House of the year: Barclays Capital

Structured Products Europe Awards 2007

Barclays Capital has been impressive and aggressive across Europe in 2007, providing volatility products, breaking new ground in commodities and satisfying demand for exposure to FX. The bank captured the themes of the year, kept ahead of its rivals and was roundly praised by distributors for its innovation and tenacious approach to winning business.

By far the largest provider of commodity-linked notes, BarCap has been rewarded with the Structured Products commodities house of the year award based on its innovation (page 28). "Barclays is very leading with commodities - within a couple of days most other product providers try to follow," says one Dutch distributor.

Distributors and valuation companies were complimentary about the quality and range of volatility products on offer from the bank. Notable achievements include a deal for a German family office at the end of August that consisted of a delta-1 open-ended tracker note with 20% trading capital linked to BarCap's Voltaire Index, which gives exposure to volatility as an asset class. The deal was one of the first to take advantage of the market inefficiency of overestimating implied volatilities, and was unique in giving a choice of four indexes. "Voltaire tries to monetise persistent risk premiums, as implied volatilities tend to overstate real ones," says Hassan Houari, a managing director and head of equity derivatives structuring. "We created a note for private banking with capital protection and returns of 12-15% per annum."

Pierre Bes, a managing director and head of private banking coverage, says: "The products are transparent with low fees. They offer private banking and retail a good alternative to investments in hedge funds."

The product was sold to a European pension fund that invests only in hedge funds, says Houari. "We introduced a few new structured products because of the credit turmoil, such as the Equitybrium, which pays a coupon if none of the selected stocks falls more than 50%."

BarCap continued to build out its platform in 2007. "This year we added an eighth asset class - private equity," says Guglielmo Sartori di Borgoricco, managing director and head of global distribution. That addition came into play when the bank worked with the Carlyle Group to design Aspen, a tax-efficient structure giving access to five private equity funds managed by the group for a comparatively low initial investment requirement of $50,000, but with diversification across the five funds. BarCap gave Carlyle a commitment of $500 million on their funds, says Bes.

Investors did not have to account for all of the underlying transaction within the individual funds while optimising the tax treatment of capital flows from the underlying investments. Risks associated with capital calls on private equity by funds invested for the period before capital drawdowns were negated, meaning that the bank was not left with credit exposure to its high-net-worth and ultra-high-net-worth UK and European clients during the drawdown. One private wealth manager client raised $100 million from the alternative investment strategy. More than $300 million in Aspen notes has been placed in 13 countries to private banks, banks, asset managers and insurance companies.

BarCap met this year's demand for income products with Kinetics-Top 10 Sustainability, a kinetic structure based on a basket of companies from the DJ Sustainability indexes. The bank issued over $2 billion of the product in 2007 in six structures, which were sold to pan-European retail and private banking clients through distribution partners in France, Germany, the Netherlands and Switzerland. Each deal had a six-year term with 100% principal protection and a target coupon of 10%, with allocations to the strategy varying from 65-90%. The strategy is long the underlying equities, writing calls with 102% strike to generate income and buying puts with the strike at 90% to provide downside protection.

The bank's hybrid and hedge funds businesses have also been recognised with awards this year (pages and 31 and 32).

"In FX, we placed over $1 billion this year through our Intelligent Carry Index (ICI), which showed the demand for FX as an asset class," says Bes. Barclays' first official FX index, the ICI enables investors to capture alpha from the most liquid part of the FX markets - the G10 currencies. The index takes long and short positions in G10 currencies and is rebalanced monthly to maximise returns and maintain a target volatility of 5%.

During 2007, subscriptions that led to an increase in size of an FX-linked deal through an Italian asset manager produced the biggest deal in the FX market. The 18-month euro principal-protected note provides 200% participation in the appreciation of Asian currencies against the euro. The deal hit EUR500 million and was syndicated to 30 investors in 11 countries.

Bes is also bullish about the prospects for its Ebu (European borrowing unit) synthetic currency product, via which investors buy a basket of long and short currency positions against the euro.

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