03 Nov 2011, Richard Jory, Structured Products
Credit Suisse made good on the promise of last year and acquired Prime Funds Solutions (Fortis), including its financing book, furthering its lead in the business of financing funds of hedge funds. Completed in April 2011, the acquisition increased Credit Suisse's financing book by 20%.
With the continued backing of the bank, "fund-linked product offerings were expanded to include hedging against volatility, forex overlays and tail-risk mitigation," says Cameron Hedger, managing director in fund-linked products at Credit Suisse in London.
"Tail-risk hedging is not easy to deliver to investors: we have looked at passive and active [management]," says Walter Cegarra, director in the fund-linked products team at Credit Suisse in London.
"These products were new to funds of hedge funds, but they were receptive," says Hedger.
The Swiss bank remains one of the few that can boast continued commitment to clients over the past few years of market upheaval. That dedication includes bridge financing for funds of hedge funds at loans to value (LTV) of 10-30%, as well as structural leverage of up to 65% LTV.
"Over the past few years, we've moved a majority of our structured product, credit facility and hedging business to Credit Suisse, which is our primary provider," says Matthew Rees, head of marketing at Neuberger Berman Alternatives in New York.
Rees deals with Cegarra in London and Jeff Jaenicke in New York. "Credit Suisse approaches our relationship like it's a multi-year partnership and not a single deal. It's about as smooth a set-up process I've experienced in 12 years working on structured products," says Rees.
Pricing is competitive and the bank has "gone out of its way to keep legal and administrative fees low," he says. "They also offer interesting complementary services, such as forex hedging diagnostics and tail-risk overlays. They provide lots of industry information through their monthly calls, as well as white papers and informal meet-and-greet events."
One Zurich-based asset manager says: "We have an excellent relationship with Credit Suisse, they have very smooth delivery and highly bespoke solutions."
Enhancements in the past 12 months have been heavily skewed towards education, including the presentation of a fund for insurance companies that is Solvency II compliant. Products on offer "minimise the impact of the regulations from a capital charge perspective," says Cegarra. "They also include micro constant proportion portfolio insurance (CPPI) for insurance companies to offer to their investors. We do this by transferring the market risk on the insurance company to Credit Suisse on an individual-by-individual basis."
The micro CPPI was developed in 2010 and attracted its first mandate in 2011. It is aimed at the distribution arms of insurance companies and pension funds, as well as retail distribution. Buyers choose from a wide range of funds in which they can adjust allocations over time. Protection levels can also be adjusted to lock in gains, support automatic ratchets, and can be turned on or off. Assets remain with the manager, ensuring a continued flow of fees and fee hedging can be provided to protect against loss of revenue in declining markets.
The bank has also worked with UK building societies to create a Retail Distribution Review-compliant selling process for them, using what it calls a ‘profiling portal' through which investors can select investments without the assistance of advisers.
The demand for yield has been met with two new offerings. One, aimed at cash-rich corporates that want permanent protection, includes accumulators that give exposure to investments that produce yield while minimising risk on the downside.
Further new products based on fixed income include Gemini, a fixed-income enhancement offering that Credit Suisse developed with GLG, part of Man Investments. The fixed-income products generate yield using an emerging markets, non-directional fixed-income strategy from GLG. "It's purely fixed income, so it is very liquid," says Cegarra.
Hedger adds: "There is no equity or credit, which is very unusual for an emerging markets fund - there is only forex and fixed income, and we have overlaid capital protection and leveraged versions, offering alternatives for different ends of the risk spectrum."
The past 12 to 18 months have also witnessed the expansion of the bank's Zurich-based market-making group from asset management and private banking to incorporate third-party clients, says Hedger.
The period has also seen the development of the Liquid Beta replication range, which provided managers with an alternative to holding cash while minimising the drag on performance.
And then there is a Ucits fund that the bank has created and allows investment managers to benefit from the broader market access that the Ucits framework provides. The initiative includes the set-up of Ucits-eligible investable hedge fund indexes and associated Ucits tracking funds.
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