In a market dominated by volatility since the summer, BNP Paribas captured the imagination and needs of distributors with a product set that has left the buy side satisfied. In 2007, the French bank has broadened its distribution - notably producing a EUR500 million CPPI product for Axa, as well as working in tandem with AIG and Blackstone.
But it is volatility that has been the overriding theme. BNP Paribas has applied its skills across asset classes, a process that was started at the bank in its equity derivatives department with the dispersion notes it launched at the end of 2005 and early in 2006, with sales of more than $250 million. "This was the year in which a strategy that we began building in 2006 paid off," says Shaun Wainstein, head of equities and derivatives London. "Revenues in equity derivatives for the first six months of 2007 were the same as client revenues for the whole of 2006."
The year was marked by uncertain equity markets in the first quarter, when the bank was developing a range of products designed to outperform, such as a play on high dividend stocks against global equity indexes, and playing large capitalisation against mid-cap stocks. The bank revived the Eurostoxx Select Dividend 50 index in February for BNL Vita, a subsidiary of BNP which needed a product with an expected return of 200 basis points over Libor. To meet the need, the bank created a six-year capital-guaranteed coupon-paying structure that would give a fixed coupon followed by coupons based on annualised performance of the Diva Index. A lock-in mechanism floored subsequent coupons if at any anniversary date that performance reached a maximum of 8.5%. The result: EUR460 million was traded with BNL and an estimated EUR1.5 billion traded in the Italian market.
The bank tracked the move from payoffs to themes that marked the other main trend of 2007, while also picking up on the desire for emerging markets. "The main driver for growth is still innovation," says Jean-Eric Pacini, London-based head of structured product sales, equities and derivatives at BNP. "Previously it was payoffs, but now it's underlyings and investment strategies as we move from product provider to business partner."
BNP also captured the drive towards alpha strategies, capitalising on low cash requirements for long/short strategies and therefore making it easier to offer high leverage and capital protection. The bank created the Diva Index to meet investor demand for outperformance over the traditional equity indexes, pitting the DJ Eurostoxx Select Dividend 30 - grouping the 30 companies with the highest dividend yields - against the DJ Eurostoxx 50. Daily rebalancing allows investors to capitalise on high-yield stocks showing better performance in the short term.
As well as hedge fund replication, the field of private equity also came into play. BNP structured its first private equity fund - PrivAccess - launching a product campaign in September with a close targeted for the end of October. Aimed at private banks, family offices and small institutional investors, the product was also notable for producing a structure on PrivAccess, with 130% gearing to take advantage of any opportunities from the pure fund.
Sandwiched between the fund's creation and the start of the private equity campaign, the bank launched its first dynamic structured strategy with a large asset manager in Monaco. Liberty, the new product, provides protection on any strategy and any position, offering the kind of flexibility that asset managers have been pining for. The end result is a combination of the asset management business and structured products in a way that has previously proved elusive.
The leverage capital holdings fund offered capital protection around an absolute return fund and was well-liked by distributors. "Because it is a long/short fund (with a long bias) with higher volatility, this is a nice way of embedding these features," says one Netherlands-based distributor, who was even more pleased to note a 30% plus return.
As well as naming the bank as one of two providers of choice for variance swaps and correlation products, one London-based hedge fund official points to BNP Paribas as one of only two that continued to provide liquidity during the most trying times of the credit crunch. While the liquidity on offer from both banks had decreased, the two stood head and shoulders above those that dried up as the squeeze in the financial markets tightened, says the hedge fund official.
New markets were swallowed up greedily, with the Middle East and Central and Eastern Europe top of the bank's progressive agenda. In the Middle East, BNP boasts "a strong component of local underlyings, and was the first to provide direct exposure to an Egypt index," says Pacini. "Partnerships proved the way forward in Central and Eastern Europe."
The week on Risk.net, December 9–15 2017Receive this by email