Structured products house of the year: UBS

Risk Awards 2025: bulked-up structuring team is more than just the sum of its parts

The UK team. Left to right standing: Emilia Moseley, Pete Clarke, Andres Schmitz, Spyros Mesomeris, Gabriel Saunier, Gauthier Amiot, Martha Maratheftis, Oliver Crosby. Left to right seated: Giulio Alfinito, Adrian Bracher, Julien Bieren

Photo: Juno Snowdon

This should by all rights have been a year of transition for UBS’s structured products unit, which had to integrate new staff and a revamped roster of strategies following the merger with Credit Suisse.

The deal, which was completed on June 12, 2024, increased UBS’s structuring headcount by 45%, added more than $18 billion of quantitative investment strategies (QIS) and $22 billion in credit solutions to its books.

Far from disrupting the business, the new additions propelled it to new heights, with structured note issuance almost doubling, and a slew of innovative new products rolled out for more sophisticated clients.

Already a powerhouse in equities, UBS raided Credit Suisse’s QIS toolkit to enhance its capabilities, adding cutting edge equities dispersion and index skew strategies to its product shelf. But more importantly, the influx of new faces also fostered fresh thinking. The combined equity structuring team cooked up a ‘rainbow’ version of the dispersion trade, which skews exposure to the most dispersed name in thematic baskets, elevating the standard ‘palladium’ payoff for wealth management clients. The strategy attracted huge interest in the run-up to the US election, accumulating more than $60 million notional in investments. 

Not only did we bring existing knowledge, we have continued to develop knowledge here at UBS

Adrian Bracher, UBS

“UBS is a leading equity franchise with very good quality research, so combining derivatives expertise and new payouts with research content was a winning recipe,” says Julien Bieren, head of equity derivatives structuring at UBS.

Bieren joined UBS in November 2023 from Credit Suisse, where he held a similar role.  

In fixed income, the transfer of more than 800 repacks, 450 self-issued notes and over 1,000 client-facing positions allowed UBS to re-establish itself in a market it pulled back from over a decade ago. The addition of former Credit Suisse structurers also helped the bank to develop new products. While competitors continued to focus on autocalls linked to long-term constant maturity swap (CMS) rates, UBS pushed the envelope with $190 million of credit-linked CMS autocall notes for a wealth client. By linking the note to investment grade credit, the bank was able to offer a yield pick-up of around 100 basis points, depending on the exact reference entity from a basket. The five-year note was segmented with various strikes and fixing dates to reduce the digital risk of a single fixing.

“Not only did we bring existing knowledge, we have continued to develop knowledge here at UBS,” says Adrian Bracher, head of fixed income structuring, who also joined from Credit Suisse. “We came over in October last year and in those 12 months we’ve pushed the boundaries further.”

Crucially, clients barely noticed the internal changes. An executive at a pension fund that does business with UBS praises the “very smooth execution” of the merger. A portfolio manager at a European investment firm reports no hitches, adding: “Overall, that platform is even more complete with the integration.”

None of this happened by accident. The integration was not only a “monumental effort”, says Spyros Mesomeris, UBS’s head of structuring, but also transformational “both in terms of product depth and breadth, innovation and client reach, as well as expertise”.

Given the early returns, it’s hard to argue with that assessment.    

Join the QIS

The transfer of billions of dollars of QIS products from one large bank to another had never been done before. Mesomeris calls it a “unique event” in a market he has helped to shape since the early days.

“The combination of two big franchises in a business that is not vanilla presented itself with opportunities but also a number of challenges we had to work through,” he says.

UBS carefully selected over 200 strategies, or around half of Credit Suisse’s QIS range, for migration. Some were complementary, while others were very different to UBS’s existing offerings. The transfers included $4 billion of Japanese assets – mostly sitting in a Cayman structured funds platform – and $8 billion in bespoke indexes that underpin US retail insurance products, such as fixed index annuities and registered index-linked annuities.   

To manage the transition, UBS formed specialist asset class working groups to scour documentation and manage logistics. Strategies had to be coded into UBS’s proprietary operating and risk systems, along with the requisite analytics. Data licences had to be updated and – as UBS does not have its own benchmark administrator – external providers were needed to administer Credit Suisse’s public indexes. Most importantly, clients had to be kept appraised of all of the above.

“It is not just about migrating the strategy into the analytics and understanding the documentation, but [also] the clients, the wrapper and the risk on the books,” says Giulio Alfinito, global head of QIS structuring. “A very large part of the exercise that often gets neglected was reaching out to clients to agree on any tweaks or changes to trades and how that’s going to impact them on the migration.”

We had the luxury to restructure the UBS offering by picking and choosing those aspects of CS strategies that we liked

Giulio Alfinito, UBS

The main priority through all this was not to disturb clients.

“This exercise would have been pointless if we had upset clients,” Alfinito adds. “It was all done to accommodate client needs.”

The integration allowed UBS to catch up in areas where it had lagged, such as equity dispersion. Among the products transferred was an innovative gamma dispersion strategy with more than $1 billion in assets.

Dispersion products, where investors bet single-stock volatility will outpace that of an index, have gained popularity in recent years, driven by declining correlation between US stocks. However, high entry points and tighter risk premiums caused the trade to stutter in 2024. 

While most dispersion strategies saw losses when the Vix index of S&P volatility jumped 180% in pre-market trading on August 5, the gamma-neutral version developed by Credit Suisse returned around 2.6% due to its more defensive design. UBS has since rolled out an upgraded version that features daily trading and a wider pool of single names.

Another notable addition was an index skew strategy that isolates convexity – a popular yet operationally intensive trade that has historically been the preserve of hedge funds. The strategy, which Credit Suisse developed but had yet to trade, quickly found a following among UBS’s clients, accumulating $250 million in assets.

