The evolution of innovation



Steve Oristaglio, the recently appointed, Boston-based chief executive of Gottex Structured Products (Gottex SP), has big plans for his division. Less than a month into the job the former senior managing director of Putnam Investments has already won the firm its first bond mandate, laying the foundations for the emergence of a separate capital markets team under his direction.

"We are in the process of coming to the market with a securitised deal that will provide broader access to financing at a cheaper rate and increase the pool of bond investors who can finance the leverage," Oristaglio says. This capital market solution will be offered in addition to the financing offered by banking facilities. "We want to be the lowest-cost producer of alpha," adds Max Gottschalk, Gottex SP senior managing director.

Gottex Fund Management, with $5.5 billion under management, set up a separate three-member structured products division in 2002. Traditionally, it has developed capital-protected notes using leverage from its proprietary fund of hedge funds, namely the Gottex Market Neutral Fund of Hedge Funds. The impetus behind the unit's formation stemmed from clients' growing demand for investments that would protect capital while providing access to attractive asset classes, Gottschalk says. Pension funds, an important client base for the firm, were especially keen on such opportunities, he adds.

But it was not until the arrival of Oristaglio that the fund-of-hedge-fund titan acquired the breadth of expertise that would enable it to branch out, taking it a step closer to realising its ultimate goal of providing structured products as a separate business line. The team, which manages some $700 million in assets, is expected to grow from four to at least 12 people by the end of the year.

Around 80% of Gottex's products are distributed via institutional and high-net-worth channels and the aim is to increase this by expanding partnerships with assets managers that lack high alpha capabilities. Oristaglio is also targeting high-net-worth financial consultants. On the retail side, he plans to team up with mutual fund providers that have strong distribution networks.

Future plans

Oristaglio's plans go beyond simply building capital market expertise. He intends to tap traditional markets such as equity and fixed income – and possibly commodities and real estate – using portable alpha. "We are planning a series of products that will contain portable alpha," he says, "giving us beta from index exposure and alpha from the Gottex fund of hedge funds." He adds that he will look at linking products with the main indexes, including the S&P Index and the MSCI EAFE Index.

Although product diversification is important to Oristaglio, he is mindful not to neglect the firm's traditional structured note capabilities. And while Oristaglio's ambitious expansion programme will be implemented globally, his Boston location means there will be a greater focus on the US market. He is already in talks with a number of new US clients but declined to name them at this juncture. "Clients are looking for solutions that are often different from what traditional fund management can provide so that they can meet their targets."

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