Hilbert Investment Solutions, the Paris-based Anglo-French structured product specialist independent advisory and financial engineering firm, has expanded its advisory board and is now targeting high-net-worth individuals (HNWI) in Luxembourg following an agreement with corporate services firm, Mazars. SRP spoke to the firm's founder and partner, Steve Lamarque (pictured), and its business development manager in London, Dasale Mallawa-Arachi, about Hilbert's plans to grow the business and their expectations for 2017.
The company's core market is France, where it has been servicing a number of HNWI, corporate clients and small pension funds over the last two years, according to Lamarque. "We entered the UK market last year with the aim of targeting small pension funds and IFA clients," said Lamarque. "We have started with the IFA segment: our plan is to continue growing our profile in both countries and increase our footprint accordingly."
Hilbert recently added Hein Donders, the former CEO of Old Mutual Continental Europe, to its advisory board, which should help the compny to increase its existing structured products in France as well as tap into new areas, such as structured finance, according to Lamarque. "We see strong momentum in France, especially in the high net worth individuals segment, which will provide us with a higher profile in the market; and we're also having access to a number of high profile clients in Luxembourg via an agreement with Mazars," said Lamarque. "The addition of Hein Donders will provide us with significant scope to build our offering and respond to client demand for the IFAs market and HNWI segment, in France."
According to Lamarque, France remains a very competitive market and the way to differentiate your offering in the market is by offering best-in class solutions and a customised service to clients. "Structured products are not about selling products any more but about responding to the needs of investors and deliver them added value," said Lamarque. "Our flexibility and the ability to be nimble and react quickly to client demand is an edge we will continue to leverage when we expand to HNWI."
The company's plan for 2017 is to increase its focus on HNWI and leverage its knowledge of structured products. "We believe we can promote and increase the use of these products as instruments to add significant value to investors' portfolios, and we can have more flexibility in the structures we offer as the risk-profile of these investors allow for a different degree of complexity in the products," said Lamarque. "We want to establish ourselves as a firm that sits between the banks and investors."
Despite the new requirements and increased costs resulting from new regulations, Hilbert believes it is good for the end investor and for the accountability of the market. "We have been working very hard to be fully compliant with Priips Kid and the upcoming Mifid 2 framework before they come into effect," he said. "For us, regulation will provide the right framework for the market to grow in a sustainable way as opposed to as a bubble. We have seen over the last few years how the market has consolidated but this is not to do with regulation but with the excesses some market players took in the past. For us regulation is not an issue but a key element to regain the trust of investors and promote structured products as a valid investment proposition for any investment portfolio."
The company's approach to the market will remain client-driven and, although this set up prevents products being pushed to clients, Hilbert will "always consider any product if there is demand from investors", according to Lamarque. "That doesn't mean that we will offer any product but we can be very bespoke in our offering," said Lamarque. "In France, we have been working with a pool of five counterparties and we are happy with this set up. At the moment, the aim is to provide diversification to our clients as opposed to finding the best pricing."
Because of the client-centric approach, Hilbert is not interested in using issuing platforms to build its products and will continue to rely on the reverse enquiry model. "We want to establish long-standing relationships with issuers and we don't think a multi-issuer set up will provide this, although we understand that for some distributors this can be an interesting way to shop around for the best price," said Lamarque. "We are not interested in getting the cheapest trade but on building relationships because we think you can work around the pricing environment once you have a relationship with an issuer. We want to have the best deal for our clients but we also want to work with issuers that provide after-sales support and competitive pricing in the secondary market."
Hilbert will continue to use Pricing Partners for its pricing and valuation needs, and continue building its relationships with investment banks, said Lamarque.
In the UK, the company spent the first half of 2016 - after receiving FCA approval, looking for an administrator and custodian (Hargrave Hale) for its structured products, "as well as making sure our client-facing literature was sound and in line with current regulatory requirements", according to Mallawa-Arachi. "We started issuing in teh second quarter of 2016, and we are very satisfied with how the products have been received," said Mallawa-Arachi. "We have met the hedges for all the five issues and have to close the most recent products early because of oversubscription, which is a good indication of things to come."
So far, Hilbert has sold private placements on 'pretty vanilla' structures linked to the FTSE-100 index, according to Mallawa-Arachi. "Our goal is to offer value to investors with simple products that can stand by themselves and have been researched by advisers before," he said. "Coming into 2017, the momentum has been carried over and we remain confident we will continue to build a competitive offering in the UK."
According to Mallawa-Arachi, market events and geopolitical uncertainty will continue to affect the pricing of structured products "but it's important to remember these products can provide value in growing, falling and side-way markets".
"At the moment, the risk appetite from advisers is for products with a defensive profile or downside protection features," said Mallawa-Arachi. "The feedback we get from advisers is for products that are simple in their payoff, such as autocallables linked to single assets. Capital protection remains a consideration but clients understand that to get upside they will have to put some of the capital at risk. We see enhanced growth as a driver."
"There are a few income products available in the market at the moment as a few providers responded to the lack of income strategies earlier in 2016," said Mallawa-Arachi. "However, we don't want to get involved in areas that are crowded."
The market is tighter now and investors are looking to diversify their portfolios with new paper and new assets that can provide value in a low volatility environment, according to Mallawa-Arachi. "We want to partner with the strongest counterparties out there and we work with counterparties with the highest possible rating," said Mallawa-Arachi. "We have done our first five products with UBS, but we will look at each product and try to provide a balance between the headline return and the credit risk of the issuer. As long as it is investment grade we don't have an issue with counterparties."
From an asset class perspective, Hilbert believes equities remain the top asset class for structured products and the main driver of sales. "[However,] the flexibility of structured products enables us to respond to specific enquiries at particular time and market circumstances," said Mallawa-Arachi. "For instance, oil is at a low level and could provide a good entry point for investors expecting a hike in its price but without putting their investment at risk. Although this is an area where it is difficult to provide value to investors."
According to Mallawa-Arachi, smart beta and environmental, social and governance have established themselves in the market for their own merits, and there is significant appetite from clients. "However, these are underlyings that need to be explained properly to the end investor so you have to be careful and make sure you chose the right underlying," says Mallawa-Arachi. "There is choice in the market for those underlyings, and it's down to providers to find straight forward strategies that can be easily explained and add value to investors' portfolios. We see this area as a very good complement of our core offering. "
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