LBP AM shifts to advise EMTNs for BPE distribution

LBP Asset Management has reshaped its structured products strategy, moving away from structured funds to focus on European Medium Term Notes (EMTNs), which the asset manager selects, as an adviser, for BPE's distribution network.

The reason for halting the distribution of structured funds is two-fold, according to John Manh (pictured), deputy head investment solutions at LBPAM. "On the one hand, the extremely low interest rates have made it very difficult to structure products with guaranteed capital," said Manh. "On the other hand, considering the balance between funds' promise to deliver and the profitability for the asset manager made us shift our focus towards selecting EMTNs."

BPE Autocall Trimestriel 2025, the most recent EMTN advised by the asset manager, struck on November 14, after collecting €19m in subscription. The eight-year, Luxembourg Stock Exchange-listed note is issued via Societe Generale and linked to the SBF Top 80 EW Decrement 50 Points index (SBF), a benchmark based only on the French market. "The interest of BPE Autocall Trimestriel 2025 for investors resides in its playing the French dynamic while maximising the chances for an early redemption and protecting the capital up to a 40% fall in the index," said Manh. "The quarterly window for an early exit is a big advantage of the product, because it multiplies the chances for the investor to go out quickly and secure the 1.81% quarterly coupons."

The second axis of LBP AM's structured products strategy is oriented towards institutional clients for which the asset manager is developing a range of dedicated and non-dedicated (open) funds, according to Manh. "The latter, labelled 'Actions Protégés', have been designed as a solution for insurance and mutual companies and seek to maximise the return over capital cost, return over volatility and return over maximum drawdown ratios," said Manh. On August 25, 2017, LBP AM launched LBPAM Actions Opti Indice Euro, the most recent addition to its institutional investor-targeted series.

The issuance of structured funds has decreased between 2015-2017, with 51 FCPs worth €4bn striking this year, down from the 72 launched in 2015, according to SRP data. The funds launched in France this year have been distributed by Credit Agricole's banking retail network, LCL, Federal Finance Gestion, LCL Banque Privée, Societe Generale, as well as by Banque Populaire Gestion Privée, BNP Paribas Investment Partners, Credit Mutuel - CIC, Credit du Nord, Louis Capital Market and Natixis Asset Management.

Earlier this month, the Autorité des marchés financiers (AMF) released an investor alert, recall to common sense and good judgment, regarding the proper use and understanding of structured products. The regulator encouraged investors to better understand these products , and further outlined the main disclosure points requiring investor attention (payoff, capital protection and early redemption) and reminded investors that there is no high potential return without taking risk.

"I agree that currently [both providers and investors] can't seek yield without taking any risk," said Manh. "We are no longer in the market environment with high interest rates, and that compels us to structure products while taking risk controlled."

From January 2018, the sector will have to comply with the upcoming regulatory requirements of the market in financial instruments directive (Mifid 2) and the packaged retail investment and insurance-based investment products (Priips) regulation. "The impact of Priips on the structured products market organisation is very difficult to measure, because we still do not know what the reaction of clients will be," said Manh. "Certainly, structured products are regarded as a complex product from a Mifid 2 angle, which has already been the case even before the new regulation enters into force."

On the other hand, Priips is going to require the pre-contractual supply of comparable information for investors, which will certainly be more challenging, as it has a double stake for asset management companies, according to Manh. "Firstly, we will be required to provide Priips distributors with the information to create the key information document (Kid)," said Manh. "[Secondly], we will have to integrate all the calculations at the company level."

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