Sarasin notes that, already this year, investors have seen hybrids from Cheung Kong Infrastructure (CKI) yield 7 per cent; International Container Terminal Services, 8.375 per cent; Olam, 7 per cent; and Genting, 5.125 per cent. Banks are also big users of hybrids. UBS brought a US$2 billion hybrid in February that attracted heavy subscription from Asia's private banking clients.

Hybrids are often packaged so they can be sold to individual investors. In Australia, brokers commonly sell the investment to inexperienced investors. They are sold as safe instruments with decent yield, suitable for relative newcomers.

Hong Kong investors are likelier to be offered hybrids through the private banks. HSBC research published in June indicated that about half of all Asian hybrids were sold through private banks, with references to deals from CKI, Hutchison Whampoa and Citic Pacific.

So hybrids are high-yield investments that typically come from quality issuers, and which are highly accessible to individual investors.

So far, so good.

But of course, there is no free lunch with these securities. Although the yield may be relatively attractive compared with, say, a straight bond from the same issuer, with increased yield comes more risk. With a hybrid that risk comes in the form of the non-payment of a coupon or, potentially, a complete default.

To understand what this is about, it's necessary to dig a little deeper into the nature of hybrids. Banks like them because they can use them as 'regulatory' capital, which is the balance sheet capital that regulators require of banks to ensure they won't go bust.

Corporations also like to use hybrids because they can count as either debt or equity, depending on what is most favourable for the issuer. For example, a common hybrid is structured as 'preference shares' that pay a dividend coupon, but only at the discretion of the issuer. The securities have no end date, but can be terminated at any point by the issuer, typically by returning cash to investors or by converting the instruments into ordinary shares.

The issuer, therefore, may be able to treat the instrument as equity when examined by the credit rating agencies. Because the instrument can be converted into ordinary shares at any time, the firm does not risk any ratings downgrade with the issue.

Meanwhile, for equity analysts, the instrument has no impact on the issuer's earnings per share, a key measure on which they make buy and sell recommendations. This is because the securities are not real equity. Holders of the security do not have any voting rights and have no claims to the dividend income of the firm.

Take a moment to consider, then, what investing in a hybrid might entail. An investor might not get dividend or interest income and may never be paid principal, as the instrument may be deemed perpetual. And if the issuer defaults, the investor will be near the end of a long line of people looking to get their money back.

The instruments are also extremely complex. For example, hybrids often involve triggers for mandatory conversion into common shares.

Andrew Haldane, executive director of financial stability at the Bank of England, says the calculation of such conversions should be manageable by 'a competent clerk and envelope'. In reality, for most hybrids, it's far more complex.

Hybrids tend to come from top-tier issuers who can be trusted to do the right thing. The issuers pay the coupons they indicate in full, along with a full repayment of principal at an accepted date. The trust element built into these securities is why they are such a large and accepted part of the market.

Even so, even the best issuers can run into trouble, leaving investors holding a weak instrument with few claims on assets, or ownership of anything in particular. During the global credit crisis, RBS announced a two-year halt of coupon payments for a long series of hybrids previously issued.

On February 23, Standard & Poor's gave a C rating (the lowest rating before default) to a junior tranche of a Euro500 million (HK$5.1 billion) hybrid issued by a subsidiary of the Belgian bank Dexia. It happened just after Dexia announced a tender offer to buy back the hybrids at one-fourth of their nominal value.

Many other banks likewise deferred coupons on their hybrids, leading to writedowns and technical defaults.

It is for such outcomes that the Australian Securities and Investments Commission, Australia's main market regulator, regularly warns investors to treat hybrids with caution.

In the US television series Scrubs, one character J.D. states that dating is just pretending to be someone else until the person you are with is comfortable enough around you. Investors in hybrids hope the true character of their hybrid investments is closer to the one that was displayed during the courting phase.

Satyajit Das is author of Extreme Money: The Masters of the Universe and the Cult of Risk