
US Structurer
Barclays Capital

It was Barclays Capital that continued issuing structured products in the US public market through the financial crisis. The bank was also an innovator, and understands the need to offer all asset classes on one platform, backing that up with a global network of 250 structurers and products in all types of wrapper. It has also continued to invest in its BARX-IS technology.
“BarCap has really good cross-asset-class coverage and they have asset class specialists that we have access to,” says one banker from a European private bank in the US. “They send out lots of ideas and have innovative indexes.”
Innovation came in the form of a new volatility-based exchange-traded note (ETN). Volatility staying high then falling has been a theme, and BarCap picked up on it and used the ETN to dress it for the US public. The bank’s global network has eased the translation of the wrapper to Europe and Asia.
Institutional and retail investors were offered access to volatility with the VXX and VXZ ETNs, which provided a hedge for their equity portfolio or simply an instrument to express views on implied volatility. The indexes represent a constant maturity exposure that is managed by a self-funded Vix futures rolling strategy with daily rebalancing. Before the VXX and VXZ indexes were created, only institutional investors could trade pure volatility via over-the-counter variance swaps.
From US$2 billion of ETN assets under management in February 2009, BarCap now has more than $6 billion and a 70% share of the market, says Philippe El-Asmar, the bank’s New York-based managing director and head of investor solutions. “The Volatility ETN is now at $1.1 billion, and is the most successful exchange-traded product in the US,” says El-Asmar. “It traded between $300 million and $500 million on one particular day, which shows how established it has become,” he adds.
The private banker says: “We have worked with them on registered notes and certificates of deposit, and we have done a couple of deals on indexes they have helped develop: the Barclays 30-year Treasury Futures Index and the S&P 500 Vector Index. They have come up with some good innovations, their pricing is pretty solid, and their funding is generally at pretty good levels compared to their peers.”
BarCap’s record of public issuance, experience in creating ETNs and the integration of much of the Lehman Brothers business, has been developed with the aim of providing holistic wealth management. “Whether structured or flow and listed or unlisted, we aim to have a one-stop shop,” says El-Asmar. He says he understands that the business is the same in most parts of the world, which helps the spread of innovation throughout the group.
Product innovation also included Leveraged Treasury Notes, offering retail investors access to bearish treasury views, for which BarCap partnered with a large private bank with investors seeking to take leveraged short Treasury bond positions. The private bank was looking for an alternative to leveraged ETFs, whose daily reset feature had sparked concern from advisers and regulators. The double short notes were structured to provide some of the benefits of leveraged ETFs while avoiding the “negative convexity” effect resulting from the required daily rebalancing. The bank has sold $40 million of the product, says El-Asmar.
BarCap also created ETN+ notes that appealed to investors seeking a more intuitive long-term leveraged performance in an exchange-traded format under the ETN platform. And it succeeded in constructing a product that tamed the volatility of the S&P 500 in the Dynamic Veqtor Index-linked note that combined the S&P 500 and the Vix ETN. The notes use the negative correlation between equity prices and equity price volatility, as well as the investable S&P Vix Short Term Futures Index, to create the first ‘investable-volatility-enhanced-beta’ index.
“We have been perfecting product – creating every single delivery mechanism, whether private placement, exempt security, public-registered, listed, or CD with the credit comfort of FDIC insurance; or creating a fund vehicle, which we have now successfully launched with a couple of institutional clients,” says El-Asmar. “Half of the game is how you deliver solutions, especially in the US where it is about understanding legal, tax and accounting matters.”
The bank has continued to trade, countering the misconception that liquidity had dried up. “We have adopted a very consistent approach [to secondary markets and providing liquidity] over the past 12 months, but also the past four to five years,” says Richard Couzens, head of product origination and investor solutions at BarCap in New York.
As part of this commitment, the bank has been investing over past few years in its Structured Investments online trading tool. “Barx-IS is the uncontested execution platform in the US and this did not happen overnight,” says El-Asmar. “It’s a good primary bookbuilding tool.”
The private banker adds: “Barclays has been pretty useful at educational events that we have hosted. Their secondary trading is pretty reliable. They score really well across a lot of the areas that we are interested in, and they have done a good job and been a good partner.”
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