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Consultants’ “seismic shift” on structured products

UK - There's a "seismic shift" taking place in the way investment consultants view structured products for pension funds, according to Richard Boardman, director of fixed income derivatives at UBS.

Boardman, who joined UBS from Watson Wyatt last year, noted how trustees don't have the expertise to assess structured products and how consultants are now coming round to the concept.

He said: "That governance expertise can be added to significantly by the investment consultants community as well. I think hitherto that community has focused less on the structured products area - but we do see that there is some sort of seismic shift taking place in that market.

"Having that community come on side and increase the governance budget of pension funds in the UK will make a big difference.

"They bring an awful lot of experience, along with the experience they've had working with us on the investment banking side to understand what these products are trying to achieve and how are they built, where the costs are, what the benefits are and then explaining all of that to the trustees."

Speaking in an online event this week, he added: "I think the consultant community is waking up to the fact that these really do offer some significant benefits in terms of efficiency, in terms of packaging risk, in terms of changing the risk profile of a pension fund."

Cliff Speed, the former Hewitt Associates consultant who's now investment director at Paternoster, said: "I think we have to go back to the fundamentals of what the pension risk is.

"Before you can measure risk you need to know what you are measuring it against. The traditional funding practices of taking advanced credit of the equity premium is something hopefully we're seeing now diminish."

Finding the solvency cost or "buyout number" could represent a "huge step forward in risk management for pension schemes".

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