Profile: Natexis battles the big squeeze

Special report: Focus on France

With 6.8 million clients and 2,807 branches, the Banque Populaire Group is one of France's largest retail banking networks. And Natexis Asset Management, the group's asset management arm, is the sole manufacturer of structured products sold through Banque Populaire's retail distribution networks.

"We were one of the first retail networks to launch guaranteed products in the early 1990s," says Paris-based Sebastien Nantas, director of product structuring and development at Natexis. But even though Natexis has been developing products since then, Nantas admits the structured products market has now stabilised and it is becoming harder to push sales.

"One of the most difficult aspects when it comes to selling structured products is to convince the banks that the products (we structure) can deliver performance," he says. "Since the market was pretty bearish between 2000 and 2003, retail banks in France have not been keen on selling pure equity-based products without a guarantee."

According to a report by BNP Paribas released last month, growth structures such as exotic capped calls, best-of profiles and CPPI structures accounted for one third of the issues for France in the first four months of 2006. However, Natexis's last CPPI-based product, launched back in 2004, did not meet customers' expectations, officials admit. Since then, the company has not launched any CPPI-based products.

"We launched a CPPI-based product which didn't benefit from the bullish market due to the long period of commoditisation of this type of product," Nantas says. "Now we are focusing on a range of options-based products which we sell all year long (through the Banque Populaire network) and we promote these products on a quarterly basis."

In fact, Natexis has developed its own sales mechanism when it comes to marketing its in-house structured capital-guaranteed funds. "Our guaranteed products are sold as a package in our range of global balanced flagship retail funds, Fructifonds Profil 3/6/9," Nantas says.

Fructifonds Profil 3/6/9, for example, invests in international markets covering Europe, the US and Asia. It also consists of a diversified portfolio that includes equities, fixed income and funds of hedge funds. An example of one of Natexis's in-house structured products is the Odeis 2006, an eight-year investment plan linked to a basket of funds. There are three baskets, which corresponding to different strategies: secure, balanced and dynamic.

Each basket is weighted differently to give emphasis on one asset class. While the secure strategy places more focus on fixed income, the dynamic strategy places focus on equities. At the end of each year, the highest annual average performance of each strategy will be retained for the calculation that constitutes the final performance. What's more, the Odeis 2006 can also be subscribed within the advantageous tax framework of the Plan d'Epargne en Actions (PEA) which has an investment limit of EUR132,000.

Unlike the majority of the options-based products that are linked to a basket of shares or a basket of equity indexes, the Fructifonds Profil 3/6/9 caters for different types of investors and provides a level of protection even if the equity market does not perform, according to Nantas.

"Because the guaranteed products we developed offer exposure to a diversified portfolio of funds, the return doesn't depend entirely on the performance of the equity markets," Nantas says. But in an increasingly crowded market - and with more and more retail banks in France selling products structured by other competitors - Nantas says targeting the right investors is a priority.

So, in order to help its networks to sell financial products and to educate the investors, Natexis has come up with the idea of a 'savings pyramid'. The pyramid suggests a step-by-step procedure detailing how retail investors can build up their savings.

Nantas believes it is essential to sell structured products as a part of these 'saving pyramids' rather than selling the products direct to customers without assessing their requirements., advising investors to start with secured cash savings products.