Synthetic exposure, the alternative hedging solution
20 June 2018
Emmanuel Doublet and Olivier Lasserre of Natixis give an overview of what is rapidly becoming the new normal
Image: Shutterstock
Creating a global cross-asset business
A good number of column inches have been devoted by specialist publications in recent times due to the decision that Natixis made early last year, which was to merge its equity financing and fixed income repo desks into its securities financing business.
The move was conceived as a means of managing growing regulatory constraints, optimising the use of the bank’s balance sheet, and to make it easier to offer cross asset/hybrid solutions for clients. The merger duly took effect in the second half of last year, creating the business known today as Global Securities Financing (GSF). The continuing development of GSF, as it maximises the benefits to be obtained by combining the firm’s traditional expertise in derivatives with the experience in equities and fixed income financing, will surely attract more.
Clients have reacted well to the services offered by a team that has its foundations in a combination of acute expertise in pricing and financing, client relationship management and product development. Natixis expects that the globally merged desks will help clients to rationalise investments and finance needs. It also expects that it will benefit the bank by better use of its assets, assembling well matched teams of experienced, mature staff and achieving greater operational efficiencies.
Synthetic prime brokerage, an efficient alternative
One of the key units in the Natixis GSF structure today, is the synthetic prime brokerage (SPB) team. Headed by Emmanuel Doublet and Olivier Lasserre, the team has quickly established a presence in a fiercely competitive market.
Doublet has plied his trade as a delta one/securities finance trader for Natixis in Paris, Frankfurt, New York and currently London. Lasserre joined Natixis in 2006 and has been involved in many activities since then, including equities and derivatives. They both work in tandem to promote and develop their SPB platform (Natixis Synthetic Services).
Clients include a wide range of asset managers including, but not limited to, a number of hedge funds with needs that can be complex and demanding to satisfy. The Natixis SPB platform was built in-house from the ground up to ensure full compatibility with those client needs.
The very term SPB can frighten the life out of the lay person, but in essence it is relatively simple to define, if challenging to deliver in the most efficient and cost-effective manner.
In today’s environment the costs associated with a transaction is a very important factor, SPB can help reduce these costs through netting, reduced balance sheet impact and transaction costs, which gives the client an advantage over a standard cash prime brokerage set-up.
Doublet comments: “SPB replicate investment strategies of their clients through swaps that generate performance and interest cash flows.”
He explains that it is the solution of choice for managers who run alternative strategies on a large sample of assets, such as long/short (absolute return). However, they cannot take short positions (for regulatory reasons).
It also appeals to those who have a need for bespoke leverage to seize market opportunities and take advantage of promising market trends; who wish to save on operational resources (management of corporate actions, reconciliations with the administrator and margin calls are all handled by the synthetic prime broker); and who want to reduce operational risk (regulatory reporting, settlement).
Furthermore, SPB is secure, Doublet adds. It is secure under the International Swaps and Derivatives Association (ISDA) Master Agreement—the client benefits from standard market governance. It is secure under the industry’s Credit Support Annex and clients enjoy the guarantee of daily margin calls based on marked to market positions.
Doublet explains: “Your SPB will send you important relevant information and alerts, such as details of election deadlines for conditional corporate actions.”
According to Doublet, “SPB is also very versatile, for a number of reasons,” but he indicates, “swaps are a much more flexible instrument than futures as there is no need to roll contracts over at expiry date and futures simply do not cover all underlying elements of a multi-layered investment strategy.”
Lasserre adds: “SPB is also agnostic in terms of strategies that are implemented by asset managers (whether that be long/short, delta hedge of volatility arbitrage, miscellaneous equity, event-driven and others).”
He notes: “SPB also offers a smooth and fluid front-to-back office chain.”
AMC’s, the tailor-made approach
Closely related to the SPB solution, is the Natixis Actively Managed Certificate (AMC) programme. Lasserre explains: “AMCs are the solution dedicated regularly to mid-sized counterparties who want to run directional, alternative, multi currency, overlay and other investment strategies directly through a cross-assets approach including stocks, funds/exchange-traded funds, structured products, listed derivatives, bonds etc while also saving on operational resources.”
“The AMC is a simple bespoke rules-based structure”, he continues. “It is a tracker certificate indexed to the performance of an actively managed index, a synthetic replication of the performance of a portfolio advised by the Index Adviser. The bank that engineers the AMC acts as the Index Sponsor.”
Lasserre adds: “The advantage of the AMC is the diversification that it offers fund managers; it is a single product that offers diversification of assets, geographies and industry sectors. The AMC is flexible, with tailor-made investment guidelines offering a broad market access with the full support of the Natixis infrastructure.”
