Hilbert Investment Solutions has partnered with BlackRock and tech provider for retirement products Quantessence to launch a new pension product linked to a portfolio of ETFs.
BlackRock, Quantessence, and Hilbert Investment Solutions have joined efforts to develop a next generation pension product targeted at UK and French investors. It can be wrapped as a Plan d'Epargne Retraite (PER) and a registered Self Invested Personal Pension (SIPP).
We always wanted to do a long-term savings product that complemented our structured products offering in the UK - Steve Lamarque, Hilbert
The new Hilbert Retirement Protect 90 is a ‘personalised and protected’ structure based on a model portfolio managed by BlackRock which dynamically allocates assets between a performance basket and a conservative basket. The product also limits downside risk by protecting up to 90% of the capital invested.
The product provides two options including a protected capital amount - the Secure Capital Option - or a protected fixed income - the Secure Income Option.
“We always wanted to do a long-term savings product that complemented our structured products offering in the UK,” said Steve Lamarque (pictured), CEO and founding partner of Hilbert. “We were looking for a solution targeted at retirement investors that fits with our business model and could be delivered in the UK and France.
The London- and Paris-based structured products specialist approached Quantessence to expand their relationship as “this was a good opportunity to start developing a product that could protect retirement investors in a different way beyond the zero-coupon bond approach”.
After a few conversations, the two firms agreed to go for a flexible retirement savings plan or PER which could enable single or multiple contributions as well as various types of withdrawals.
“We have the infrastructure to support this kind of product so once the commercial idea was agreed it was a question of leaving it to Hilbert and BlackRock to come up with the strategy underlying the end product,” said Peter De Clercq, chief executive officer at Quantessence.
“The model portfolio chosen to underlie the product is a truly unique strategy that fits very well in an individualised, capital-protected retirement solutions,” said Arnaud Gihan, head of iShares & wealth for France, BlackRock. “Our ETF model portfolio is very appropriate for this kind of product from a construction and diversification perspective.”
According to Gihan, ETFs are often compared to direct stocks though with an ETF the investors can actually have a basket of stocks in one transaction.
“Another key element of our ETF model portfolio is the transparency and liquidity it offers – investors can see every day what is held within the portfolio,” he said. “This is critical when you're trying to build capital protection on a portfolio as you need to have that view to be able to hedge yourself in the right way. Liquidity is also key when building long term investment plans as it also helps with allocation and risk management.”
BlackRock’s ETF model portfolio integrates the company’s macro and risk management expertise, and the ETFs allow to adjust exposures as appropriate.
“We chose an ETF portfolio instead of using a fund or an index as the underlying because the goal was to create long term alpha for a long-term investment solution by making asset allocation choices,” said Gihan.
“With an ETF portfolio you can allocate to European equities versus US equities or allocate to bonds instead of equity. That allocation can change over time, so the idea is not to be super tactical, but have the flexibility to make those adjustments as you see fit depending on the market environment.”
Wrapper choice
Hilbert was seeking to deploy the best wrapper for this kind of long-term savings structure in the UK and France.
The PER is a new wrapper resulting from recent changes in regulation, and it offers an efficient way to step into the retirement market with a reasonably priced product. This wrapper also allows investors to switch from accumulation to decumulation.
“We looked at several wrappers including annuities, but we decided the PER was the most suitable vehicle to individualise protection,” said Lamarque. We don’t have anything against CPPI or iCPPI structures, but we wanted to come up with something different that would be flexible enough to provide individual protection and serve the needs of each end client.”
Any product offering market exposure has risks embedded but in this case the infrastructure was key as it enabled us to adequately test the product and to apply commission/ decommission to address the needs of investors at different stages of their life cycle, according to Lamarque.
“We wanted to complement our structured products offering with a product that can sit alongside structured notes or deposits in a portfolio, but with a different type of structure and investment term. We believe this product will resonate with retirement investors as it removes the credit risk and has enhanced liquidity,” said Lamarque.
We turn one actively managed model portfolio into potentially tens of thousands of individualised accounts - Peter De Clercq, Quantessence
De Clercq believes the three parties have come up with a “very strong proposition offering capital protection and exposure to an ETF model portfolio designed and actively managed by BlackRock which allows even the most risk adverse investors to protect themselves in the long-term”.
The product uses a similar mechanism to CPPI in the sense that it's a dynamic mechanism where you rebalance between the investment portfolio and a money market fund or cash.
“However, the cash-lock risk is mitigated by the active management of the underlying diversified portfolio and by the individualisation which makes it possible for individual advisors to act when the allocation to money market assets is too high,” said de Clercq.
“A big innovation lies in the mass customisation: we turn one actively managed model portfolio into potentially tens of thousands of individualised accounts. These may have different features and allocations in function of the individual client’s preferences and actions. The BlackRock portfolio managers can focus on their core competence without having to worry about this. Hilbert has the flexibility to adapt the product to the individual’s circumstances.”
The new Hilbert products was also a good opportunity for BlackRock to deploy our skills and leverage its capabilities as a pure asset manager.
“We offer different types of products including ETFs and other liquid and illiquid investment strategies,” said Gihan.
“We don’t issue structured products [in the underlying portfolio] but we work closely with issuers of these products – we have licensed ETFs and indices to be used in structured products.”
According to Gihan, the structured products market is an interesting market for BlackRock beyond its fund management activity because it allows the fund manager to engage with financial intermediaries to create new products.
“We see an appetite in the market for structured products and long-term saving products for our ETFs,” said Gihan.