Structured funds house of the year

Royal Bank of Scotland

Andrea Sozzi Sabatini, RBS

Meeting increased investor demand for transparency while adapting to greater regulatory scrutiny and contributing to cutting-edge developments in exchange-traded funds (ETFs) has placed Royal Bank of Scotland (RBS) at the forefront of structured fund innovation.

The bank has launched a total of 18 ETFs so far this year, a number indicative of its intent to increase the niche presence it has opted for. The invention this requires includes the launch of the first Commodity Trading Adviser (CTA) ETF, in September, which was created as an answer to investor requests for uncorrelated assets as a necessary diversification play.

"The CTA industry was the only one in the past couple of months that actually grew, where other hedge funds' assets under management (AUM) decreased again," says Pieter Dalderop, head of fund derivatives structuring at RBS in London. "There is a lot of interest [in CTAs] because they're one of few uncorrelated assets."

The bank teamed up with its CTA partners to provide the intra-day liquidity the ETF format required and that would enable institutional investors, such as small and medium-sized insurance companies and pension funds, to gain easier and more efficient access.

"All the big names already have exposure to the CTA industry because they have accounts managed with them, but it is much more complicated for small and medium-sized pension funds and insurance companies to do the same," says Andrea Sozzi Sabatini, head of sales for Europe, the Middle East and Africa, and Latin America, equity derivatives and structured retail at RBS in London. "We are providing them with an efficient financial solution that brings efficiency to the system. If wrapped into a Ucits fund it makes it even more appealing for a lot of investors because it is wrapped into a regulated wrapper."

Denominated in US dollars, the RBS Market Access CTA Index ETF is traded on Deutsche Börse in Frankfurt and tracks the bank's CTA Index, which provides exposure to the performance of a diversified pool of 17 CTA managers. RBS is working towards the launch of a hedged version of the fund and is also considering creating a euro-denominated exposure.

"What makes it particularly attractive is the fact that it's going to be a Ucits fund. The index and rules RBS put together are very robust and the quality of the managers on the platform are very good," says one client at a UK-based boutique investment bank launching a product based on RBS's systematic CTA platform. "The fees we've put on this product are very competitive and the whole approach that RBS has taken is very constructive; they are a pleasure to deal with as a counterparty."

One Swedish-based client also highlights the bank's capacity to listen and understand, and to generate its own ideas and show creativity.

Aiming to address client demand to fix the leverage factor in leveraged products for longer than a day, RBS launched 10 ETFs in February that provide monthly leveraged long and short exposure linked to equity and commodity indexes.

"What was available was daily leveraged solutions, which were quite onerous as they needed to adjust their position daily," says Danny Dolan, managing director, structured funds at RBS in London. "We've addressed that by fixing the leverage factor for a month at a time with a transparent mechanism so that when you invest intra-month you can easily calculate what your effective leverage is at that point and rely on it remaining constant until the next monthly reset date."

Beyond working on innovative solutions in the ETF space, the bank also launched a series of volatility-controlled funds for the UK retail sector after consulting extensively with UK independent financial advisers to create a fund that could offer a choice of risk profiles that would enable investors to match their investment and risk appetite. As such, the multi-asset funds use momentum and volatility signals to either minimise or maximise exposure to risky assets depending on market volatility.

The bank now manages 68 funds with AUM of £2.25 billion and AUM in retail funds for UK private banks of £771.7 million across 25 funds.

In December, RBS provided a European insurance company with a highly bespoke fund that raised €150 million and proved instrumental in the launch of the CTA ETF around nine months later. The fund offered exposure to a multi-manager global macro hedge fund strategy in Ucits format, with a capital protection level dynamically adjusted via a mechanism tailored to the client's portfolio and risk management needs.

"The client was extremely skewed on government bonds and wanted some sort of diversification in other assets that were not correlated to the government bonds they currently had," says Dalderop. "The fund was highly customised in terms of physical delivery of bonds versus the target strategy. It also gave control of the cashflow to investors, who can elect in any given year to take a distribution from the fund through a mechanism that can determine the timing and extent of that distribution."