable challenges when it comes to generating yields. It is already the case today that 28% of all bonds in industrialised nations generate negative yields. This consequently means the yield crisis is leading to heightened pressure and is imposing greater demands on asset managers – the rigorous deployment of modern investment instruments such as structured products is an ideal way to supplement portfolios and generate yield.
For with a promise to pay, structured products provide more than just a promise to perform, and for this reason can help a pension fund to achieve a specific yield objective with a high degree of certainty. Typical pension fund asset allocations are currently distributed between equities, bonds, alternative investments and real estate. Yet structured investment solutions are deployed today – if at all – almost exclusively in the field of alternative investments. They are mostly deployed in or-der to obtain access to a specific underlying asset, such as for example a commodity. It is possible to take a step further, however, for their characteristics mean that structured products can also boost portfolio efficiency in liquid classes such as equities and bonds, through targeted alternative strategies. This may take the form of the targeted exploitation of risk premiums, or the use of solutions with payout profiles, with which certain market expectations and investment requirements can be profitably combined.
At present, structured products are deployed only very sparingly by pension funds. While invest-ment guidelines for occupational pension provisioning («BVV2») essentially permit their deployment – their full potential is still not being used. For this reason, the SSPA has launched a transparency and information initiative, and is keen to engage in active dialogue with pension fund managers and public authorities, highlighting the move towards greater transparency & clarification as well as the various potential applications and products, in order to correct misconceptions. For the cate-gory «assets with non-transparent costs» in annual reports of pension funds is no longer an accurate description for structured products. In today’s challenging environment, pension funds are more entitled than ever to expect the professional and efficient investment of money that has been entrusted to them – including or in particular when it comes to structured products.08