Structured products house of the year: Credit Suisse

Asia Risk Awards 2021

Asia’s structured products market had a bit of a reset this year. Burnt by shocks in the market at the start of last year, a few of the main players chose to pull back from some of the less salubrious structures they were offering. Not Credit Suisse, however, whose acumen – and possibly a certain amount of luck – allowed it to be on the right side of the markets as they fell. This has afforded the Swiss banking giant an advantage, able to capitalise on surging demand for equity structures as markets picked up again.

“The dynamics of the structured products market last year gave us the opportunity to deepen our relationships and partnerships with our clients,” says Charles Firth, managing director, solution sales, Asia-Pacific. “We worked very hard to provide much-needed support to our clients, investors and distributors during a particularly challenging market environment.”

Feedback from clients has certainly been positive.

“If we were only going to work with one [structured product] issuer, it would be Credit Suisse,” says one structured products note manager for a bank in Taiwan. “Credit Suisse provides excellent after-sales service and a high level of product innovation. They are constantly coming up with new products that fit the current market environment, and usually have a new product to pitch us at least once a quarter.”

Soaring prices, high vols

When Covid-19 took hold in March last year, equity markets quickly tanked and a lot of products around the world, such as Eurostoxx autocall structures, lost money.

But with a sudden injection of central bank liquidity, markets bounced back quickly and, by the end of the year, a number had topped pre-Covid levels. This was especially true for technology stocks in the US, with many well-known tech names jumping by 30–50% in value in the fourth quarter last year. Analysts calculate that more than half of the gains that the S&P 500 made in the latter half of 2020 was due to this tech rally.

But at the same time, despite these soaring stocks, volatility remained high – and that was a bit unusual.

“Normally, when assets are moving upwards in a straight line, implied volatility will be low, but this wasn’t the case for many US-listed technology stocks last year. Indeed, we saw some of the biggest stocks in the world moving on incredibly high volatilities,” says Firth. “This meant if you had a structured product that expressed the view that prices of such stocks may go up slightly and would not go down below the strike, it represented a considerable opportunity to monetise value.”

Firth says that some of the coupons they were able to attach to their structured products during this time were as high as 30% per year – and could even reach 50% if the right structuring was in place.

“It was the perfect scenario for structured products to be attractive compared with other means of investing. As a result, the volume of structured products really picked up,” says Firth.

Credit Suisse was well-placed to pick up some of this business.

As a number of banks were nursing their wounds from the losses in March – and were reassessing their global business models – Credit Suisse’s structured products business emerged relatively unscathed from the crisis (although it is fair to say that other parts of the business did have problems). Limiting damage to the structured products business was down largely to the bank’s hedging strategy, Firth says.

“We take a portfolio hedging approach, rather than try and hedge out the risk on every single component,” he says. “So essentially by having a large portfolio of different trades, specifically on different underlyings, we can build up a portfolio where the positions will offset one another, thereby allowing some cushion for any market shocks that might arise.”

Credit Suisse has another weapon in its drive for greater market share in the structured products arena: SparkTrackers. These are investible delta-one certificates – structured products that have no optionality – that are built by Credit Suisse sell-side analysts and then sold to private wealth investors. At the heart of these products is a strong in-house research team that is able to spot trends and quickly generate thematic ideas across sectors to capitalise on those trends.

“SparkTrackers is all about giving investors access to Credit Suisse’s differentiated research ideas in a tradeable way. Normally, to execute a dynamically selected basket of stocks, you need a trader or fund manager to build the portfolio, but that comes with associated costs,” says Firth.

“What is unique about the Credit Suisse SparkTrackers is that we are putting the dynamic selection of stocks in a convenient certificate wrapper that is tradeable daily. This format enables new thematic certificates to be launched in a very efficient and agile way. While setting up a thematic fund might have previously taken as long as six months, we can launch a new SparkTracker in a matter of weeks. The flexibility of our Spark platform allows investors to access a thematic investment portfolio quickly, while the alpha is still there. Speed is important to capture the returns.”

SparkTrackers has existed as a concept since 2018, but it was only in 2020 that it started to gain real traction among Credit Suisse’s clients. It has seen a significant growth over the past 18 months, with the SparkTracker’s assets-under-management (AUM) topping US$900 million in August this year.

Firth says that almost all of these SparkTrackers – more than 99% – have been sold in Asia.

SparkTrackers is underpinned by CreditSuisse’s Quantum architecture, which facilitates efficient tracking and reporting of investments.

ESG credentials

SparkTrackers has also allowed Credit Suisse to strengthen its environmental, social and corporate governance (ESG) credentials, which Firth says is a core aim of the Swiss bank.

“People have been talking about ESG for a while and it has now come to the fore as a competitive investment product,” says Firth. “If you had invested in ESG recently, you likely would have outperformed significantly.”

Firth cites a couple of reasons for this. One is that more people are now investing in ESG. But arguably more importantly than that, many ESG companies are now able to get cheaper financing, which flows directly into their bottom line.

In response to this trend, Credit Suisse established a new ESG division in August last year –Sustainability, Research & Investment Solutions (SRI) – which reports directly to the chief executive officer. At the same time the bank made sure the SparkTrackers it launched were aligned with its sustainability goals. The bank was able to use the agility embedded in the SparkTrackers to quickly capitalise on emerging trends in the market.

So far, Credit Suisse has brought to market 15 ESG-focused indices – all of which are now live and have money in them – and worked on a number of structured product ideas that embed ESG principles.

“Credit Suisse takes its commitment to sustainability seriously. This is evidenced by the formation in July 2020 of a dedicated executive board-level SRI function that combines our expertise and focus in these areas and aims to deliver innovative products, content and solutions to our wealth management, corporate and institutional clients,” Firth says.

“We have a dedicated team of global ESG specialists to support our product innovation. Our holistic approach of embedding sustainability across the full spectrum of asset classes is a very different market proposition.”

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