UK - Schroder Investment Management has launched a range of structured products which will allow schemes to match their liabilities, manage risks and protect returns.
The fund manager said the problems facing schemes in the wake of a three-year bear market had forced many into alternative investments.
But while schemes have put money into the likes of hedge funds and private equity, the majority have neglected to use alternative investment techniques – such as derivatives – to secure their investments.
It said that by using derivatives and other structuring tools, schemes could achieve their specific risk and return objectives in a more efficient manner.
Executive director John McLaughlin predicted schemes would increasingly use derivatives and said that Schroders had taken on 40 structured portfolios from its clients so far worth a combined £2.6bn.
As an example, Schroders said schemes should use “call options” with their equity portfolios. Call options are contracts taken out by investors with a third-party buyer and allow them to sell stocks when they hit predetermined positive and negative return levels.
Although this method limits the potential returns from equity portfolios, McLaughlin pointed out that this also limited potential losses.
He said: “We believe that demand can only increase from here, particularly given the increased focus on liability-driven investing.
“Our tailored approach allows non-standard investment techniques to be deployed side by side with traditional ones in order to effectively target risk and return objectives and provide solutions that meet an investor’s specific requirements.”
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