Formed in 2001, NPB New Private Bank has established itself as a niche investment boutique in an increasingly competitive Swiss local market. Total volumes of outstanding structured products provided by NPB in 2006 amounted to about Sfr300 million ($255 million), and by the end of September this year its volume of outstanding products reached Sfr390 million.
NPB markets its structured products to its own asset management arm and private clients as well as to smaller banks and independent asset managers. A typical NPB private client will have at least Sfr2 million of assets to invest. Since the middle of this year, NPB has also started to market its products to selected institutional investors. The Swiss bank is one of the main providers for structured products to Skandia Switzerland, a subsidiary of insurer Old Mutual, and both have a captive retail distribution network.
NPB works independently when it comes to selecting issuers, says Markus Ruffner, Zurich-based partner and head of asset management at NPB. "We work with approximately 30 different issuers," says Ruffner, adding that the bank has a team of 11 people to cover structured products and other investments and has launched more than 200 structured products since 2001.
Since last year, NPB has seen strong demand for energy-related structured products. At the end of 2006, the bank launched its 35% Bonus Certificate on a basket of energy stocks. The product was a US dollar 100% capital-protected seven-year structured note linked to a renewable energy index. The note offers 70% participation in the Wilderhill New Energy Global Innovation Index (Nex). The index consists of 88 companies listed on 25 exchanges in 21 countries and is dedicated to innovative technologies and services for the generation and use of cleaner energy, conservation efficiency and the advancement of renewable energy. The product was designed by NPB with Bear Stearns as the issuer, and has achieved a return of around 17% since its launch in December 2006.
In August, NPB launched a multi-bonus certificate on utility shares. The 33% Multi Bonus Note has a maturity of 18 months, based on a worst-of structure, a 70% barrier, a bonus coupon of 35% and an internal rate of return (IRR) of 21.17% per annum.
The product was designed by NPB with Royal Bank of Scotland as issuer. The return - which is linked to three energy companies - Suez, E.ON and RWE Group - is approximately 15% since launch.
NPB has launched similar structures on baskets of stocks that cover industries with very high IRRs, such as the pharmaceutical and banking sectors. "NPB differentiates itself from other distributors by a higher grade of product innovation," Ruffner says. "We base our decision on the selection of underlyings as well as relatively high participation rates for guaranteed products - for example, high IRR for bonus or multi-bonus products. The products are designed mainly for integration into the asset allocation process and are based on fundamental analysis, so are very seldom marketing driven."
Last year, the bank launched a four-year bonus certificate based on the HSCEI, which consists of Hong Kong-listed Chinese shares. The certificate, issued by BNP Paribas, has a 70% barrier, pays a 45% bonus and offers 100% upside if the performance of the index is higher than the bonus payment. "We have not seen any product in the market with comparable structures," says Ruffner. The certificate's performance since its launch in 2006 is approximately 184%.
In addition to offering products that cover specific industries and have a high probability of outperforming industry benchmarks, NPB also provides investments that are geared towards outperforming exchange-traded funds. The bank launched a four-year bonus quanto product last year designed to outperform the Topix Index, which consists of more than 1,500 Japanese companies listed on the Tokyo Stock Exchange.
Aside from designing structured products for asset allocation for private clients, NPB also develops them for retail investors. These products are mainly distributed through Skandia, or with the help of advertisements in Swiss financial newspapers such as the Finanz und Wirtschaft. An example of NPB's products for retail investors are the offerings linked to the Adagio Index developed by Bear Stearns.
The Adagio Index is a hybrid strategy based on indexes covering three different European assets: equities, real estate and government bonds. The weightings of the three indexes are periodically adjusted according to Bear Stearn's quantitative asset allocation model. NPB launched an eight-year capital-protected note in March which was linked to the index.
The week on Risk.net, December 2–8, 2017Receive this by email