In the second instalment of an interview, Samuel Rosenberg, head of equity derivatives sales, Americas at Natixis CIB Americas outlines the challenges Natixis faces in the US structured products market and provides his views about proprietary indices, regulation and structured products’ ‘unique selling points’.

There’s been an increase of issuers deploying their own indices in structured products? Are these indices suitable for the retail market?
These indices can provide value to investors but we need to be cautious because there are issues about suitability that need to be addressed. Any products that are going to be distributed via a third party will have to go through suitability filters to make sure they are properly explained and represented to the end client. We have the processes in place to provide guidance and training through our distributors so that investors are fully informed on the risks linked to investing in these indices. Some of these indices can be complex in their nature because they replicate long/short strategies that can be compared with hedge fund strategies. The focus on the retail side will be to provide access to beta-type strategies that seek to enhance the performance of a widely known index.

We have seen a number of call-write strategies on the S&P500 index based on going long on the index and buying out of the money calls to generate an additional return. That’s also an area where we can add value by creating indices that can replicate that on a systematic basis. That kind of strategy we believe can be understood by retail investors and add value to their portfolios.

What distribution channels will Natixis serve in the US market?
Natixis does not sell products of any nature directly to the end retail investor as we don’t have branches or face retail investors. We are the issuer and our clients act as our distribution partner. We work with banks that have internal compliance and have a responsibility to educate and train their sales and advisory forces on the products and suitability.

Our ambition is to compete with every issuer out there. We have a top credit rating and a strong balance sheet, and once we have developed a full range of products I believe we can increase our market share. The US market is saturated with paper from some well-known banks and that represents an opportunity for us. They may have access to distribution but the diversification element plays in our favour for considering Natixis as an alternative issuer. In our discussion with distributors we compete head to head with other providers and the key at this point is to develop those relationships so that we’re seen as a provider that is bringing value and is here for the long haul.

We will engage directly with institutions ranging from insurance companies, to asset managers and pension funds both for the hedging side such as hedging of variable annuities and index-linked annuities, but also for a more solution type of transaction that can address issues around regulatory capital, asset liability management, investments and financing. We want to serve asset managers with alternative beta strategies.

There is a disparity in the market between issuers with strong structuring capabilities and limited distribution, and vice versa? Is Natixis planning to capitalise on this?
Our structuring capabilities are one of our main selling points. We know we’re competing with banks that have capital market divisions that can issue products and sell them via their own distribution networks but they also have private banks and those are also potential clients we want to approach as they may have an interest in diversifying their portfolios with Natixis paper.

Is regulation going to have an impact on Natixis’s goals in the US?
Regulation is going to allow the market to grow in a more organic way. I see the new regulations as a healthy way to move forward as it has brought increased transparency and embedded governance to the industry. Obviously this has increased the time and resources we have to dedicate to compliance, changing the organisation, adapting the systems, educate the staff, etc. But once you have all the processes in place I think the industry will benefit from having a clear regulatory framework. The main piece of regulation affecting the structured products market in the US has been Volcker as investment banks had to change their business model and stop any proprietary trading. This, I think, is positive for the shareholders and for the market as you have banks catering to their clients’ needs.

How do you plan to grow your business in the short term?
We are not building the business from scratch as we have already a team in the US that has been doing a very good job recently and we have a very strong base to build on. All of the trading, all of the risk limits, the back office and the systems are all in place. What we need to do now is to move to the next level with a fully serviced platform of investment products and increase our distribution network. Our engineering capabilities will add a very strong element to our offering. In a way all we need to do is to focus on building the sell side. We have plans for expansion and we are in the process of hiring to strengthen our sales teams to expand our client base.

What challenges is Natixis facing in the US market?
The feedback we have received so far is positive but it can be different depending on the nature of the client. Professional investors are familiar with our name and see us as a quality counterparty to trade with and that brings added value in certain areas.

On the distribution side there are more challenges as it is more difficult to get your products in some of the platforms because the retail investor is less familiar with our name. In this segment we will need to prove our value and educate those networks about what we do and what we can offer to their clients. To achieve this we will engage actively in campaigns, events, etc. to build our presence.

Have structured products become a mainstream investment?
Providing exposure to difficult-to-access assets remains one of the main selling points of structured products. When I started 20 years ago, explaining structured products to clients as an asset class was difficult and was done from a global asset allocations perspective as part of portfolio building, etc. Today, structured products are more recognised as an asset class that merits being in anybody’s portfolio. These products also have the flexibility to adapt their structure to meet different risk profiles and protection needs, but also extract value from bearish markets and provide leverage to those with bullish views. Few products can offer so many alternatives in the market today and we need to leverage our knowledge and expertise. Depending on your needs and risk appetite these products can offer investors access to assets and also risk return alternatives that meet client’s needs.

What is your outlook of the market for 2015?
I’m very optimistic about the market in general and am convinced that Natixis has a major role to play. Our results put us in a position to benefit from the momentum of the equity derivatives market globally and in the US.

The structured products market is coming out of a period with ups and downs, but in the US everybody is now expecting the Fed to start raising rates in 2015. This combined with macro events that could have an impact in the markets and the direction they take (price of oil, turmoil in Russia…) may result in difficult market conditions but despite the environment we are in we have a business model that is balanced and can help us to grow and capitalise on the opportunities the market is going to offer thanks to our cross-asset approach.