Investors want to take risks. But not every type of risk. This is the challenge facing the structuring teams for investor solutions at leading investment banks. Major central banks are increasingly behind the inflation curve, as fears over bank and sovereign balance sheet stress weaken the desire to hike interest rates. As a result, low-risk investments often yield below-inflation returns. This is frustrating for private investors, and potentially disastrous for institutional investors such as pension and insurance funds, if their yields are too low to match the growth of their liabilities.
The natural response to this for investors is to take on equity and commodity risk as a macroeconomic inflation hedge. As Michael Marray reports in this supplement, that trend is in evidence, especially in Asia, and also in Germany, which is Europe’s largest structured products market.
