Deutsche Bank’s markets division has been investing in its structured products platform in the wake of a renewed investor appetite for fixed income solutions.

The bank has added a number of resources over the last few months across trading, structuring and sales including the appointment of former Credit Suisse equity derivatives banker Paul Bajer as global head of cross asset structuring and Ulisse Malfanti, also ex-Credit Suisse, as vice president, investment bank within the institutional client group in Switzerland.

The fund has been designed to provide private clients with a yield-generating portfolio building block which sits between equities and fixed income - Luca Fornasier

Public data shows a multi-billion YoY growth in issued notional [including €3 billion of senior preferred structured notes reported in Q2 2023], which showcases appetite for DB paper from private and institutional investors, according to Luca Fornasier (pictured), head of structured products sales EMEA.

“The [structured products] desk enjoyed strong tailwinds over the past couple of years,” Fornasier, told SRP. “Tighter monetary policies across the Atlantic created investment opportunities not seen in over a decade in the fixed income space, where Deutsche Bank plays a leading market making role.”

The German bank expects group revenues for Q3 2023 to be higher than in the prior-year quarter.

Fornasier noted that “multiple rating upgrades from major agencies combined with competitive funding” has allowed the bank “to capture a substantial amount of the flow switch from equities into rates and credit solutions”.

Structured credit has been a core focus for the German Bank which is expanding its footprint through on and off-balance sheet issuances. The German bank has recently launched its newest SPV, Palladium Securities 2, aimed at “drastically reduces costs and issuance timeline”, and to allow its clients “to benefit from full flexibility in terms of both funding and pay-out with similar costs to a vanilla structured note”.

The bank has also leveraged the capabilities of its flagship QIS franchise which “has been instrumental for the success of the distribution desk thanks to the launch of a number innovative solutions that proved to be very successful amongst private banking clients”, according to Sorin Ionescu, global head of QIS and dbSelect structuring.

One recent example is the DB Autocall Portfolio UCITS Fund which was launched back in April.

“The team has been focusing on developing proprietary cross-asset investment strategies tailored for the private banking channel,” said Ionescu (right).

“The recent rates sell off allows private clients to access sophisticated strategies whilst benefitting from principal protection.”

The bank has also recorded increased traction on its managed account platform dbSelect, through which investors can combine exposure to CTA strategies with asymmetric payoffs such as capital protected notes.

“We have also noticed increased interaction with Family Office clients, who are increasingly leveraging on our expertise in order to achieve the desired investment objectives without having to pay the usual “2/20” to active managers,” said Ionescu.

“The DB Autocall Portfolio Ucits fund is a great representation of our commitment to deliver alpha-generating portfolio solutions to our clients.

The fund

The DB Autocall Portfolio UCITS Fund was designed to deliver private clients a yield enhancement solution targeting an EUR yield of ~8% p.a. The fund aims to diversify and maximise entry points for the autocallables while deploying a monthly roll for expiring instruments to minimise timing risk.

The underlying basket consists of 120 autocallables, with the expectation being that the basket’s exposure will generally be equally split between two underlying indices: the Eurostoxx 50 Index or the S&P 500 index. On a monthly basis, depending on how many existing autocallables have autocalled or matured, the autocalled/matured exposure is replaced by new autocallables.

The fund is open-ended and aims to reduce the two key risks of including ‘pin risk’ on breaching a specific barrier, thanks to the diversified exposure across 120 instruments with different strikes, as well as ‘counterparty risk’ as the fund is collateralized by a diversified portfolio of investment grade bonds, ranging from govies, supra and corporates, with a minimum rating of A-.

As a result, according to Fornasier, investors will benefit from a systematic source of yield with a better risk / reward profile vs vanilla structured notes and enjoy the more favourable treatment the UCITS wrapper enjoys in several European jurisdictions.

“The fund has been designed to provide private clients with a yield-generating portfolio building block which sits between equities and fixed income, said Fornasier.

“The idea was simple: systematically harvest volatility premium whilst reducing counterparty and downside risks through a solution most clients are acquainted with. Possibly a more scalable and relevant value proposition versus opportunistic Yield Enhancement Structured Notes, especially for mass distribution networks.”

Since its launch in April, the fund has raised over €120m (US126m) across key European jurisdictions and it is available via several share classes - EUR, USD, accumulation, distribution.