Classifying Structures as Risky and Complex

Video summary: Why classifying structures as risky and complex is a mistake

Affinity Capital Director Emily Roostan comments on the misconception that structured investments are too risky and complex for portfolios.

There is a commonly held belief among many investors that structures are simply too complicated and risky to form a reliable part of their portfolio. In reality, with the right approach, this couldn’t be further from the truth.

A structured investment is typically a combination of a bond and an option. Of these, the option (often referred to as a derivative) is considered the risky part. While the bond offers capital protection, the success of the underlying asset on which the derivative is based will ultimately decide the performance of the investment.

Due to negative media coverage of derivatives, investors sometimes shy away from structures because they are concerned about the associated risk and complexity. Affinity Capital Director Emily Roostan says structures are often classified using these terms, but claims it’s a mistake to avoid an asset class that can provide significant value.

“Yes, some options are riskier than others, and, yes, some bonds are complex and less desirable than others,” she acknowledges. “But, as with anything, the riskier the underlying, the larger the requirement to have an independent expert sitting on your side of the table.”

There is risk with every type of investment, but those who are better prepared and more educated towards the market are likelier to minimise margins for error.

How Affinity can help

Investors with access to the right tools, advice and partnerships can take advantage of the many benefits structured investments possess. Affinity Capital offers clients an end-to-end service that facilitates investment in structures and eliminates a large proportion of the risk.

“I would argue that no structured investment is risky or complex if the client has access to and an understanding of the component parts and associated value within the structure,” Emily adds. “In this case, the risks and complexity are fully appreciated prior to the trade being done.”

Specifically, Affinity provides best execution across the lifecycle of the trade – from idea generation through structuring and effective administration to settlements and after-trade maintenance.

We ensure clients choose structures that are tailored to their bespoke portfolio needs, while still providing investment banks the essential value they require to proceed with the trade.

This results in a win-win scenario for all parties involved, helping to build mutually beneficial relationships in which the outcomes are clearly defined before the investment is agreed.

For more information on the benefits of structured investments and how Affinity Capital can help HNWIs and institutional investors, please click here.