A range of structured credit investments
First, the Royal Bank of Scotland (RBS) started to link its derivative products to the FTSE UK Commercial Property Index. RBS sold several five-year capital-guaranteed products tied to the FTSE index to high-net-worth individuals, and plans to develop products that will appeal to the retail market in the near future. FTSE and RBS claim that the index is much better suited for retail clients than the IPD index family. According to RBS, the lack of a liquid underlying asset remains a key issue with IPD indices. On the other hand, IPD claims that the FTSE index is not sufficiently accurate and robust, as it is drawn from a single fund. One fund is not going to behave exactly like the rest of the market, particularly when subsectors are considered. The annual IPD index references a portfolio of property that is valued at GB£ 192 billion, about 18 times larger than the FTSEpx reference portfolio.
However, Santander is also working on a range of structured investments based on the FTSE index for both retail and institutional investors. According to MSS Capital, other investment banks have also applied for an FTSE license, to use the index to create property derivatives including swaps and options. Mostly, banks intend to structure products based on the FTSE Commercial Property Index for retail investors. The FTSE brand for distribution of structured products is well known to these investors. There are many vehicles designed for the commercial real estate market, but besides the IPD derivatives market, there is so far no possibility of taking a short position in property. Further, property fund managers are benchmarked against the IPD Index and so will want to engage in derivatives relative to the IPD Index.