“The AMC is not labour-intensive; execution, reporting and settlement functions are outsourced to the bank entity that is engineering the AMC. All in all, this makes the AMC a very cost efficient solution allowing the client to rely on a fully automated system.”
A good number of column inches have been devoted by specialist publications in recent times due to the decision that Natixis made early last year, which was to merge its equity financing and fixed income repo desks into its securities financing business.
The move was conceived as a means of managing growing regulatory constraints, optimising the use of the bank’s balance sheet, and to make it easier to offer cross asset/hybrid solutions for clients. The merger duly took effect in the second half of last year, creating the business known today as Global Securities Financing (GSF). The continuing development of GSF, as it maximises the benefits to be obtained by combining the firm’s traditional expertise in derivatives with the experience in equities and fixed income financing, will surely attract more.
Clients have reacted well to the services offered by a team that has its foundations in a combination of acute expertise in pricing and financing, client relationship management and product development. Natixis expects that the globally merged desks will help clients to rationalise investments and finance needs. It also expects that it will benefit the bank by better use of its assets, assembling well matched teams of experienced, mature staff and achieving greater operational efficiencies.
Synthetic prime brokerage, an efficient alternative
One of the key units in the Natixis GSF structure today, is the synthetic prime brokerage (SPB) team. Headed by Emmanuel Doublet and Olivier Lasserre, the team has quickly established a presence in a fiercely competitive market.
Doublet has plied his trade as a delta one/securities finance trader for Natixis in Paris, Frankfurt, New York and currently London. Lasserre joined Natixis in 2006 and has been involved in many activities since then, including equities and derivatives. They both work in tandem to promote and develop their SPB platform (Natixis Synthetic Services).
Clients include a wide range of asset managers including, but not limited to, a number of hedge funds with needs that can be complex and demanding to satisfy. The Natixis SPB platform was built in-house from the ground up to ensure full compatibility with those client needs.
The very term SPB can frighten the life out of the lay person, but in essence it is relatively simple to define, if challenging to deliver in the most efficient and cost-effective manner.
In today’s environment the costs associated with a transaction is a very important factor, SPB can help reduce these costs through netting, reduced balance sheet impact and transaction costs, which gives the client an advantage over a standard cash prime brokerage set-up.
Doublet comments: “SPB replicate investment strategies of their clients through swaps that generate performance and interest cash flows.”
He explains that it is the solution of choice for managers who run alternative strategies on a large sample of assets, such as long/short (absolute return). However, they cannot take short positions (for regulatory reasons).
It also appeals to those who have a need for bespoke leverage to seize market opportunities and take advantage of promising market trends; who wish to save on operational resources (management of corporate actions, reconciliations with the administrator and margin calls are all handled by the synthetic prime broker); and who want to reduce operational risk (regulatory reporting, settlement).
Furthermore, SPB is secure, Doublet adds. It is secure under the International Swaps and Derivatives Association (ISDA) Master Agreement—the client benefits from standard market governance. It is secure under the industry’s Credit Support Annex and clients enjoy the guarantee of daily margin calls based on marked to market positions.
Doublet explains: “Your SPB will send you important relevant information and alerts, such as details of election deadlines for conditional corporate actions.”
According to Doublet, “SPB is also very versatile, for a number of reasons,” but he indicates, “swaps are a much more flexible instrument than futures as there is no need to roll contracts over at expiry date and futures simply do not cover all underlying elements of a multi-layered investment strategy.”
Lasserre adds: “SPB is also agnostic in terms of strategies that are implemented by asset managers (whether that be long/short, delta hedge of volatility arbitrage, miscellaneous equity, event-driven and others).”
He notes: “SPB also offers a smooth and fluid front-to-back office chain.”
AMC’s, the tailor-made approach
Closely related to the SPB solution, is the Natixis Actively Managed Certificate (AMC) programme. Lasserre explains: “AMCs are the solution dedicated regularly to mid-sized counterparties who want to run directional, alternative, multi currency, overlay and other investment strategies directly through a cross-assets approach including stocks, funds/exchange-traded funds, structured products, listed derivatives, bonds etc while also saving on operational resources.”
“The AMC is a simple bespoke rules-based structure”, he continues. “It is a tracker certificate indexed to the performance of an actively managed index, a synthetic replication of the performance of a portfolio advised by the Index Adviser. The bank that engineers the AMC acts as the Index Sponsor.”
Lasserre adds: “The advantage of the AMC is the diversification that it offers fund managers; it is a single product that offers diversification of assets, geographies and industry sectors. The AMC is flexible, with tailor-made investment guidelines offering a broad market access with the full support of the Natixis infrastructure.”
“The AMC is not labour-intensive; execution, reporting and settlement functions are outsourced to the bank entity that is engineering the AMC. All in all, this makes the AMC a very cost efficient solution allowing the client to rely on a fully automated system.”
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