Why it is a Mistake to Not Use Structured Investments Because They Are Deemed Opaque

Video: Why it is a mistake to ignore structured investments because they are deemed opaque

Description tag: People who ignore structured investments because they are opaque could be missing out, explains Affinity Capital Director Emily Roostan.

Structured investments are complex products that are often deemed opaque and difficult to understand. While there may be some truth to this, investors who ignore this asset class are missing out on significant value.

With the simplistic listed market of shares, bonds and exchange-traded funds (ETFs), it is arguably easier for investors to gauge whether or not the deal they are receiving is a good one. This space is very one dimensional due to the nature of shares, bonds and ETFs.

In contrast, some clients may feel that it’s harder to ascertain fair value on structured investments. There is also potential bias in the primary and secondary markets because the investment bank issuing the product is often the only market maker.

Just because it is difficult to work out the fair value of a structured investment does not mean it should be ignored. In fact, these investments offer significant value to many investors’ portfolios, provided they have access to the right information and expertise to fully understand the component parts.

Understanding the risks

Despite negative press for structured investments in recent years, well-designed products actually limit the risk to which clients expose themselves.

Emily Roostan, director at Affinity Capital, says it is a mistake to avoid structured investments based on a perceived lack of transparency.

“The excuse of not trading something because you cannot ascertain the fair  value from it is no longer a viable one,” she explains.

“Don’t use this as an excuse anymore because you will come across as uninformed in terms of the resources and expertise that is now available.”

In fact, independent third-party firms and individuals can offer specific services in the structured investment realm, enabling clients to make fully informed decisions that can drive portfolio performance.

“All structures can be broken down into their component parts, and if one knows how to address the component parts of a structure, as well as the legal costs, transaction costs, issuance costs, sales and trader costs etc, one can work out what is fair and what is not,” Emily says.

How Affinity can help

Affinity Capital is an independent financial investment firm that specialises in the structured investment and derivatives space.

We provide a range of services for institutional investors and family offices hoping to achieve greater value from these products.

Utilising years of experience, the latest industry research, comprehensive, independent and extensive models and administration support, the team at Affinity can help clients choose the optimal structured investments for a client’s specific needs.

This provides peace of mind and confidence to investors, as well as minimising risk and offering crucial portfolio diversification.

For more information on Affinity Capital’s suite of services, please contact us by clicking here.