In the second part of an interview, Pierre-Yves Breton, founding partner at French structured products specialist boutique HPC Investment Partners (HPC IP), talks about the firm's strategic plans remaining on track despite the Brexit vote and how the firm's offering can fill a gap in the structured products market.
Despite rumours that some investment banks are considering moving their issuing entities to Frankfurt or Paris, this will not cause any disruption to the market, according to Breton. "For us it is time to wait and see," says Breton, adding that the firm's goal is to become "a big player" in the structured products market.
"We don't want to be just another specialist boutique and although there are challenges out there we believe we can grow our firm in line with our strategic plan," says Breton. "We are still increasing our capabilities and coverage and will add a senior executive to cover Asia-Pacific at the end of the summer. We also plan to hire a team to cover Latin America in Q4 2016."
HPC IP has now completed the first stage of its strategic plan which was focused on building out its internet platform to be able to price, back-test and generate automated reporting for every single product carried in the platform. "This is now fully automated and we are in the process of on-boarding new clients who will be able to access all the capabilities and functionalities by the end of the year," says Breton. "We are currently working with a private bank that wants to use the platform on a white labelling basis, and we think that is an interesting set up for us. We want to target issuing banks and create a hub for small and medium size private banks to have access to a comprehensive pool of products within a high standard framework. We have now 27 issuers plugged in to the platform and clients can now price products and follow up the full cycle. Our set up also allows banks without automated platforms to use ours to price and trade products."
The current focus at HCP IP is "on connectivity and providing a hub" where clients can price and trade products. "Our platform is not the usual meta-pricing platform but a platform that can provide coverage for non-plain vanilla products such as reverse convertibles and autocallables," says Breton. "Complex products are not being priced in these platforms and I don't think banks are ready to invest in the development of such tools."
According to Breton, independent firms have an edge to provide this kind of service and grow the capabilities organically to meet the needs of market players. "However, this is a very competitive market and small players would struggle to get clients onboarded and capture enough flow to make the business viable as the margins are very low," says Breton. "The top banks can price almost anything but there is no platform that can offer that kind of service on a multi-issuer basis."
HPC IP approach is to leverage its flexibility and speed to serve its clients' needs, according to Breton. "We use the platform of some of the leading issuers and we have built relationships to be able to provide quotes to our clients within a few minutes but our focus is more on providing a comprehensive post-trade service rather than focusing on the selling," says Breton.
Despite the issues of the recent past (Lehman) that highlighted the shortcomings in post-sales services, Breton believe that there is still a lot of room to improve and the environment is good for small firm as "they can concentrate in really working closely" with its clients.
"We had come across institutional and private banking clients that are not familiar with structured products, and the feedback we get is that the offering around for instance autocallables can be very confusing because of the different names used in the market to describe these structures and so on," says Breton. "We think this is evidence that firms such as HPC IP can fill a gap and provide the necessary tools to help those clients to standardise their offering around naming and payoff types, to help them with their reporting requirements and so on."
The French firm partnered recently with LexiFi to develop its technology capabilities and automated tools. "We think we have chosen a very good partner which also has a reputation and is a well-known firm in the structured products market," says Breton.
From an operational and geographical coverage perspective HPC IP is based in France, but "most of our activities are outside France", according to Breton. "At the moment most of our work is serving clients in Switzerland, Luxembourg, Middle East and the Nordics. Asia-Pacific and Latin America are also on the cards for this year, and we have plans to expand to the US in the short term," says Breton. "The UK is the only market that looks somehow uncertain but we will continue to build our capabilities to serve clients"
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