What is a structured product?

Any wise investor will tell you that the key to a sound investment strategy is diversification. In this sense, structured products offer an alternative and complementary solution to traditional placements.

For those unfamiliar with the term structured product, it can be summed up as a wrapper containing at least two financial assets: one of which is the capital component, known as a zero-coupon (usually a bond or money market instrument), while the other is the risk component (a derivative, usually an option), which is responsible for driving investment performance. A predefined formula characterises each structured product, the parameters of which are established and disclosed at the time of the product’s launch. "Structured products can be tailor-made to perfectly match an investor’s profile and specific objectives," explains Assa Okoroafor.

There are structured guaranteed capital products, which are fairly similar to bonds, and structured participation products, which provide exposure to the underlying asset’s performance, such as the CAC 40 Index. Finally, there are hybrid structured products that combine both characteristics.

“Not just for the pros”

For a long time, structured products were seen as the preserve of professionals: more exposed to risk and potentially more expensive than other types of investments. It’s a perception that is still widely held today but is no longer true.

These financial products are designed for any investor seeking diversification. The way they work is clear, transparent and known in advance. There is also plenty of choice, making them affordable for all investor profiles. "The risks associated with these products vary depending on their type, but they are all known at the time of subscription," says Aurélien Leroy. On the other hand, it is true that the variations inherent in structured products can sometimes be difficult to grasp insofar as they involve a combination of several different financial assets. "This combination has an impact on the day-to-day valuation of the products, but at maturity, a formula can always be used to calculate their performance," states Aurélien Leroy.

Finally, structured products are highly liquid and can be sold at any time, albeit at a potential discount, and their pricing is transparent, as required by law.

Innovative offer in the Grand Duchy

Indosuez currently offers two products to clients wishing to access structured products.

The first is its Discretionary Management mandate, whereby asset managers manage a client’s portfolio in accordance with the client’s wishes, investor profile and objectives. "The advantage of this service is the responsiveness it offers managers, who can quickly make decisions in the customer’s favour," says Aurélien Leroy.

"This discretionary offer from Indosuez is not widely available in the financial marketplace," adds Assa Okoroafor.

Indosuez’s second product, Advisory Contract, is more traditional. It provides clients with specialist support as they choose the structured products that match their risk profile, but the clients are ultimately responsible for their choices. The strength of this offering lies in its open architecture, which enables asset managers to search the wider market for suitable products, in addition to those issued by its parent group, Crédit Agricole.

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