Morgan Capital Advisors (MCA) was launched in 2007 by former Morgan Stanley structured products trader Paul Morgan. The firm was a spin-off of the bank’s proprietary trading desk. Since then the focus has been on structured credit products for the institutional market but earlier this year the firm hired Mark Tully, the former head of structured products at Old Mutual Wealth, as executive director, to add a new layer to the business and cover structured products for international offshore clients. SRP spoke to Tully about the firm’s plans, the opportunities for structured products in the offshore market and the role of discretionary managers in expanding the use of structured products via the fund wrapper.

Do you think structured products will gain traction in the offshore market?
We have seen firms such as Mariana Capital and others tapping into this segment and we think there are opportunities in this market for us. With our FCA regulated platform we have been able to get access to wide range of European issuers to purchase structured notes which we then sell to our clients.

Is MCA building its structured products desk from scratch?
The offshore structured products desk at Morgan Capital has been built on the back of the firm’s existing fixed income relationships, and is getting traction as we build our platform. We are discussing how to update the terms and lines we have with banks to address the needs of the offshore structured products business. We have relationships with BNP Paribas, Credit Suisse and about a month ago we began dealing with Investec. We are seeking to add an American bank to our roster of counterparties.

What kind of products fit the profile of the offshore investor?
We have launched a range of index-linked autocalls and phoenix autocalls with BNP Paribas and Credit Suisse as counterparties, as well as credit-linked structures which only Investec can do at the moment. Coupons in the offshore segment are slightly higher than those offered in the retail market as we can do triple index (Eurostoxx 50, S&P 500 and FTSE 100) structures as opposed to dual index structures that are more common in the onshore retail market. We want to create a sense of consistency among our clients and we launch rolling tranches every month. We are working very closely with Talisman to produce our marketing materials and this is also working very well.

How do you plan to build your offering? What would be MCA’s differentiating factor in the structured products market?
The short-term plan is to continue building the offshore structured products business but because we are a discretionary manager we also want to create a fund of autocalls. The problem with launching products every month is that you need to launch products irrespective of the market conditions but ideally you want to launch when the market provides you a good entry point. We want to be able to capitalise on market moves to add value to any new products but you can’t really do that when you are rolling out structured notes. With a fund you can.

Are offshore investors demanding income or growth from their investments?
We see income as the most sought-after product type from offshore investors. The product we see getting more traction are those featuring the phoenix payoff structure because although capital is at risk they provide a high chance to get a regular income. These products in the UK pay income tax but not in the offshore market which along a +/- 7% coupon makes them more attractive.

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