Asia’s trillion-dollar private banking market continues to gain traction in both size and scope despite a slowing growth in assets under management (AUM) in 2014. At the same time, the industry is facing a host of emerging game changers, including regulatory initiatives, rising compliance costs, low economic growth and yield.
In the first of two articles, Terrance Lui talks to Irene HY Chen (pictured), head of structured products, Asia Middle East and Africa (AMEA) at Barclays Wealth about technology transformation, changing investor preferences, distribution models and how Barclays is positioned to maintain its competitive advantages.
Chen joined Barclays Wealth in 2010 to lead its Structured Products AMEA team covering derivatives products across-assets classes. Chen also spearheaded a number of major initiatives in technology and distribution. She has significantly expanded the scalability of the private bank’s structured products in the region over the past four years.
What can you say about the latest technology transformation at Barclays? What role does platform integration serve in generating values for your company and your clients?
With the current business model, we can transact more than 5,000 tickets every year, all through an automated email quotation system. However, the technology is far from sufficient to handle the sheer size of daily flow and email management for audit purposes.
Since last year, we have collaborated with an external technology provider, to develop a brand new, tailor-made solution better known as a multi-issuers dealing station - which is designed to cover all flow products and include all active counterparties that we are trading with.
The new platform has several merits. Firstly, it features an automatic price discovery function that will automatically optimise the quotations and rank them according to best prices and fastest time.
It also features an information management system to pinpoint specific market and product trends based on real-time data flow. For instance, we can immediately find out the most popular payoff from price requests; or, similarly, the counterparties that we trade with most frequently. This enables us to perform competitive analysis.
Thirdly, an integrated dealer station creates enormous time savings. This technology enables the structured products team to focus on adding value or generating revenue through product idea generation or client advisory, instead of the tedious manual processing of trades.
How important is bespoke non-flow business to Barclays’ private banking set up? What are some of the emerging trends?
We have around 15% of our structured product sales in bespoke trades, as opposed to limiting ourselves to marketing only standardised, generic products. The bespoke universe for us was not very exotic. Instead, it existed either as a small twist to the current flow offerings or as more customised trades with specific themes to leverage on certain market momentum.
For instance, we have in the past marketed more step-down autocallables on crude oil for clients who were bullish on the oil price and willing to sacrifice yield for decreasing autocall levels. However, following the correction of oil prices last year, we saw demand switch from autocallables to twin-wins, a straddle payoff that yields positive return in both bullish and bearish movements of the underlying. This change of preference is not only specific to commodities but also to equities, where clients opt for twin-win structures with three- to six-month durations amid short-term market uncertainty.
In sum, the success of flow rests on price competiveness and process improvement from better technology and infrastructure, while bespoke emphasises an understanding of client needs amid changing market dynamics and catering to those needs with exclusive offerings.
Within private banking, how does investor demand/behaviour vary across commoditised flow products and more bespoke customised solutions?
With flow products, Asian investors tend to be very well-informed and they have relationships with a number of banks. In the face of largely commoditised offerings, these investors are constantly seeking the best price and execution, meaning providers need to compete on the basis of efficiency and effectiveness. To maintain our competitiveness, we have to ensure we have good relationships with a comprehensive line-up of counterparties, who together contribute to superior price discovery via our open-architecture framework and technology.
On the other hand, clients favouring more bespoke solutions tend to look for non-price factors, such as the speed to market and a positive client experience. It is, therefore, very important to enhance the whole client experience throughout the product life cycle, by streamlining the execution process and documentation requirement.
Responsiveness to market is also another important consideration. For bespoke structures with a global template, we have a short turnaround time, with the aid of our infrastructure, to create a customised product after the initial generation of ideas, and also book deals across centres.