It's official. Structured investments have gone mainstream for high-net-worth investors, at least in Switzerland. Long gone are the days when high-net-worth individuals would balk at the idea of investing in structured products. Now private banks are pushing structured products to their high-net-worth client base like never before. What's more, these clients are also actively demanding access to the investments they used to regard with suspicion, and there is no better example of how this is playing out than the story emerging at Credit Suisse Private Bank in Zurich.
Arthur Vayloyan, Zurich-based head of investment services and products at Credit Suisse Private Bank, says the appeal of derivatives-based investments is simple to understand. After all, they are controlled investments that reflect what investors want from a private bank - that is certainty and better than market performance for risk and return. "The way the structured products market is evolving so quickly, there is no reason why a private bank client's portfolio could not be entirely made up of structured derivatives in the future," Vayloyan predicts. There would obviously need to be progress in the range and quality of products, but it is a possibility, he adds.
Credit Suisse Private Bank counts some of the wealthiest investors in Switzerland and abroad as its clients. They are now getting access to a wider range of structured products with the private bank deploying large volumes into portfolios. In all, it has distributed more than 1,000 products in the past 12 months.
Like many private banks in Europe, Credit Suisse Private Bank produces products on a bespoke basis and for general distribution. During the past year the bank has produced between 30 and 40 bespoke structures for its largest clients, fulfilling highly specific portfolio requirements, says Thomas Imhasly, Zurich-based director of structured derivatives incubation and advisory at Credit Suisse Private Bank.
"The structured products market in Switzerland is booming," Imhasly says. "On average, our clients' portfolios have a structured products allocation of between 10% and 15%," he says, adding that he expects this to increase in the future as structured products vastly improve clients' risk-return profile.
Credit Suisse Private Bank currently focuses on products that are easy for its clients to understand. "We aim to keep products as simple as possible; even though a client may be an educated investor, they still prefer simple structures with innovation in the underlying," says Roland Baumann, Zurich-based director of structured derivatives advisory at the bank.
There are certainly a wide range of underlyings to choose from. In foreign exchange, for example, the bank has sold its Six-month USD Lock-in Certificate. If the dollar appreciates until the valuation date, the investor participates 193% in the performance beginning at the start level down to the lock-in level.
In equity-linked products, the bank offers the three-year CHF Enhanced Return Note linked to the DJ Eurostoxx 50, the S&P 500, the Nikkei 225 and the Swiss Market Index. The note pays an annual coupon of 6% so long as none of the indexes touches its barrier of 90% of the starting price during the lifespan of the product. The coupon is not paid in the event of the barriers being breached.
Another product distributed by the private bank is an equity yield note on energy shares. The EUR Trigger Equity Yield Note on Energy Shares offers a high coupon if there is a neutral to moderately positive performance of each underlying stock. The underlying shares are BP, ENI SA and Statoil. The product was manufactured by French investment bank BNP Paribas.
UK investment bank Barclays Capital has also structured an interesting product for the private bank. The five-year Multi Commodity Note incorporates 16 different commodities, including all the major commodity sub-sectors. The payout of the three-month USD Libor plus 1.4% for the note is dependent on no more than 16 of the 100 triggers being breached. The 100 triggers are set at less than the start price of the commodities over different time horizons. It is aimed at investors who don't expect commodity prices to fall.
The bank has a policy of sourcing products from different structuring institutions according to their area of expertise. "The private bank operates under full open architecture and sources products from different banks, although synergies with the Credit Suisse investment bank are extremely important to us," Baumann says.