Asia Risk awards 2010: Asset manager of the year

Lyxor Asset Management

Investor appetite in Asian markets has ebbed and flowed during the past year. At some points capital has been aggressively put to work only for investors to retreat en masse into cash at the first sign of trouble. As a result, many investors have shown a preference for capital guaranteed products in simple delivery formats that offer an attractive upside but protection against a sudden downturn. And investor money is often going to asset managers that can offer attractive upside from diversified yet correlated asset classes denominated in high-yielding currencies.

However, in 2009, many Asian regulators halted new product launches at the retail level as they overhauled regulations governing the sale of investment products to retail public following Lehman Brothers’ 2008 collapse. The bankruptcy resulted in billions of US dollars of losses for investors in Singapore, Hong Kong and Taiwan. In Hong Kong, for example, gross sales in the retail structured products market plunged 79% to HK$49 billion ($6.3 billion) from HK$228 billion in 2008, according to Lyxor Asset Management.

Distributors and bankers say investors are still willing to park their money in longer-term investment vehicles such as structured funds – as long as the funds offer topical investment themes, transparency and liquidity. Distributors say Lyxor, which shares the structuring and research capability of its parent Société Générale (SG), has consistently been able to launch new funds to the market at a frequency unmatched by other asset managers during the past 12 months. “In the structured funds space and multi-asset investment products, Lyxor is our top business partner among the 50+ we work with,” says Thomas Ng, Fubon Bank’s first vice-president and head of investment products in Hong Kong. “While other asset managers might launch one or two new funds every year, Lyxor has been able to come up with new launches once every two to three months. I believe this is supported by SG’s marketing and research capability.”

Ng’s division also receives frequent client inquiries from the bank’s Taiwanese parent, Fubon Group, for investment products especially on funds that could give access to China’s growth story – a market still largely off-limits to Taiwanese investors due to capital control upheld by regulators on both sides of the Taiwan Strait. He says Lyxor’s ability to come up with new investment ideas and product themes has frequently sated Taiwanese investor appetite for China exposure. In one example in October 2009, Lyxor became the first asset manager to ‘re-open’ Hong Kong’s retail structured fund market, after its Multi Assets 100% Capital Guaranteed Fund became the city’s first capital guaranteed fund approved by the Securities and Futures Commission, since Hong Kong regulators stopped signing off on new launches. The fund offers investors potential upside from the China H-share index listed on Hong Kong bourse, Taiwan equities and two agricultural and oil indexes.

Antoine Broquereau, head of structuring and alternative investment solutions at SG in Hong Kong, says the fund, which provides a 3% guaranteed coupon on the first year and is capital guarantee at maturity, demonstrates Lyxor’s capability in managing correlation risks across asset classes. The return for the remaining two years is linked to the performance of the basket of indexes. “We need to manage the risk of correlation between the asset classes and make sure we have the right parameter for the correlation,” he says. “What we are looking at is whether the correlations at current levels are comparable to the past – if yes, do we anticipate any change? If no, we need to see what has changed in the market; is the new level the new market standard? Or would it go back to the past levels?”

Collaboration with SG has also helped Lyxor in getting faster time-to-market on new launches than rivals.

Like any asset manager, Lyxor does not have a credit rating and in a new market environment where investors seek capital guarantees, the asset manager often designs products with, among others, SG’s investment bank, using its parent’s balance sheet and credit rating to provide guarantee on the product. Meanwhile, SG is showing a lot of innovative ideas, structures and pay-off to Lyxor, so that Lyxor can test the appetite of the market quicker than rivals. In addition, Lyxor and SG share the same methodology in reviewing risks; and SG would also provide secondary market to Lyxor’s fund investors if they want early redemption, Broquereau says.

Meanwhile, the need for guaranteed weekly or monthly liquidity is a big attraction for investors into hedge fund investments to use a managed account and Lyxor has attracted more than 100. While acting as a provider of due diligence on managers and offering third-party reporting, transparency and liquidity, Lyxor took its hedge fund risk management capabilities further last year by providing a guaranteed note on US manager John Paulson, who is known for his successful bet against the US subprime market. The 5.5 year guaranteed note was written by SG and backed by a fund run by Paulson & Co. Investors to this note have their risks overseen by Lyxor. Broquereau says the note is popular among Taiwanese high-net-worth investors, partly because it has principal protection at maturity.