Dublin is losing UK structured product business as providers find alternative domiciles that are che...
Dublin is losing UK structured product business as providers find alternative domiciles that are cheaper and quicker.
That is the conclusion of research by Arete Consulting, which found that in 2003, 65 out of 168 structured UK Isa products were launched via Dublin, against 47 out of 65 in 2002.
By contrast, last year 74 Isa products were structured using medium-term notes (MTNs), while most of the rest came from Jersey and Guernsey.
Robert Benson, founder of Arete, said the MTN is becoming more popular as it is cheaper than Dublin and so favours smaller market tranche sizes. He added this is a crucial issue for product providers, as they look to keep costs down.
Arete"s research suggested the average tranche raised per product was about £10m in 2003. Benson said he would be surprised if these sizes could fall any lower.
"It is just not economic to sell a tranche of £2m-£3m," he said. "However, there are more investment banks competing for the derivatives business, so this means product providers could perhaps be getting a better price."
David Stuff, head of UK structured retail products at Barclays Capital, said: "It takes a day to produce a simple MTN, while Dublin takes weeks and an Oeic months. An MTN allows you to make a new product quickly and with relatively low risk."
Arete runs structured-retailproducts.com, which collects information on all new product launches, and took its data from the website.
In its review of products over 2003, the group noted there was a decline in income offerings.
Low interest rates and low implied equity volatility have made the pricing environment unattractive for income bonds, while there was a continuing negative fallout from maturing precipice bonds, according to Laurie Fulton, a director at Arete.
The flip-side of this is that low implied equity volatility and rates create a far better environment in which to produce growth products, according to Arete.
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