Asia structured products house of the year: BNP Paribas

Structured Products Asia Awards 2017: Focusing closely on client needs across the entire region demonstrates an unparalleled level of co-ordination within Asia-Pacific

Yoram Layani, BNP Paribas

Firms often use similar words when describing their dealings with BNP Paribas in structured products – ‘responsive’, ‘innovative’ and ‘flexible’ are some of the adjectives that crop up in multiple client testimonials.

In a particularly challenging year in global markets, the bank has maintained a steady focus on tailoring its products to the changing needs of clients across Asia, and this has achieved solid results across asset classes, putting it at the top of the leader board for the second successive year.

“BNP Paribas is an all-round structured products house that not only covers all asset classes, but also provides full solutions for different needs. When they pitch a new product and payoff, we look not only at the pricing but also the front- to back-end logistics. Normally when they market it, it’s ready with all of the relevant market materials,” reports one client.

The bank’s strategy hinges not only on the delivery of competitive, innovative structures across asset classes, but also across geographies. It operates in 14 markets in the region and prides itself on supporting clients on a local basis as well as helping them to access international markets.

“We have worked very hard to deliver a cross-region business, so while we develop solutions and relationships with clients onshore in all of the countries where we are active, we increasingly see local players keen to access the offshore market, so we facilitate access to Europe and the US for asset managers in Asia, and vice versa,” says Yoram Layani, head of institutional sales for Asia (ex Japan) at BNP Paribas.

“We have evolved our positioning from a product manufacturer to an investment solutions provider,” adds Stephane Honig, head of sales for wealth management and family offices and head of the strategic equity solutions group at BNP Paribas. “We invested heavily in our cross-asset structuring capabilities so that we can engage with all types of investors in the region and meet their particular needs on both a short-term and long-term basis.”

One of the key themes of the past year has been heightened risk aversion, following the equity market collapse of January 2016, Brexit and the tumultuous US presidential election in November. Clients have generally sought more conservative structures that diversify their portfolios with relatively low risk. In this context, BNP Paribas has found particular success in pitching fund-linked products.

In one landmark fund-linked trade for a private bank client last year, BNP Paribas issued a 3.5-year certificate with full principal return at maturity on a basket of four different funds representing distinct investment strategies. The product included an interest rate hedge feature that multiplies the payoff at maturity if interest rates rise. This has proved particularly prescient as the Federal Reserve has hiked interest rates three times since the certificate was issued, in line with the client’s expectations.

“The fund-linked certificate embeds a bond that pays a yearly coupon, allowing investors to generate income in a lower-for-longer interest rate environment,” Honig explains. “The beauty of the structure is its interest rate hedge, which is a call option on interest rates that will appreciate when the rate goes up, offsetting the depreciation of the zero coupon.”

We have worked very hard to deliver a cross-region business

Yoram Layani, BNP Paribas

Elsewhere, BNP Paribas has enjoyed success in the provision of risk premia strategies, which have been used increasingly as a cheaper, more liquid and more transparent alternative to traditional hedge fund strategies. In one example, the bank supported a Japanese asset manager as it developed a new risk premia fund to target retail, institutional and wealth management clients in Japan and overseas.

The asset manager relied on BNP Paribas to help it design a risk premia portfolio, while ensuring it met various transparency and fiduciary requirements in line with Ucits. Stress tests were also used to ensure the strategies would perform during stress scenarios and the client eventually settled on two foreign exchange risk premia strategies based on the value and carry approaches.

“The hedge fund industry has had a very difficult time over the past two years because the performance of the underlying funds has often not justified the fees that are being charged. More and more players have turned to risk premia to emulate hedge fund returns in a much more favourable environment – by using systematic strategies and quantitative models, these strategies often outperform hedge fund returns after fees,” says Layani.

Following the political shocks of 2016, one of the looming challenges is the impact of further interest rate hikes in the US and beyond, and the knock-on effect on bond prices. Repackage notes are particularly popular as a way of switching bond cashflows from fixed to floating, thereby adjusting to changing interest rates. BNP Paribas recently began offering its IBV repacks in Asia-Pacific and has already completed three issuances in 2017, mainly to wealth managers.

“Repacks had not previously been particularly popular in Asia, but this year has been different as high-net-worth individuals have sizeable exposure to fixed-income instruments. With the prospect of rising interest rates, investors can elect to receive the bond payout in their preferred currency, or to switch the coupon from fixed to floating. We expect this business to grow significantly over the next year,” says Layani.