Case study: StoBene Partners actively managed certificates
In the field of investments, the word certificate has a generic meaning as an instrument representing a combination of securities and derivatives. Certificates can accommodate a wide range of risk-return profiles. Xavier Delfini from StoBene Partners explains why they are an important element in his investment strategy.
Which investment strategy do you follow?
Xavier Delfini: “Our actively managed certificates (AMCs) invest in selected bonds issued by financial institutions. The strategy focuses on financial institutions’ subordinated debt instruments. The objective of the AMC is to provide stakeholders with an attractive return on investment in the following instruments: regulatory capital instruments, these being financial instruments issued by a financial institution, which constitute regulatory capital for the purposes of Basel I, Basel II or Basel III or Solvency I or Solvency II; other financial institution investment instruments, including senior debt without limitation, which do not constitute regulatory capital instruments.”
Why have you decided to use AMCs?
"AMCs are now mature and offer great advantages compared to funds or other structured products. The legal aspects are very light-touch and offer the adviser great flexibility for integrating them into portfolio management. For external asset managers, it offers a way to set themselves apart from their competitors. Expertise in the management of specific asset classes can be acquired through AMCs. Other solutions like funds, offshore or onshore, are very time- and capital-intensive. They require huge resources, which is often not an option. AMCs are of great interest for clients, too. They offer genuine market timing and diversification.
As opposed to a traditional fund, AMCs can be tailor-made to respond quickly to a client’s need. They are transparent and can be easily monitored. Fee structures are very competitive with traditional funds.”
Why have you chosen Julius Baer as an issuer?
“Competition among issuers seems to be intense, but few can provide clients with the required quality of service. When the decision was made to launch an AMC, we took several factors into consideration: Step one—ask the basic questions: Is the stability of the bank good? Does the bank have staff who are fully dedicated to AMCs? Does the bank have extensive experience with structured products. What about their trading desk, reporting and legal aspects? Are they fully efficient? Then we considered the technical aspects of how the day-to-day operation would work. This is key, as many banks have shut down or dramatically reduced their trading desks. Automated trading systems are fine for equity AMCs, but when it comes to less liquid assets like high yield, it is often a problem. It is crucial to ensure that day-to-day operations and reporting are carried out properly. We also need to make sure that the issuer plans to offer AMC services for the long term, and is committed to maintaining clear leadership in terms of innovation and quality.”
What experience have you had previously with AMCs?
“We were managing special purpose vehicles ten years ago, before issuers started to offer AMCs. Our first AMC was managed more than six years ago.”
To what sort of clients have you recommended AMCs?
“It is very much tailor made. It could be for high-net-worth or for Ultra-high-net-worth individuals. Any type of client may be interested in AMCs. They are an alternative to traditional funds or assets. They reduce specific risks with good diversification.”
How do you use AMCs in the portfolio context?
“We use them for two types of objectives. Firstly, to allow greater diversification and for generating alpha. The core strategy takes the form of strict stock selection and asset allocation. The AMCs are used to suit the opportunistic market situations. The fact that they are relatively easy to set up offers great opportunities to respond quickly to market trends.”
Do you use other structured products in your investment strategy?
“Yes, if it makes sense and if they offer a better risk-reward ratio than traditional asset classes.”
StoBene Partners is an example of an intermediary that uses AMCs. They do so to give their clients greater portfolio diversification and to generate investment alpha.