Anglo-French structured products specialist boutique HPC Investment Partners (HPC IP) is entering a new phase following the departure of founders Pierre Yves Breton, Jordan Sfez and Arthur Texeira earlier this year, and the appointment of David Zajdman as head of sales & institutional solutions.
SRP spoke to Zajdman who has been charged with growing the business and the firm’s offering about his plans and ambitions to leverage HPC IP’s structured products DNA to expand its catalogue and offer diversification to its clients.
The firm, which has offices in London and Paris, reported €9 billion of cumulated traded nominal across more than 900 bespoke notes in 2019 from more than 35 issuers.
Providing a lifecycle management platform is almost mandatory today
The first project under Zajdman’s watch is to speed up the development of the firm’s technology platform – Skyline.
“Providing a lifecycle management platform is almost mandatory today,” said Zajdman. “Our goal is to bring Skyline to full speed and offer it free of charge to our client. This is already going on.
“I believe the market has moved on from the old approach (ie short-term, margin-driven, poor secondary market) to a very mature business which requires all the players to operate with transparency and responsibility. Our objective is to help our clients provide their own clients (the end investors) with the best possible service.”
To achieve, this the firm is committed to showing the best risk/reward ratio to its partners on each transaction – in other words, provide competitive pricing, sharp secondary market and a fluid online experience via Skyline.
Innovation will also be an area of focus as a catalyst to “bringing on creative investment ideas and a diversified offer of investment products - this means leveraging the existing product standards as well as sourcing exclusive investment products”.
In addition, Zajdman wants to strengthen the firm’s ethics when doing business.
“Our clients’ mandate is to protect their own clients’ wealth and to make it grow,” he says. “Our obbligation is to constantly keep that in mind and help our partners to make the right investment decisions. In my career, I have almost never heard that from the major structured products providers. I strongly believe that the end-client must be protected.”
As it enters the new phase of development, HPC IP is also looking to expand its teams, recruit new talent, continue investing in technology and strengthen its sales team.
Is HPC IP planning to move away from structured products?
David Zajdman: Structured products are our expertise [and will] remain core for HPC IP, but we also want to provide diversification to our clients. We know our clients’ needs are also evolving and they want access to other types of investments.
Competition in the structured products market is strong and we think we can differentiate ourselves by adding other solutions to our catalogue and leverage opportunities via the OTC market.
We just signed a partnership agreement with HPC Financial Services, Geneva - another subsidiary of the OTCex group - to be able to distribute private capital solutions. They are sourcing very exclusive deals on private equity and private debt, and we want to leverage our distribution capabilities to offer access to those opportunities to our clients.
Our ambition is to trade 75% structured products and 25% private capital
Private debt mirrors how structured products work somehow in that they share many parameters: maturity, coupons, ISINs etc – one of the only differences is that they are usually asset backed.
In the current rates environment investors in euro are hungry for yield and we think it can be a natural addition to our offering to bring value to our clients and help them capitalise on new opportunities. These structures can be delivered via loans or securitisations – HPC Financial Services covers the whole process from sourcing to packaging, and they can sit alongside structured products on clients’ portfolios.
Investors use this kind of solution and we already see a strong demand from our clients for private capital investments. Our ambition is to trade 75% structured products and 25% private capital. As brokers, we are not biased despite our structured products DNA as we want to be able to respond to the needs of our clients and deliver sound solutions for them.
How are regulation and technology helping to make the structured products market more transparent?
David Zajdman: We think regulations such as Mifid 2 have been positive in that they have forced many players to be more transparent and disclose all the fees. We think there is scope and room to grow even with lower margins. As long as you provide an excellent service to your clients and deliver value, they will come back to you and pay for the service you provide.
For the buy-side, technology has become a game changer because it has improved processes, minimised human error, made it easier and cheaper to transact, and given free time for the sales force to focus on servicing clients instead of doing admin tasks.
Obviously, because of where we sit in the market, we have to have human contact and conversations with our clients to provide advice and deploy our markets expertise so that you can offer and generate ideas and the client can understand the risks, the macro environment, if you need to hedge a position, how to get exposure to emerging markets, how to use the secondary market, and so on. It’s not just about getting the best pricing: there are other considerations.
Technology is a great complement for distributors and a great tool to educate investors but will not eliminate the human element. We have seen recently how technology has helped to keep the market moving and investors engaged in a way it has not happened before when markets fell suddenly, and volatility spiked.
What are the most valued attributes of structured products for your clients and for HPC IP as a product distributor?
David Zajdman: These products have proven their value not only because they are helping clients to get yield in a variety of market scenarios but also to protect their investments. Protection and yield are two key elements of structured products you can play the market in different ways, you can be defensive or aggressive, get exposure to different assets, take advantage of market volatility.
The current environment is favourable to structured products because of the lack of yield, the market volatility and uncertainty, and because they have become mainstream - investors understand these products and use them actively.
As a broker, you have more flexibility than if you’re working for an investment bank because you don’t have the limitations. You can shop around and put manufacturers in competition and trade any asset your client wants. We don’t have restrictions around a particular asset or trade – as long as it can be delivered in a structured product, we can do it.
What kind of structures are HPC IP’s clients consuming and what other products are you considering to provide diversification?
David Zajdman: Autocall and phoenix structures linked to major indices continue to be in demand from our clients but there is also demand for other underlyings, as well as digital options on warrants, and hedging solutions too. Credit-linked notes must be dealt with very carefully - we saw recently what happened with the WireCard default. It requires a deep understanding of the credit default swap mechanism and of the reference entity itself.
We see increasing demand for tech companies as a result of the remote working set up. Investors want to participate in the tech sector’s growth story and structured products are well placed to provide access (robotics, computing, internet, online shopping, home entertainment…). We see this thematic as a driver of activity over the next few years.
We also see growing interest in AMCs, and pre-IPO deals (SpaceX, Robinhood and Airbnb) so those are also two areas where we think there will be demand. Because HPC IP is part of a bigger group [OTCex], we implement synergies between the business units and we just signed internal agreements with SANSO IS [the group’s asset management arm] and HPC Financial Services - this last one provides us with exclusive private capital deals. We are very excited to offer them to our clients. For me, diversification is a key to success.