Credit Suisse’s volatility toolkit also helped UBS to expand its range of defensive strategies, which now include tail hedges, shallow hedges and financing trades.   

“We had the luxury to restructure the UBS offering by picking and choosing those aspects of CS strategies that we liked. Now we have a best of both worlds in the offering we have today,” says Alfinito. “By blending the two platforms, we have a product offering that is much more robust.”

Growth business

The integration boosted a QIS business that was already seeing double-digit growth, due in no small part to a surge of interest from new client types. This year alone, UBS pulled in $2.5 billion notional in swap and option format from more than 20 different hedge funds.

“We’ve seen growth from the pod level and more trades coming from central book level. We are having new transactions with new players and new utility functions on a weekly basis,” says Alfinito.

UBS has also made it easier for wealth management clients to access its institutional QIS offerings. It does this by providing swaps on QIS indexes to third-party distributors – primarily in the Nordic region – who can then embed options on these strategies into structured notes sold to their clients. The initiative has enabled innovative packaging of strategies and is already on track to hit $500 million.     

The New York team. Left to right (back): Chris Cook, Julien Chuard, Peter Yongvanich, Erica Yeu. Left to right (front): Ihab Daouk, Alexandrina Sapunova, Jason Hedberg

Photo: Alex Towle

“We give a secondary market on the swap so we’re fully in sync with the notes that are distributed out,” says Alfinito. “We basically provide daily trading for distributers on QIS portfolios.”

The approach is now being exported to China, where a local securities house has created a bespoke QIS index incorporating two UBS strategies that capture trends in rates and equity volatility carry. UBS supports that structure by trading total return swaps on its indexes, which allow the securities house to hedge its options.

Actively managed swaps and certificates (AMS/AMC) are another growth area, with around 250 asset managers turning over $220 million in delta exposure daily on UBS’s platform. The bank recently expanded its offering by introducing options on volatility-targeted versions of AMC strategies. It also ported a range of systematic strategies from Credit Suisse and activated a UBS capability to provide higher-frequency options rebalancing for these products.

In US insurance, UBS was already seeing more FIA premiums allocated to its products than any other investment bank, thanks in part to its flagship Zebra 2 index, developed in collaboration with Professor Roger Ibbotson at Yale University. An additional seven indexes from Credit Suisse helped solidify that lead.

Fixed rates

The integration has had an even bigger impact on fixed income solutions. While UBS was already rebuilding its capabilities in this area, having retreated from more capital-intensive activities in 2012, the Credit Suisse acquisition accelerated these efforts significantly.

Spire, the multi-dealer repackaging platform, is a case in point. UBS was a late entrant to Spire. Acquiring Credit Suisse, a founding member, has propelled it to the upper ranks. The bank issued $1.5 billion of repacks on Spire in the first three quarters of 2024, more than any other dealer on the platform.

“It’s important because this is not just migration related. It’s also new issuance, which speaks to the number of restructurings of some transactions we’ve migrated over. But most importantly, it talks about new business we’ve generated throughout the year with the expanded client footprint in the fixed income solutions space,” says Mesomeris.

UBS also revamped its Luxembourg special-purpose vehicle to offer new repack solutions to private bank and wealth clients, as well as smaller institutions.

One use case was the issuance of bonds eligible as total loss-absorbing capital (TLAC) to yield-seeking wealth clients. Swiss regulators impose strict limits on structural enhancements for bail-in debt, which typically yields around 50bp more than standard unsecured debt. By pooling TLAC debt in UBS Lux, the collateral can be packaged with derivatives overlays, such as steepeners, in structured notes tailored to wealth clients.

“UBS Lux is a great idea because it existed but wasn’t utilised in this capacity,” says Bracher. “It’s pretty novel and a smooth way of utilising a vehicle that existed in a new purpose, where it helped us raise funding in a way the regulator wanted us to raise that type of senior unsecured bail-in funding but also combine it with structured derivatives on top.”

The UBS Lux platform was also used in other creative ways, including to issue a €120 million ($127 million) multi-tranche fixed rate note on French government bonds to a German client. Registered as a local Namensschuldverschreibungen (NSV), the structure features a fixed rate ‘mother’ tranche embedded with put rights that enable the issuance of ‘daughter’ tranches subject to government bond yields on predetermined dates. This allows investors to monetise rates volatility and lock in higher yields.

Rethinking recycling

The rapid increase in structured products exposure also prompted UBS to rethink the way it recycles exotic risks with hedge funds. This led to the reactivation of a back-to-back autocall recycling platform, which had seen limited use since its launch in 2021. The platform allows UBS to transfer its full autocall exposure to select hedge funds. While the bank does not disclose notionals hedged in this way, the amount of risk transferred by doing so is understood to have increased significantly, with at least five hedge fund counterparties currently active on the platform.

UBS also continued to lean heavily on more traditional risk transfer solutions. This was the bank’s busiest year yet for dispersion trades, which transfer the correlation risk inherent in worst-of autocalls, with $35 million vega notional sold. A buoyant US stock market caused these autocalls to quickly hit their upside knockout barriers, causing UBS’s correlation exposure to disappear, while leaving its hedges intact. The mismatch left the bank long correlation risk, which can be painful to carry.

UBS developed a new version of the recycling trade to deal with this problem, incorporating the same upside barriers as the notes, ensuring the two would knock out in tandem. UBS sold more than $12 million vega in this format and was able restructure some legacy trades to this new standard.   

“We’ve engineered variations that align much more closely with the risk in the books so we have the right profile in terms of correlation as it peaks versus spot level. We’re really trying to find a better way to pair risk,” says Bieren.