SRP spoke to Harpreet Sajjan (pictured), founder and managing director of newly launched private wealth management firm S7 Capital Management about the advantages of offshore investing, trends in offshore and the state of the retail structured product market in the UK. S7 Capital is the latest to join the plethora of offshore investment companies all vying for the top spot for high-net-worth investors.
What kind of role is S7 Capital trying to carve out and how will you go about achieving this?
What makes us different is our focus on low risk and high income investments across a range of globally diversified asset classes, be they equity linked, fixed income, property or structured investments. This is what most private high net worth investors are seeking and that capital preservation is at the forefront of any investment decision.
Our main offices are in the British Virgin Islands, but the company has a global presence, thanks to our web-based platforms. We are taking advantage of innovation in technology, using improved and more technologically-advanced systems so our services can be accessible and truly global, where investors can log-in and access information or execute orders anywhere in the world. Moreover, thanks to our ability to outsource, each area we operate in will have its own dedicated team of experts. Our directors are personally invested in the services on offer, so investors can rest assured that our interests are aligned with their own.
What are the advantages of an offshore platform and of offshore structured products?
One key advantage in offshore investments is that they are tax-efficient and an offshore platform allows access to these investments. The second main advantage is that it allows access to a multitude of different markets and sectors where investors can be truly globally diversified – this variety is not normally afforded to such an extent on local onshore platforms. The advantage of offshore structured products more specifically follows in line with that of the platform in the ability to be more tax efficient and have a greater scope of investment on underlying assets – they are widely accepted on offshore platforms and can be bought through that channel.
What trends do you see in offshore?
There is a move to more sophisticated platforms and away from the traditional paper-based trading platforms – a welcome change and one that will continue for the foreseeable future. In addition, there has been a drive for greater regulation which should make offshore a safer place to invest, while hopefully not significantly affecting product availability.
What kind of structured products will you be offering and advising on? Do you have a personal favourite structure/payoff?
We prefer fixed/guaranteed income notes, with quarterly pay-outs and short terms (typically three years or less) with the option for the note to call quarterly if stocks perform well. These are the notes we tend to issue with banks through a structured product intermediary as we feel investors like the pre-determined returns with regular coupons/interest and over shorter terms where they can be redeemed sooner. The quarterly redemption option adds a lot of value as the note market is always evolving and this “get out early” clause allows investors to enter into a fresher trade and potentially compound returns.
What kind of wrappers will you be focusing on? Notes, deposits, funds?
For now, we will be investing in notes and mutual funds – we might invest in deposits if markets become volatile. In terms of wrapper, the offshore platforms we use provide the facility whereby the investment is written into a trust (ie. which acts as a custodian) and can double up as an insurance policy.
What is your view on credit ratings? How will you go about selecting the best counterparties to work with and do you have any established partners?
Credit ratings are important, so we have aligned ourselves with the biggest banks issuing structured notes through Morgan Capital, our structured note intermediary. The banks we would aim to use are the bigger players, like BNP Paribas, Credit Suisse, Morgan Stanley, Citigroup and Investec, to name a few, as they will be less affected by credit ratings than smaller counterparts.
Given your previous experience as director at London-based structured product platform Mayfields Capital, what is your view of the UK structured product market? Sales volumes for the retail space dropped 82% last year compared with the peak in 2009 – why is this and what can be done to remedy it?
Most of the notes we were using [at Mayfields] were offshore, given the benefits outlined above and that structured notes generally are more suited to the offshore investor as they are more widely available, offer greater flexibility on underlying asset selection and there are simply more issuances and products to choose from. The prime reason for the slump in sales is regulation of the asset class in the UK and the tightening of compliance around the product – this has caused a decline in the number of issuances and less platforms listing the products.
It is likely that these products will be sourced offshore for the foreseeable future, given that domestic regulation in the UK is unlikely to change over the short term.
Do you see private banking/high-net-worth individual placements as the future for structured products, or can the retail market make a comeback?
Yes, private banking/HNWI is the future, as these products are intended for sophisticated or qualified investors, given the complex nature of some of the structures on offer. I don’t see regulations being relaxed to [the extent that they will] permit a large surge in retail issuance, so this market will largely be closed off and available only to private/HNWI as a result, where the products can be made more easily available to such investors and all suitable compliance measures can be met by vendors and investors alike.