Higher-risk hybrids on the rise

Hybrid securities are evolving … and investors are being asked to accept more risk.

Hybrids are a constantly evolving security class, changing to meet the needs of issuers and to provide income-based securities for investors seeking yield to fund retirement. The most recent changes in hybrid structures have been driven by tighter regulatory requirements post the GFC, which are increasingly in favour of the issuers while investors are asked to accept greater and greater risks.

Current trends include:

Banks have been the dominant issuers of hybrids in recent times, and this looks set to continue for the coming 12 months.

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