Fund, AMC or Mandate?

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  Susan Niederhöfer
  Chefredakteurin

Finanzlab operates as an independent broker for Structured Products. Building on this expertise, you have developed three different access routes with a Structured Product Fund, AMCs and dedicated Structured Products mandates. What is the idea behind this, and how do you find the right solution in collaboration with your clients?

We serve various client segments with different requirements regarding customisation, transparency and operational implementation. Thanks to many years of experience in Structured Products, these three solutions have become established: the fund offers simple, scalable access to a professionally managed strategy. AMCs enable maximum flexibility and individual adjustments with low regulatory overhead. Dedicated portfolio management mandates are designed for banks and asset managers seeking to offer their clients tailormade Structured Product strategies. What matters is not the vehicle, but the right solution for the respective client.

Some of your clients are pension funds. What role do Structured Products play in their portfolios?

Many pension funds face the challenge of achieving their return targets without significantly increasing portfolio volatility. For a long time, real estate has been considered as the preferred asset class for achieving stable returns at comparatively low volatility. As it already accounts for a significant share of many portfolios, pension institutions are increasingly seeking alternative sources of return that can be integrated into long term asset allocation. Structured Products can make a valuable contribution here. Used correctly, they offer attractive return potential in different market phases, with the risk profile already clearly defined at the time of investment.

However, pension funds and institutional investors rarely purchase Structured Products directly due to the significant operational effort required and limited scalability. Your fund addresses exactly this problem. So, what changes for a pension fund if it invests via your fund instead of directly in Structured Products?

A great deal. The entire lifecycle logic is outsourced to the fund. There are no individual maturities, reinvestment decisions or operational coupon management anymore. We take on portfolio construction, diversification, monitoring and reinvestment entirely within the fund. The investor benefits from a transparent structure, daily liquidity and continuous implementation of the strategy, without having to manage the operational complexity of individual products by himself. The investor is left with a continuous exposure with a clearly defined strategy. That is precisely the crucial difference.

Your strategy is based on collecting risk premiums by selling extreme scenarios. Is that really suitable for a pension fund?

Similar to catastrophe bonds (CAT), our strategy also acts as a kind of insurance against rare and extraordinary events. With CAT bonds these are hurricanes or other natural disasters; with our strategy, they are strong and rare disruptions in equity markets. For this we collect a risk premium. What matters is not whether risks exist, but how they are managed. We limit the risk through broad diversification across equity indices, issuers, maturities and entry points, as well as through the deliberate avoidance of individual share risk. This offers pension funds an attractive addition to traditional fixed-income and high-yield allocations.

How has your fund specifically developed since its launch in 2021?

Since its launch in October 2021, the Finanzlab Multi Index Fund has achieved an annualised return of around 5.1% with a volatility of just 4.6%. The maximum drawdown was 5.5%. The year 2022 was particularly informative: despite negative equity and bond markets, the fund achieved a positive performance of 1.8% in that year. At the same time, assets under management grew from around CHF 4 million to more than CHF 50 million today, increasingly also supported by banks and institutional investors.

In addition to the fund, you also support asset managers in creating pure Structured Product mandates. What are the advantages of this approach compared to a fund, and which clients would benefit most from a such mandate?

A fund is the ideal solution when several investors want to use the same strategy efficiently and in a standardised way. A portfolio management mandate, by contrast, prioritises customisation. By doing this, issuer limits, investment universe, maturities, currency risks or sustainability requirements can be tailored specifically to the client’s needs. 

At the same time, asset managers and banks retain full control over the client relationship and the custody account, while we contribute our specialisation in the selection, implementation and management of Structured Products.

As part of its annual data collection for asset managers, FINMA has been collecting detailed data on Structured Products and AMCs for the past two years, and has recently expanded the scope again. What does that say about the significance and maturity of the AMC market?

From my perspective, FINMA’s data collection shows one thing above all: AMCs are no longer a niche product. The fact that the regulator is engaging more intensively with this market underlines its growing significance and increasing maturity. At the same time, many AMC structures are already operated within a clearly regulated framework. That’s why it’s crucial that additional requirements remain proportionate and don’t impair the actual added value of AMCs.

In particular, it is their flexibility, cost-effectiveness, and innovative strength that have contributed significantly to their success. It would be a shame if these strengths were limited by unnecessary administrative complexity.

Finanzlab operates as an independent service provider in a market where conflicts of interest are partly structural. Examples include issuers who recommend their own products, or external asset managers with their own AMCs. What role does access to relevant information play, and what should the industry do to close existing gaps?

Structured Products are innovative, but sometimes also complex. That’s precisely why access to relevant information, as well as the necessary expertise, play a central role. Conflicts of interest are not unusual in this context; they exist in many areas of the financial industry. What matters is, therefore, not their complete avoidance, but transparency. Investors should be able to understand how a product works, what risks they are taking, and what the interests of the various market participants are..

From our perspective, an important part of the solution therefore lies in even stronger standardisation. The more comparable products, documentation and processes are, the more easily investors can make informed decisions. The work of the SSPA makes an important contribution. A recent example is the guidelines for Tracker Certificates on non-tradable underlyings published last year. Such industry standards promote transparency, comparability and, ultimately, trust in the market. 

As an independent provider, we see it as our task to make the entire market accessible to our clients and to compare different solutions objectively.

While the brokerage business remains the foundation of Finanzlab, the company is also growing through funds, AMC and mandate solutions. Where do you see Finanzlab in two to three years’ time, and which business areas will have the greatest impact on this development?

The brokerage business continues to be the foundation of Finanzlab and gives us daily valuable insights into the market, pricing and new product developments. This know-how flows directly into our fund, AMC and mandate solutions. However, we currently see the greatest growth potential in the fund. With a track record of nearly five years, assets under management of more than CHF 50 million, and growing demand from banks, asset managers and institutional investors, it now has a completely different visibility than just a few months ago. At the same time, AMCs and mandate solutions remain central components of our offering.

Thank you very much for the conversation, Mr Bonnard!

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Vincent Bonnard
Co-Founder & COO, Finanzlab SA

Vincent Bonnard is Co-Founder of Finanzlab, an independent asset manager specialising in Structured Products. Together with Gilles Corbel, the former Head of Structured Products at BCV, he founded the company in 2017. As COO he is responsible for the company’s operations and the further development of Finanzlab’s investment solutions. He is also active as Vice President of Alliance Finance and as an advisory board member of Initiative Patrimoniale Suisse, promoting Switzerland as an attractive and financial business location. Vincent Bonnard studied at ETH Lausanne, graduating with a Master of Science in Communication Systems.