HPC Investment Partners (HPC IP), the London and Paris-based specialist structured products firm has partnered with the OTCex Group, to respond to rising demand among sophisticated investors for structured products which "offer a yield-generating alternative to sluggish bond markets".

"We launched the company and executed our first trades in April after a few months of build-up," said founding partner at HPC IP, Pierre-Yves Breton (pictured). "The goal is to set up a global platform for family offices, private banks and asset managers and we are seeking to expand our sales force to cover a number of target markets for us such as Asia-Pacific, Latin America and the Middle East, although at the moment our main focus is Europe."

HPC IP is a private, independent structured products manager, with a global distribution network that enables greater diversification of credit risk and more aggressive pricing for its deals, according to Breton. The next stage of HPC IP's development includes the launch of a fully automated web-based trading platform that will be fully operational early next year, said Breton.

"With the new platform we want to offer the full product cycle from idea generation, pricing and valuation, and trading to risk management," said Breton. "We are an independent outfit and we want to leverage that position to offer added value to our clients. We have distribution agreements with 25 banks including large emerging markets players, covering all asset classes and a range of currencies which allows us to offer diversification in terms of credit risk exposure. We can also put in competition our pool of counterparties depending on the risk profile of the client and the willingness to take risk, to make sure we provide the solutions that are in demand and meet our clients' needs."

Arthur Teixeira, founding partner at HPC IP along with Breton, said structured products have evolved considerably in the last five years, and more professional investors now truly understand how they work to help manage risk and improve portfolio liquidity. "They see them as a useful addition to existing investments, and appreciate how they can be combined in various ways," said Teixeira. "For example, there is now very strong interest in products which could be an alternative to classic fixed income holdings. With yields as weak as 1%, many investors want to take profits in those markets. What we can structure is a product with a yield per annum of 5-6%, plus considerable protection on the downside. So in fact the investor is getting a return similar to that of a high yield investment, but generally with a shorter duration of two to three years. The risk-reward profile is far too superior to that of most bonds."

Other investors are looking to access underlying markets (such as commodities) via structured products, allowing them to take positions without moving the market unnecessarily, according to Breton.

"Investors continue to seek yield and alternatives to fixed income deposits and bonds, and the products that are providing that to clients are auto-calls and reverse convertibles, but also credit-linked notes on single stocks or credit indices such as the iTraxx crossover, iTraxx main...," said Breton. "Around 70% of our business has been done through equity and credit-linked notes and we have also seen increasing traction around floaters and steepeners in the fixed income side offering exposure to the US market. In the commodities side, we have also seen interest around crude oil."

According to Breton, fixed income is also an area sophisticated investors are looking into. "We have done a number of products linked to the Euribor three-months (where you get the floor and the cap), and we also had requests from clients looking to hedge themselves or the notes against the CMS 10 year US Treasury index," said Breton.

HPC IP is offering its expertise to institutional investors, private banks and multi-family offices via the OTCex Group, which has more than 180 employees worldwide, and offices in Paris, London, Geneva, Hong Kong and New York.

Olivier Stephanopoli, deputy CEO of OTCex said in a statement that the creation of HPC Investment Partners furthers the OTCex Group's plan "to diversify in the domain of intermediation, specifically by developing high value-added niche activities".

The OTCex Group is the product of two mergers. The first was in 2005 between Paresco, a French investment firm broking listed equity and interest rates products and HPC, a European broker operating mainly in money and interest-rate markets. This entity then merged in 2006 with OTCex, an inter-dealer broker specializing in index and single stock options.

"We are very happy with the level of activity since we launched [earlier this year]", said Breton. "We have placed around 120 structured notes and raised over €250m. We see structured products as an area were investors can get value for their investments. There is obviously a number of investors that did not have a good experience investing in these products but we also have an increasing number of investors that are well informed and understand what they can get with structured investments, and capitalise on their views but also hedge themselves or participate in falling and side-ways markets."

OTCex and HPC are French Investment Firms authorized and regulated by the Autorité de Contrôle Prudentiel et de Résolution (ACPR), as well as by the Autorité des Marchés Financiers (AMF).

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