Structured Products Pain Costs Asia's Wealthy - Report

Tom Burroughes

13 April 2020

A popular investment for Asia’s wealthy individuals has been hammered by the recent market selloff, costing them billions of losses, according to a report by Bloomberg.

Structured products called fixed coupon notes drew in a raft of private banking clients in Hong Kong and Singapore in recent years, the newswire quoted bankers and advisors as saying. A search for yield amidst low interest rates helped fuel the influx. A problem is that the principal was tied to swings in assets such as equities, which meant that big equity selloffs would hurt.

The report cited the University of Hong Kong's professor Dragon Tang as saying that about 5 per cent – or more than $80 billion – of Asian private banking assets outside mainland China were tied to these notes.

Leveraged investors, the report said, have been made to sell early at steep discounts to obtain cash for margin calls.

Tang is quoted as saying that such products do not lead to good risk-adjusted returns. Tang has examined the 2008 saga of imploding structured notes, dubbed Lehman minibonds. Rules following the September 2008 collapse of Lehman Brothers were designed to curb excesses.