For US dealers, launching a structured product that offers exposure to a proprietary multi-asset index means donning a tin helmet and going to war with every other house on the Street. In an incredibly competitive market, dealers hoping to shift significant volumes need an edge - and Goldman Sachs has found one with Incapital, sole underwriter of products tied to its Momentum Builder Multi-Asset 5 ER Index.
When it first launched, Momentum Builder, or MoBu as it is known, was entering an increasingly crowded market. JP Morgan's Efficiente family, which launched in 2009, was widely seen as the pioneering product in the multi-asset index space among major US issuers. Other houses followed with copycat products - though returns consistently trailed Effeciente, market participants say.
"We learned a lot from the market's reaction to the first version of MoBu," says Glenn Lotenberg, managing director in the structured investments group at Incapital in Boca Raton, Florida. "Sometimes you have to take one step backward to go two steps forward. It's an iterative process; we went back to financial advisers and asked what they wanted to see from the product then fed that back to Goldman. That allowed them to spend a lot of time with their analysts internally coming up with a new version that incorporated that feedback."
Goldman's MoBu tracks 14 exchange-traded funds, whose underlying indexes seek to offer buyers exposure to the price momentum of six different asset classes: equity, fixed income, emerging markets, commodities, inflation-linked US bonds and alternative assets. The product targets average volatility of 5%.
Version five - the iteration which benefitted from Incapital's extensive feedback with its wide network of registered investment advisers and broker-dealers - was launched in May 2014.
Our internal target was to sell $10 million worth, which we thought would represent a great return. We hit virtually double that
"That month, our internal target was to sell $10 million worth. We hit virtually double that," says Deryk Rhodes, head of structured products trading at Incapital. "From there on in, the numbers have been significantly higher every month. From May 2014 through the end of March, we've raised close to $700 million. We expect to hit $1 billion by the summer."
Incapital attributes the success to its extensive investor education programmes. Though it already has a reputation for its extensive broker education programmes, the firm went all out for Goldman on MoBu.
"We spent three months with our internal wholesalers, educating them on the finer points of the product. We've never done this for another dealer. This is totally different to launching a deal and throwing it out to the Street to see how it fares. Now, thanks to the network we've built, issuers are coming to us as a potential partner, rather than the other way around," says Rhodes.
Feedback from advisers and broker-dealers certainly supports that assertion. "In terms of investor education, Incapital are head and shoulders above the competition. Their programmes are far better than the usual PowerPoint or Brainshark presentation other distributors send to us. They have the market knowledge combined with the wholesaleability to take these products to new communities of end investors," says a senior structured products executive at one US-based broker-dealer.
"We deal with a lot of wholesalers in this space, but I'd say that Incapital are the most responsive. The reaction we've got for MoBu this year on the back of their outreach programmes has been huge. I think sometimes other distributors tend to take the fast track towards selling as much as possible, but Incapital don't do that," says another US-based adviser.
Like other winners this year, Goldman and Incapital's win is also a reflection of their efforts to expand the breadth and appeal of structured products in the US market, amid intense competition for investors' dollars from the mutual funds industry.
"There's a whole customer base out there that has never touched these products. Those are the guys we should be trying to reach. The Goldman name helps sell to those guys, but the difference is that we work very closely together. When issuers work with multiple distributors, that partnership can never be as close - the message to the end-investor ends up getting lost," says Lotenberg.