Barclays Capital has an enviable reputation in structured products. The bank is one of a handful at the top of its game in a market that has grown by up to 20% a year over the period since 1999. In October it won well over a dozen categories in Risk magazine’s annual Inter-Dealer Rankings. Most importantly, it is not standing still: the bank’s headcount has increased by around 1,000 in the last year alone, with numerous industry stalwarts joining to bolster its focus in growth areas such as equity derivatives and risk management.
The strength of Barclays Capital’s equity derivative offering is the lynchpin of its 15-strong structured products group, which sells products under both the Barclays name and as white label offerings for other distributors. “We’ve significantly expanded our structuring ability and concentrated on anticipating growth in various markets and product areas,” says Dixit Joshi, managing director and head of equity derivatives. “It’s made us a top four counterparty globally.”
The ability to understand investors’ needs and expectations has become all the more important in 2004 given the low volatility environment. “When there is a high volatility and low interest rate environment it is easy to produce income using reverse convertibles and reverse cliquets,” recalls Hassan Houari, director and head of equity derivatives structuring. “Now you need real skills to generate income.”
To that end, Barclays Capital has increasingly offered exposure to assets such as commodities – especially oil, given recent price trends – and alternative assets, such as hedge fund indices. “Hybrids have become crucial in this directionless market,” adds Houari. “It is important to have FX, fixed income, equity and other departments fully integrated. We all have the same quants and the same IT platforms at Barclays Capital. It not only means we can provide the most efficient service for our clients but also the lowest costs, as we can service our hedges internally.”
Another important facet of understanding investors’ or distributors’ needs is the aptitude to differentiate between markets where an offering might be sold. “Although increasingly European legislation is levelling the market in the region, there are critical differences in the way rules are interpreted across Europe,” says Giles Rothwell, managing director and head of investor solutions.
“Perhaps most importantly there are significant differences in the attitude of end users in Europe, with acceptance of structured products very high in Italy, Spain and the Benelux region, but less established in markets such as Germany,” adds Rothwell. “In addition, in the UK, for example, you have to deal with the legacy of precipice bonds. We require our sales force to have a genuine understanding of each market they work in.”
However, regardless of which markets products are to be sold in, some expectations remain constant. “It is important for a structurer to show commitment to the market,” notes Rothwell. “People want to see that you are prepared to take risk on your own balance sheet and that your balance sheet has the requisite strength.” Barclays Capital’s AA rating fits clients’ expectations well and allows them to brand their products as sourced from a solid, well-financed provider.
A further indispensable requirement from a client’s perspective is innovation. “People want to see that you are addressing new problems with innovative solutions,” says Rothwell. One recent product from Barclays Capital captures the zeitgeist in structured products well. “PROSPER – our take on Constant Proportion Portfolio Insurance (CPPI) products – was launched 14 months ago in the UK market and has been enormously successful,” says Rothwell. “Four insurance companies are now customers.”
The central innovation of PROSPER is that, unlike regular CPPI – which only offers capital protection after a fixed period, it provides a minimum value immediately, meaning the product is open-ended and gives users considerably more flexibility. “PROSPER required considerable investment, but it is this kind of thinking that ensures we stay at the top,” says Rothwell. “It helps us build our market profile.”
Ultimately, in such a dynamic industry, service remains the key. “Clients want to see smart traders, quick pricing, idea generation and sales people who understand what they are selling and where they are selling it,” says Rothwell. “It is ultimately a relationship and service-driven business.”
| Contact |
Giles Rothwell, head of Investor Solutions
T: +44 (0) 20 7773 8291E: [email protected]