EUROPE - The credit crisis will not signal the end of complex products but there will be a reversion by some investors to "dull and boring products", delegates at the IPE awards have been told.
In a panel discussion on 'Changing to meet the challenges of the pensions industry', Jean-François Pinçon, head of international client development at Crédit Agricole Asset Management (CAAM) suggested what the market needs today is more simple products and greater transparency.
He pointed out another consequence of the deleveraging seen following the credit crisis was a return by investors to previous asset allocation strategies, with an emphasis on assets such as cash.
Pinçon added: "In a way, complex products of the past are finished. The industry needs to reinvent itself with products that address that risk aversion."
However, John Calamos, chairman, CEO and CIO of Calamos Investments, disagreed complex products would disappear, and instead highlighted the lack of transparency as the greater issue.
He told delegates: "Lack of transparency is the biggest issue. In recent events all of a sudden the market had transparency and it didn't like what it saw. If it had had transparency all along the process would have been slower.
"The big fear now in the market is that we will have too much regulation. But regulation that promotes transparency will be good for the market. We will have complex products going forward, but in conjunction with complex products we need complete transparency," added Calamos.
Meanwhile, both Gary Marshall, head of collective funds at Aberdeen Asset Management, and Greg Ehret, senior managing director and head of EMEA at State Street Global Advisors (SSgA) suggested the industry also needed to take the issue of transparency further and help educate investors.
Ehret pointed out the world "is not going to get less complicated" in the future so it is up to the industry to provide education. "We are not being hired for single mandates anymore, it is for the breadth of advice, and that's what we need to provide."
Marshall admitted to delegates he thinks the credit crisis will trigger a "reversion to dull and boring products, but we're not going to lose complexity".
Instead, he claimed, going forward there will be "more of a case that we need to explain the complexity as people won't invest in [the products] if they don't understand them".
He added: "There is a place for complex products but we have to be realistic about what they deliver, as in the past we have been unrealistic."
The panel also highlighted some of the specific issues facing investors at the moment, including the "dilemma" of whether and how to rebalance portfolios between equities and bonds, with Calamos suggesting a possible solution is to invest in convertible bonds as they provide "a chicken's way of getting into equities".
Calamos also pointed out most trustees get confused if they are faced with new types of investment strategies, and unless they can fit it in a "style box" they do not understand them.
"With the current turmoil in the market trustees need to be more open to these types of strategy, such as option strategies and long-only convertibles. Maybe finally this is the death nail for the style box. Trustees should be looking at whether it is adding value or not, and hopefully more openness to looking at different strategies," he added.