Best in Central and Eastern Europe - KBC Asset Management

Belgium's KBC Asset Management has developed a strong reputation in the western European structured products markets but its presence in central and eastern Europe has perhaps not been as noticed. However, only seven odd years since it first established itself in the Czech Republic, the company has managed to become the dominant structured products player in four of the region's countries. Since its first foray into the region, KBC has launched products in Poland, Hungary, Slovakia and, more recently, in Bulgaria, and is eyeing up the Russian and Serbian markets for future expansion. KBC has the leading market share in the first four countries, having issued as much as 65% of all capital-guaranteed funds in the Czech Republic and 56% in Poland.

In 2007, KBC issued 122 new products into these countries with around EUR1.3 billion of overall volumes. This year it had already issued around EUR400 million of structured products to August.

KBC's success in the region is built on its exhaustive production line and centralised risk management located in Brussels. "The model in central and eastern Europe is a copy of the model in Belgium where we have very close cooperation between the asset management company and the bank that acts as the distributor," says Johan De Ryck, Brussels-based general director for central and eastern Europe and Russia at KBC. "The product line is tailored to the needs of the market but the risk component is centralised in Brussels."

KBC Bank's financial strength and its risk management processes have been vital in building the group's overall reputation as a structured product distributor in these still developing markets. "Our risk management structure supports the credibility of the products and helps them to get sold," says Luc Vanbriel, head of institutional business development at KBC in Brussels. "We very rarely hedge with only one counterparty but try to use at least two to five. The whole process is designed in such a way that if we have problems with one counterparty we can hedge with others."

The thirty or so products that the asset manager produces every month in Belgium means that it has a strong array of notes and capital guaranteed funds to choose from, while the issuance strategy is very much helped by its local presence and ownership of several large banks and insurance companies in the different CEE countries. And the company has been able to closely tailor its products to the individual risk appetites and consumption in the region. "Poland and Hungary have high interest-rate levels so you can create high-yielding products that are relatively simple," says Marketa Sonkova, finance and reporting officer, central and eastern Europe and Russia at KBC in Prague. "In the Czech Republic, interest rates are relatively low so options have to be cheaper, meaning we normally distribute products with less volatile underlyings and longer structures."

KBC was the first to introduce capital-guaranteed investment funds in Poland, Hungary, Slovakia and the Czech Republic. And this year it has introduced a number of innovations to the region such as its socially responsible offerings. These are referenced to baskets of worldwide stocks with an ecological focus and come in a number of different structures, including lookbacks, Asian calls and split fixed-income and growth-component products. They have so far been issued in the Czech Republic, selling around EUR12.8 million, and Slovakia, where a further EUR6 million were sold, and were firsts of their kind in both countries. KBC also issued the first environmentally conscious and socially responsible investments in Hungary with its SRI and ecofunds. "KBC has been strong on innovation in Hungary," says Peter Kuruc, head of the life insurance division at K&H Insurance in Budapest. "They've done the first capital-protected single-stock notes, rainbow structures and basket jumper structures which haven't been seen here before. Total sales of KBC products have jumped 90% in the first nine months of the year from the whole of 2007 showing the popularity of these products."

Overall volumes issued in CEE have climbed this year despite tough market. While KBC's issuance volumes in Belgium have remained flat in 2008, the impact has been less pronounced in CEE countries, where volumes have grown by around 15%. Vanbriel says the region, with its fast-growing profit base, can become as big as Belgium. KBC broke into the Bulgarian market last October with a capital-guaranteed fund, and Sonkova says the company's ambition is to break into Russia. "Russia has high interest rates but investors tend to have a good risk appetite and are looking for different products to diversify into," she says.