Vontobel announced changes to the structure of the group in December, in an effort to be more efficient and client-centric globally, with a focus on servicing investment managers.
The Swiss bank has launched a series of centres of excellence and client units as it phases out its previous structure organised under three pillars (asset management, private banking, and investment banking). This means the different businesses are not positioned as individual business lines anymore with the new umbrella organisation serving its clients in a holistic way, with one brand and one P&L across markets.
SRP caught up with Georg von Wattenwyl (pictured), head of platform & services Asia, and CEO of Vontobel Singapore, who moved to the city-state at the end of 2018 after running the bank’s structured products business in Europe for almost 20 years.
In 2019, the bank reported a total of CHF31.4 billion (US$33.4 billion) structured products traded, of which CHF9.7 billion were traded in Asia, on the back of the expansion of its product offering in Hong Kong where its market share reached 1.5%, and strong activity in the country’s inline warrants segment. Vontobel’s Hong Kong business, headed by CEO Long Lee (below), has 900 products listed in the Hong Kong Exchange (HKEx).
In Singapore, Vontobel has been a provider of structured products since 2016 – the Swiss bank entered into a strategic agreement with Bank of Singapore in 2017 through which clients of the Singaporean private bank can book their assets in Switzerland and use Vontobel as custodian. However, the Swiss bank has not been active in the structured warrants market since 2018, when it listed its last range of call and put warrants.
“Our initial focus has been on Singapore and Hong Kong because they’re our regional hubs,” says von Wattenwyl. “We have been making progress in these two markets - there was a need for new counterparties, and we have also been able to leverage our wealth management capabilities.”
The Swiss bank has focused on developing relationships with external asset managers active in the region as its product, investment, and technology capabilities were known to the market already.
Most of our business in Apac is done via deritrade
In 2019, the bank is also seeking to increase its visibility, enter new markets and serve new clients via collaborations such as the partnership with China Construction Bank to launch together a financial product linked to the Belt and Road Initiative (BRI) theme after the two banks signed an MOU in Zurich in October 2018.
“Having a strong structured products platform has helped us to increase our footprint and engage with market players to grow our business,” says von Wattenwyl. “There is significant scope for growth for us because we have a different profile than other firms and product manufacturers.”
The bank is not diverting from what it has done in Europe as “it has proven to be a success”: it continues to book in Switzerland only and spring out its capabilities to serve our clients in Asia Pacific.
Having the deritrade platform has been key for Vontobel to build up its profile in the region, enter the flow business and increase its footprint in a short period of time.
“Because the commoditisation of this part of the market, having the right technology and capabilities in place are a clear advantage as the Apac market, which has seen a shift towards automation over the last few years,” says von Wattenwyl. “Most of our business in Apac is done via deritrade, which suggests that our clients value the tools we offer, the automatic pricing, life cycle management etc.”
We are also trying to educate our clients around new products such as AMCs
The platform business continues to play a pivotal role in the build up and will be a key element of the bank’s offering going forward, and will allow the banksto scale its offering in different markets.
“If there’s a region where platforms make sense, it is in Apac because the markets are standardised, and the products have been commoditised,” says von Wattenwyl. “There’s a limited number of product structures and the differentiating factor is in the pricing and the speed to quote.”
In the flow business, deritrade has given Vontobel an edge in the market as it allows it to compete and show its price competitiveness. In the external asset management space, however, the Swiss bank has a different profile than most of its competitors.
“We are also leveraging our existing technology to bring new tools and solutions to the market and help our clients from the idea generation stage to the actual execution,” says von Wattenwyl. “We are also trying to educate our clients around new products such as AMCs [actively managed certificates] which are very common and well-known in Switzerland and some parts of Europe but in Apac they are in their infancy.”
According to von Wattenwyl, AMCs provide a very flexible solution for external asset management to deploy new investment solutions to their clients.
“AMCs are scalable and provide a very efficient vehicle to structure and access new underlyings,” he says.
Another focus for the bank is on education and engaging actively with relationship managers about Vontobel. “Our brand is not as well-known as others yet but when we sit with our clients they realise we’re a serious player, well-capitalised and with a very competitive offering in the structured products market compared to other players,” he says.
Drivers of demand
“In our conversations with external asset managers we have realised that in the Apac market investors are looking for the right theme and are happy to deploy the payoff that can help them achieve their goals,” says von Wattenwyl.
This is the fastest growing area for Vontobel.
“These clients are not interested in the flow side of the market which allows us to deploy our investment and structuring capabilities and offer a wider variety of products (investment term, underlyings, payoff profiles etc),” says von Wattenwyl. “We have very strong investment and research capabilities which we can bring together to serve this part of the market to match our clients’ needs and long-term investment goals.”
The Swiss bank has seen an increase in demand as investor seek to capitalise on the opportunities resulting from the recent market crash and the spike in volatility.
Risk premia remains a focus and other sectors are getting attention.
“We are not pushing any particular underlyings but we share our research and views on the different assets so that we can work with investors to identify the underlyings that meet their needs and deliver them in the right solutions,” he says. “We see interest from Apac investors for thematic investments – they want to have a narrative to support their investment view.”
New megatrends such as healthcare and remote working provide an interesting approach and prospect for growth but investors are also looking for more opportunistic products using oil and other assets that have been dislocated over the last few months.
“We see this in the flow side of the business too with clients using products to hedge their portfolios as opposed to buying puts with very high vol,” says von Wattenwyl.
Comparing the market crashes of 2008 and 2020, it can be said that 2008 was a financial crisis as well as a products crisis for the structured products industry. Back then, the industry was not educating investors and many of them did not understand the risks involved in their products.
“The crisis was a turning point for the industry which has been able to address the issues and demonstrate that these products can sit alongside any other investment products in a portfolio and deliver as much value as any other product out there,” he says. “The industry as a whole has done a good job in shacking off the myths by educating, engaging with regulators, promoting transparency and delivering returns in a consistent manner.”
Obviously, with any market correction there is going to be damage and losses, but no investor can say nowadays they were not aware of the risks involved with these products.
“Back in 2008, the immediate aftermath of the Lehman collapse saw thousands of complaints from investors and regulators stepped in; whereas today, despite investors facing losses as thousands of products breaching their barriers, demand for structured products continues to be high,” says von Wattenwyl. “Investors understand this can happen in a market correction but also value the benefits of capital protection, entry points, downside barriers, and other features these products offer.
“It’s a completely different picture and although some of the most aggressive players will be hit somehow the industry as a whole is well positioned to weather out the storm.”