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SPi USA 2022: A slow year but with plenty of tailwinds to come

Structured products have traditionally been the financial industry’s little brother. Although it cannot compete with the fervour in the equities markets or the magnitude of the fixed income business, things seemed different this year. There was a certain excitement in the air about structured products even on the day before the SPi conference.

The WSD drink reception, which typically only draws 20 to 30 people, ended up with more than 100 attendees at the Marriott Courtyard in West Palm Beach. The eagerness with which people sought to network with one another was much more fascinating. The message was crystal clear and sublime: In the US market, collaboration is at its height. Old and new issuers, wholesalers and broker dealers and RIAs and platforms – all want to work together. Being a part of the pack rather than trying to finish first is more crucial when a market is expanding.

The day of the event, started with the market slowness. Roll-over, which represents 79% of total monthly sales according to SPi’s latest whitepaper, is decreasing but with less negative impact due to high inflation that keeps attracting new money to structured products.

We had an interesting keynote from Professor Robert Shiller on “Risk transfer: The value of financial services”. Professor Shiller focused on his book to try to explain where he sees the financial industry being able to help citizens. Personally, I believe there was a clear and important message that the audience might have missed which is that the value of structured products and annuities lies in risk transfer. As we transform equity risk into income while helping investors achieve their retirement plan, the big question was how do we convene this message and also at same time advance our industry?

We then had several panels focused on buyside and indexing innovation. The message from the discussions was clear – simple products are now in demand but at the same time innovation needs to be part of the deliverable too. There definitely is room for the new QIS indices and payoff innovation in the market.

We should also not overlook Matt Lloyd’s presentation on how to live in a hiking interest rate environment. While showing us what he presents to advisors, his view was on the spot: “Estimate, speculate or extrapolate. Speculating and Extrapolating can end up getting you into trouble. In the end an estimate with some nuanced analysis works best.”

Talking about estimates and economists, we ended the morning with an amazingly interesting Q&A with Jeremy Siegel. The finance professor didn’t disappointed and in his view equity markets are still the best investment against inflation. He also expressed his thoughts on the Fed that they were wrong in cutting rates and they are now wrong in hiking it at the current speed. On this, I would simply like to sum up with Lloyd’s statement about how structured products will profit from extreme volatility and high interest rates.

Towards the last panels, besides discussing how the 60:40 portfolio is dead and how alternative assets are becoming more important, there was an important presentation on tail risk and navigating unknowns. In the panel there was a clear focus on how structured products can help investors and how important it is to mitigate extreme events. Marc Rothman, partner at PEAK6, highlighted that where the single stocks volatility skew is inverted, there’s considerable value to sell volatility.

Overall, it can be observed that platforms have assisted in automating procedures in the market, and even if this year falls short of last year’s record, the future is promising.

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