French to seek early redemption


Early redemption was highlighted as a key selection criterion for buyers of structured products in France at a conference in London earlier this month, organised by Arete Consulting. “Distribution networks must be much more proactive in product redemption and have to develop their marketing tools,” said Marie-Pascale Bonhomme, marketing manager at Crédit Agricole Asset Management in Paris.

More diversity

According to Bonhomme, maturities in the market are becoming more diverse, with new wrappers, such as the PERP – a pension wrapper that significantly reduces tax payments – bringing products with maturities of up to 20 years to the market. At the same time, however, short maturities, or early redemption features on longer products, are being requested to allow investors to lock-in gains. This can be seen by the success of Crédit Agricole’s Magnesium product, which sold in excess of €500 million, she said.

She also highlighted poor post-sale client relationships and the need for product structurers to introduce mechanisms to capture intermediate performance as areas for improvement.

Clients are now demanding more frequent reporting, as well as added-value features such as dedica ted internet sites and specific training sessions for advisers – a trend that has become particularly important in the hedge fund space (see p.24).

The €12.4 billion French structured products market shrank last year, down from sales of €13.8 billion in 2003, according to research by But Bonhomme cited the use of new asset classes – including alternative investments and funds, as well as hybrid structures featuring equities, bonds, commodities and foreign exchange, for example – as ways by which the industry can start to expand again.

There has also been radical changes in the underlyings that are used during the past two years, she added. Single index products and equity baskets accounted for 74% of the market in 2003, but only 45% in 2004. Index baskets also halved their presence, down from 16% to 8%. In their place, basket-of-funds products grew from 8% to 46% of the market, reflecting the increase in the use of constant proportion portfolio insurance (CPPI) in structures.

Marketing focus

Another important trend is the increasing significance of marketing campaigns in product distribution. In contrast with the UK, the French structured product market is characterised by fewer product releases, higher volumes and more marketing resources allocated to each issue. “Products will become ‘stars’,” said Bonhomme, seeing the increasing use of celebrities in advertisements and repeated campaigns for individual products leading to the creation of popular brands.

Bonhomme also noted that the French investment market is overwhelmingly dominated by OPCVMs, the French equivalent of an Oeic (open-ended investment company). It is estimated that 6.7% of this market is in structured products, 51.7% of which are purchased in the retail space.

What’s popular?

In terms of retail investments in general, structured products make up 17% of the French market, she said. The biggest four retail banks – Société Générale, BNP Paribas, Caisse D’Epargne and Crédit Agricole – control 74% of the market thanks to their huge internal distribution networks.

The vast majority of products offer capital guarantees, especially as the Autorité des Marches Financiers (AMF), the French regulator, has unveiled strict new rules in relation to the sale and promotion of capital-at-risk products. Growth products predominate, taking up 94% of the market, although this is slowly shrinking.

Bonhomme sees little interest in inflation- and emerging market-linked structures, although she is relatively optimistic about the prospects of the new FTSEurofirst 80 index. Launched in 2003, the replacement for the old FTSE Eurotop index has a difficult time competing with the dominant Eurostoxx 50, but it doesn’t charge a licence fee and has been picked up by several major providers, including Crédit Agricole, Caisse d’Epargne and La Poste.

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