France: capital protection and a market that keeps reinventing itself

Aicha Ouerghemi, head of cross asset wealth solutions sales FraBeLux at Crédit Agricole CIB, who moderated the panel, asked how the panellists viewed the current interest rate landscape and how rising rates affect investor preferences and demand for capital protection alongside yield enhancement.

When we distribute products, we have to make sure that the risks are clearly explained, that there is transparency -Nicolas Dubos, Nexo Capital

“What are the consequences in terms of offers proposed by issuers, but also in terms of client needs,” she asked.

According to Dorian Raimond, head of trading and investments at Hilbert Investment Solutions, the structured products market has constantly reinvented itself since 2008, and the significant rise in interest rates has led to plenty of opportunities.

“[Pre 2022], we did not see capital protection in structured products […] back then, guaranteed capital was seen in real estate funds, bond funds, repacks, which all suffered from… the rise in rates.

“Investors, for their part, did not have a negative experience with capital-guaranteed structured products simply because they weren't invested in them,” said Raimond.

_{Left to right: Aicha Ouerghemi, Crédit Agricole CIB; Dorian Raimond, Hilbert Investment Solutions; Fabrice Cohen, Generali Wealth Solutions; Nicolas Dubos, Nexo Capital; and Mathieu Migault, Arkéa Asset Management} 

The rates increase had a positive effect on Generali too, according to Fabrice Cohen (pictured), structured products manager wealth solutions at the insurer, with distribution for the mass retail market going from equity distribution to rate distribution.

We have done campaigns with some internet players for several hundred million - Fabrice Cohen, Generali

“We have been doing almost nothing else for a year […] we only do Phoenix CMS and OAT,” Cohen said, adding that it allowed for discussions with the company’s agents and brokers, who previously were not interested in structured products.

“Today they do a lot [structured products], so this rate increase has been super beneficial,” he said.

The increase in interest rates allowed Arkéa to introduce a five-year capital protected structured fund that was launched exclusively for its employees in their employee savings plans – the first time the company had done so, according to Mathieu Migault, fund manager and structurer at Arkéa Asset Management.

“It something we have never been able to do in the past, but the market conditions made it possible,” Migault said.

_{Left to right: Nicolas Dubos, Nexo Capital; and Mathieu Migault, Arkéa Asset Management} 

The arrival of capital protection products has repositioned equity-linked products to slightly more opportunistic, dynamic pockets, panellists agreed.

“This is not necessarily a problem given the opportunities that exist on the market and the volatility at the moment,” said Nicolas Dubos, associate director, Grand Ouest & IDF, Nexo Capital.

Ouerghemi asked whether panellists had observed any particularities in the French market, also when it comes to other jurisdictions, as well as the behaviours of institutional clients.

According to Dubos, there are differences at underlying level in what is coming out of France and in countries like Switzerland, for example.

“Swiss investors, who usually tended to invest in rather short maturities, are now inclined to take on products with a tenor of 10 or 12 years. I know that is happening in the UK too,” he said.

Raimond added that French institutional investors are less interested in autocalls as they are not looking for redemptions.

Growth in the French market can be explained by the fact that providers have managed to convince players who were not interested in structured products previously, particularly through wealth professionals, according to Dubos.

“We have even seen networks of accountants who have started to push structured products,” he said.

To customise retail, you must support the distribution networks, said Migault.

“Wealth management clients are very comfortable with stocks, indices and baskets, and switching undelying assets can bring additional sophistication,” agreed Ouerghemi.

_{Left to right: Aicha Ouerghemi, Crédit Agricole CIB; Dorian Raimond, Hilbert Investment Solutions; Fabrice Cohen, Generali Wealth Solutions; and Nicolas Dubos, Nexo Capital}

The continued success of structured products and the simplicity of the products on offer has also had an impact on the way they are distributed to the end-investors.

“Since they are super simple, they can be distributed by anything, even via the internet which has been a big distribution force for Generali,” said Cohen.

“We have done campaigns with some internet players for several hundred million,” he said.

Ouerghemi asked whether the risks of capital guaranteed products were known and understood by the end-investors.

“This is really at the heart of our business. It's a responsibility,” said Dubos.

“When we distribute products, we have to make sure that the risks are clearly explained, that there is transparency, that there is understanding,” he said.

“We talk a lot about CMS products, a Phoenix type where there isn't necessarily a memory effect. If we are in a scenario where rates increase sharply, we end up having in our hands a product that, in terms of valuation, is neither more nor less than a zero coupon with a maturity of eight, 10, or 12 years,” Dubos concluded.

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