What are structured investments?
Structured investments are an investment class that typically package together a bond-like element and a derivative. They first became popular in Europe during the early 1990s but have since gained traction worldwide.
What are derivatives?
Derivatives are investment contracts where value is derived from the performance of an underlying asset or basket of assets, such as stock indices, currencies or commodities. Common types of derivatives include options, forwards, futures and swaps.
How do structured investments provide returns?
Structured investments have predefined risk-return profiles. In other words, investors know the minimum and maximum financial gains and losses they could experience in advance. The bond element of the structure provides capital protection of up to 100 per cent of the original investment, while the returns on the derivative depend on the performance of the underlying asset.
What’s the difference between ‘structured investments’, ‘structured products’, ‘structured notes’ and ‘structures’?
These terms are regularly used interchangeably and refer to the same type of investment. Many issuers adopt these classifications and a number of others, but Affinity Capital prefers the use of ‘structured investments’ or ‘structures’ for simplicity and consistency.
Are there secondary markets for structured investments?
Affinity Capital insists on a secondary market for the structures upon which we advise. However, we firmly believe that structures should only be unwound as a last resort, as they are term trades that perform best when held until early exercise or maturity. Nevertheless, secondary markets can provide additional flexibility for clients in certain circumstances.
What are the benefits of structured investments?
When managed correctly, structured investments can provide a number of advantages. Firstly, they offer levels of capital protection and predefined returns, which often suit risk-averse investors. Secondly, structures provide access to new markets and underlyings that many investors would not usually interact with. Thirdly, structures provide direct access to markets, the pre-defined returns stated and the ones that will be delivered. There are no additional margins or management costs. Structured investments can also pay out across up, down and sideways markets, making them ideal when volatility and financial uncertainty are issues.
What returns can I expect?
Each structured investment is unique and will depend on the investor’s appetite for risk, the capital invested and financial market performances. Finding the right structured investments for your portfolio is the key to optimising returns. Affinity Capital is all about providing independent advice and pricing to help guide decisions.
Aren’t structures risky?
Negative media coverage of derivatives has given many investors the impression that structures should be avoided. Like any investment, structures do contain risks but these can be mitigated if correctly managed. Structures are actually better suited to risk-averse investors, as they offer varying levels of capital protection and predefined returns.
What happens if the issuer collapses?
Investment banks are the counterparty for structures, which means some or all of an investor’s capital could be lost if the financial institution collapses. In the wake of the Lehman Brothers bankruptcy and the 2008 financial crisis, counterparty risk is an obvious concern for many investors. However, Affinity Capital works with more than 20 investment banks and therefore offers a diverse range of counterparty credit risk.
What is Affinity’s role?
Affinity Capital is an independent financial services boutique that offers bespoke advice and services for professional clients who are interested in structured investments and derivatives. We aim to educate investors on the benefits of structures and provide impartial guidance and pricing models, enabling our clients to mitigate risk and optimise their portfolios.
What types of clients does Affinity work with?
We have a very broad client base built on years of experience and expertise in the world of structured investments. As such, our clients include high-net-worth individuals, family offices, insurance companies, private banks and discretionary fund managers.
What’s the difference between a wholesale and retail approach?
Affinity Capital takes a wholesale approach to structures, which means we only work with professional investors that are willing to meet our minimum financial requirements. We believe this is the only way investors can truly achieve best pricing and access to market-leading products. Conversely, retail clients face higher fees, inferior products and less choice.
What are your minimum financial requirements?
In order to enjoy the benefits of wholesale pricing, wealthy individuals must commit £1 million or more towards structured investments. Family offices, insurance companies, discretionary fund managers, private banks and any other joint venture partnerships we enter should start at £50 million.
How do I learn more about your offerings?
Affinity Capital provides a range of services in the structured investment space, including our FinTech ACE solution, Panel and Pricing Models and Equity Partnerships. Please visit our Offerings page for more information or check out our blogs and videos for the latest updates on structures.