For the past five years or so, the market for structured products in the Netherlands has been dominated by a merchant bank which has its headquarters in the south of Amsterdam. In 2017, Kempen, the bank in question, took 71% share of the Dutch market, and became the main player in the Netherlands, a market which has changed beyond recognition since the start of the millennium.

Whereas the major Dutch banks have either stopped manufacturing their own structured products (Rabobank since September 2013, ABN since mid-2014) or, in the case of ING, have stopped offering structured notes to external financial intermediaries, Kempen has gone from strength to strength and has seen a healthy demand for structured products, both from its clients and its client advisors.

SRP caught up with Laurent Guntenaar (pictured), the bank's director structured investments, to talk about his views on the market, his favourite products, Kempen's preference for private placements, and the bank's plans for 2018 and ahead.

"We have issued structured products for almost 10 years now, especially Index Guarantee Notes (IGNs) and autocallables," said Guntenaar. "Many of our customers are therefore very familiar with this product type, they know where to find them, and most are convinced that these products offer added value to their investment portfolios."

Kempen only sells structured products to advisory clients, and not to discretionary management and/or execution only customers, according to Guntenaar. "This means there is always coordination between the customer and the adviser to determine the suitability of the product.

"It probably doesn't come as a surprise, but our customers (and us too) are very enthusiastic about the different types of autocallables which we have issued in recent years," said Guntenaar adding that the fact that, in this low-interest environment, you can achieve equity-like returns with protection on both the coupon (due to the coupon barrier) and the capital invested (through the redemption barrier) appeals to many investors.

In addition, IGNs (with at least 90% capital protection) are used as an alternative to bonds, according to Guntenaar. "Clients are happy to give up the certain coupon they would get on a bond and instead opt for an uncertain, but possibly higher return, via our IGNs," said Guntenaar. "In the absence of interesting, yielding bonds, this is something which is widely used by our customers."

Most of Kempen's outstanding public offers are IGNs, providing either full or otherwise at least 90% capital protection, but this doesn't necessarily mean that the bank's clients are on the conservative side, according to Guntenaar. "I don't think this is true," he said. "Apart from the public offers that we issue we also manufacture many private placements for our clients."

At the moment Kempen has around 250 live products of which approximately 40% offer a certain capital protection while the other 60% all have a barrier and thus a conditional capital protection, according to Guntenaar. "That means these products are riskier. If you only looked at how structured products are used, then you would find that clients who include structured products in their portfolios tend to invest in offensive products," said Guntenaar. "However, compared to equities, most structured products with a barrier, such as phoenix autocallables, are less risky than direct investments in stocks (indices). Of course, the total investment portfolio also consists of bonds, equities and other asset classes."

Although Kempen only has private banking clients, the bank does make a distinction between public offers and private placements. "Public offers are available in denominations of €1,000 and are often bought by clients with smaller portfolios when compared to private placements which have a minimum denomination of €100,000," said Guntenaar. "If you look at the total number of our outstanding products, approximately 20% are public offers and 80% are private placements."

Most of Kempen's products are issued on the paper of parent company Van Lanschot Bankiers, but the bank also works with BNP Paribas and UBS, two foreign third party issuers, for some of its structures. "We would like to expand the universe in the short-term in order to increase the options for our customers," said Guntenaar. "The reality, however, is that only a limited number of issuers are able to accommodate public offerings and listings in the Netherlands.

According to Guntenaar, the focus in 2018 will be on the evolution of existing products and concepts. "The charm and strength of structured products is their ability to adapt the products to changing market conditions, precisely that. In the past few years, despite the low interest rates and the low volatility, thanks to a number of modifications to existing product concepts, we have been able to make suitable products which have kept our customers very happy," said Guntenaar.

For this year's SRP European awards, Kempen has been awarded both Best Distributor as well as Best Performance in the Netherlands. SRP considered nine structured products with combined sales of more than €70m from the bank - with strike dates between October 1, 2016 and September 30, 2017 - and seven products, which on average returned 7% per annum, that matured during the same period.

SRP's 15th European Structured Products & Derivatives Conference 2018 will take place on 7-9 February at the etc.venues, County Hall, London.

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