investing in structured products to enhance the return of a pension fund

Currently working on a topic: As a financial engineer working for a leading Hedge Fund, you are approached by a pension fund seeking to enhance the return of the managed investment by investing in structured products.

I am currently learning structured products and new to hedge fund..
Would like to ask for opinions: )

 
Best Response

I am be the white knight for structured products everywhere!

  1. Versatile risk profiles. The pension fund can carve out a piece of the risk that they find most attractive. Structures allow people to trade defaults and prepayments. If the pension fund has a view in both of these areas, structures are where it should be expressing them.

-Want a non-structured AAA credit? Good luck with Microsoft bonds. -Want an AAA credit that's sexy and exotic? Try some reverse interest-only strips and CMO tranches.

  1. Attractive yields. The yields on some of the juniors and mezz are LIBOR +200-350bps. That's a solid few percentages better than treasuries and higher than comparable corporate bonds of the same credit quality.

  2. Legacy assets probably underpriced. Massive recent sellings of legacy structures by treasury and banks created a temporary glut of supply.

  3. Supply and demand economics. Subprime housing credit is disappearing and we ain't making no more of it. Get yours today!

Pennies from JcPenny
 

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