Barclays Capital

Structured Products House of the Year

Barclays Capital has been top of the structured investor products game for some time, and its continued expansion and innovation in that market has earned the bank the 2007 award for the structured products category. It remained the largest issuer and dealer of commodity-linked structured products for the third consecutive year in 2006, issuing $5.4 billion of notes. Its global client base now numbers more than 210 clients, from an increasingly diverse range of institutions.

"New customers are coming in," says James Groves, head of commodity hybrids trading at BarCap. "2006 is when we cracked the institutional market – before, it was mostly private banks and retail distributors. Now it is near 50:50, which is a very exciting development."

Groves also notes that 2006 saw the first hedge fund trade in the structured space: a correlation trade of the type usually only seen in equity or forex markets. "The sophistication of customers has improved," he says, "which in turn has led to demand for more sophisticated structures."

Indeed, the Energy Risk awards judging panel was impressed by the innovative nature of the bank's products – in particular, the launch of the first managed collateralised commodity obligations (CCOs) in partnership with TCW, one of the world's largest collateralised debt obligation managers. "Our greatest achievement of last year was introducing the commodity world's first managed product," says Groves, noting that there is still no competitor selling managed CCOs. "The product has beaten our expectations."

The bank has also developed structures on new underlyings, including German electricity, emissions credits and UK gas. And the investor products business has worked with the forex desk to provide structured commodity products denominated in local currencies, such as the Czech koruna and Hungarian forint.

Not that the bank pursues innovation for innovation's sake, however. "The biggest challenge is not just continuing to innovate," says Groves, "but also to slot innovation into an industralised platform with seamless execution and competitive pricing."

Barclays Capital has been involved in the structured investor business for a long time, but now faces increased competition from rival banks. More competition means more pressure on the incumbents to consistently come up with new and better ideas. As a result, says Groves, the bank is increasing its focus on new markets, such as the growing emissions and carbon trading markets.

The influx of new players has also had an impact on market dynamics. "When we started out, the flows were small," says Groves. "The back end of the curve was unaffected by investor flows." In those days, he says, it would usually be his team calling up other BarCap trading desks to find out where the flows were. Today, however, it's not uncommon for other traders to come to the structured products desk to find out where investors are allocating money.

Nor is investor appetite showing any signs of being satiated, he says – on the contrary, there is still massive room for growth. "When I speak to investors, I rarely hear that they are full up on commodities," he says.