With The Financial Crisis In The Rearview Mirror, Exotic Asset Classes Are Returning

It looks like investors are getting hungry for the exotic again. On Main Street, many still see ‘derivative’ as something just short of profanity, but Wall Street is starting to warm to non-traditional asset classes again, reports Standard & Poor’s rating services according to Thomson Reuters (login required).

The rating agency notes ‘solid performance through the recent downturn and attractive bond yields should keep investor interest in non-traditional US asset securitizations strong in 2011.’ Catastrophe bonds (a form of insurance-linked securities) are among the investment instruments coming back, according to S&P’s report, which explains that last year ‘saw the introduction of non-natural disaster-related perils such as healthcare-related risks. This development signals that the market is deepening as a versatile reinsurance alternative for ceding insurers.

Does this mean the past is the past, and the future will be full of yield and return chasing? Or are we on the brink of a mass realisation that investors, rather than tools, are the drivers of consequence?

For now, it feels like we are in a space between the two: the sting of the financial crisis is beginning to wear off, but we still remember it. There’s a desire for big returns, but the lingering memory is still sufficiently strong to provide a bit of restraint. The up-tick in exotic appetite, however, could mean we really are transitioning to a post-financial crisis marketplace.

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