From the October 2007 issue of Research Magazine • Subscribe!

Principal Protector

Quick, now, what's the fastest growing investment class in the United States?

Precisely right: structured products. Go ahead, fall in love with them -- but don't get too attached to their generic, misleading moniker. Because if Keith Styrcula, chair of the Structured Products Association, has his way, these dynamic, multi-faceted vehicles may soon have a new name: the more illustrative "structured investments," perhaps, or even "enhanced investments."

And Styrcula might very well get his way, or at least lead the way to such change. As founder of both SPA and his own New York City-based Structured Funds Advisors, he's the go-to guy when it comes to SPs.

Widely popular in Europe, structured products overlay an additional feature onto an underlying investment to, for example, provide principal protection. In retail portfolios, they are typically used to reduce risk -- though they can also add risk. In the former scenario, SPs give downside protection to equities and can also be linked to fixed-income, commodities or derivatives.

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Keith Styrcula, Principal, Structured Funds Advisors, New York City; Founder-chair, Structured Products Association, New York City

Why he wants to call structured products something else: "'Structured products' is a horrible name. 'Structured' sounds complicated, and 'products' sounds like something's being pushed."

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Styrcula, 46, has been focused on SPs since the 1990s, and his advisory is one of only a few here geared to help mutual fund and ETF companies break into the structured products business. Most of his clients are non-U.S. firms seeking to enter the American SP industry.

Smart financial advisors, increasingly, are getting hip to SPs.

"We're seeing a very big upturn in interest among advisors in using structured investments, [but] we've got a lot of work to do" to educate them. "There are times when they're not appropriate for portfolios. For instance, if a structured investment isn't held to maturity, you might not get the full benefit of principal protection," says Styrcula, a.k.a. Stephen Rhodes. That's the name he uses in his other business: writing financial thrillers like the bestselling The Velocity of Money (Morrow/Avon).

But the world of structured products is the innovative Styrcula's main concern. At UBS back in the late '90s, he devised the first structured product linked to the Dow Jones Industrial Average. Later, he created the Structured Solutions unit at JP Morgan Chase before leaving to orchestrate his own SP transactions.

At his almost two-year-old advisory, Styrcula works with about a dozen partners, firms such as Macquarie Bank of Australia, Canada's CIBC, Claymore Securities and Wachovia. He brings these entities together and arranges the transactions on a pro rata basis.

"Keith was a visionary and totally out in front in the U.S.: before anybody else, he saw that structured products were going to be very, very important here," says Anna Pinedo, a partner in the law firm Morrison & Foerster who liaises with Styrcula on SPA initiatives.

What he envisioned was "the inevitable convergence in the U.S. market -- as there is in Europe -- of structured products technology and mutual funds and other investments, and the ability to deliver this to the mass retail investor. Now," he says, "these products are finding their way into closed-end funds and ETFs."

The approximate $100 billion SPs market is of course tiny compared to that of mutual funds. But the instruments' "growth has been phenomenal," says Styrcula, "and there's the opportunity to double in value every 18 months."

Still, confusion reigns as to just what SPs are and what they seek to accomplish. "There's a lot of misconception that structured products are an asset class," notes Styrcula. A key SPA goal is to position SPs as a distinct investment class. This fall SPA will offer advisor seminars and tutorials about structured investments' risks and rewards.

Forward-thinking advisors began recognizing SPs' value during the 2001-2004 market, when they relied on the enhanced investments "to repair portfolios," says Styrcula. "If you had used structured products, you would have outperformed many conventional investments because the market was going sideways."

SPs are usually created by large brokerage firms and based on specific investment themes. They are then sold to multiple investors such as independent broker-dealers. But the products are also "very customizable." And resilient. "They're able to take advantage of changes in the market relatively quickly. They can protect against the downside and take volatility out of the portfolio."

Rochester, N.Y.-born, Ithaca, N.Y.-bred, Styrcula as a teen dreamed of becoming a Hollywood filmmaker. But after scoping out the industry, he decided instead to invest his creativity elsewhere and with a BS in business from Ithaca College, enrolled in the Fordham University School of Law.

In 1991 he began as a derivatives attorney at Credit Suisse First Boston in New York City, six years later moving to SBC Warburg, before its merger with UBS. By 2000, he was back at CSFB, where he introduced a structured products platform for the firm's DLJ Private Client Services Group.

He set up SPA in 2003, joining JPMorgan Chase a year later. While the firm was busy figuring out its SP strategy, Styrcula decided to pick up his "Rolodex and build [his] own client list."

His mission for SPA is to promote SPs and educate the industry about them. From 600, the Association has grown to 2,300 members worldwide. "I saw an opportunity to create a sense of community," says Styrcula. The group's third annual conference is set for October 15-17 in New York.

Ever on the edge, this visionary who gets things done sees "a titanic shift" coming. "In the next couple of years, structured products technology is going into 401(k) plans, college savings plans, pension assets, foundations -- because if you can protect principal and still give relatively most of the upside to investors," he says, "it's a tremendous value proposition."

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Freelance writer Jane Wollman Rusoff is a Los Angeles-based contributing editor of Research and is the founder of Family Star Productions.

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