Germany house of the year: UBS

Swiss bank wins plaudits for bespoke investment strategies

Andres Schmitz, US

Structured Products Europe Awards 2016

German investors crave custom-built strategies in today's challenging economic and regulatory environment. There can be no shortcuts for dealers working to satisfy this demand. It takes significant investment, a commitment to multiple client types and a flair for innovation to succeed. UBS ticked all three boxes on its way to winning this year's award.

While some dealers have struggled to gain market share in recent times and concentrated on the more cost-efficient flow side of the structured products business at the expense of exotics, the Swiss bank has maintained its top-three presence across the public distribution, intermediary and institutional markets.

UBS's focus in all three client segments has been on structuring tailor-made products that meet client needs in the face of regulatory changes, low volatility and low interest rates.

"The main theme of our work in Germany over the past year is that in an ever-changing regulatory environment, clients are not necessarily looking for trading ideas or allocation advice, but rather for customised strategies that have been designed to work in the unique set of circumstances they now face," says Helge Heidenreich, director of institutional solutions for Germany, Austria and the Netherlands at UBS.

In general, clients are looking for simple products that are easy to understand and explain to their own boards, but they might still be fairly complex to structure. That has been the backbone of our business and product innovations in Germany
Andres Schmitz, UBS

The actively managed certificate (AMC) business for intermediary clients, which includes private banks and other distributors, is the bank's primary means of sharing such strategies across the German market. Each AMC allows investors to wrap and actively manage a multi-asset portfolio in a single certificate in a securitised format.

One of the bank's most notable new products this year was the first global risk premia AMC, launched in July 2016 for one of Germany's leading private banks after nearly a year of preparatory work. AMCs had already become a very successful business for UBS, now accessible through the bank's Neo platform, but the latest development caters to the growing popularity of risk premia strategies as an alternative source of return.

In this particular case, the private bank, which has assets under management of €40 million ($42.5 million) and more than 1,000 employees, set up a proprietary allocation model that invests in more than 50 risk premia strategies across index providers in a cost-effective way. The concept has attracted widespread attention since the first transaction, and UBS is open to adjusting the structure to suit the requirements of other clients.

"This kind of solution had never existed previously, as the client wanted to invest in the risk premia of multiple banks through a single wrapper. UBS was uniquely positioned to deliver this, and there was a lot of work involved, but we believe the concept can be replicated in various other formats," says Heidenreich.

Elsewhere, UBS is implementing a guarantee fund for a German insurance company, in collaboration with a large asset manager. Here, the asset manager will provide the asset allocation, while UBS will provide the fund platform with a legal guarantee. The Swiss bank had to fight off eight competitors to win the mandate, which was granted on the strength of the partnership between the bank and the asset manager.

"Asset managers typically can't provide a guarantee without an investment bank, so we worked with the asset manager to wrap its asset allocation in an actively managed fund as part of a dynamic hybrid policy. There is a lot of activity in this area in Germany and we are using the same partnership to take the model to other insurance companies," says Heidenreich.

Both the risk premia AMC and the guarantee fund are examples of product innovations that deliver uniquely tailored structures without generating significant complexity or operational burdens for the end-user.

"In general, clients are looking for simple products that are easy to understand and explain to their own boards, but they might still be fairly complex to structure. That has been the backbone of our business and product innovations in Germany and we expect it to remain the focus next year," says Andres Schmitz, European head of structured derivatives sales at UBS.