It is unusual to be able to trace a US$500bn, market-leading structured product to one original trade. This year's SRP Personality of the Year for Asia-Pacific, Adam Cowperthwaite (pictured) can do just that. The first ever accumulator trade in Asia, which he structured while covering private banks as a salesman at JP Morgan in 2002, started a phenomenon that has dominated structured products in Asia for the past 15 years. From simple beginnings as a re-work of a corporate equity derivatives strategy that Cowperthwaite had previously seen in London, to infamy as the highly-leveraged "I kill you later" trade in the depths of the financial crisis, the accumulator is still one of the defining structured products in Asian private banking.
Cowperthwaite entered the equity derivatives world "somewhat randomly" through a summer internship at Robert Fleming in 1994, and then re- joined them in 1996 as a full-time structurer. "Basket warrants were pretty exotic and pricing anything non-vanilla was cumbersome," he said. "The equity derivative traders had to have the air conditioning ducts redirected to counteract the heat emitted by a new supercomputer that had been delivered. In structuring, for anything complicated, we started the Monte Carlo simulator on Friday evening, in order to have the result on Monday morning."
In 1998, Cowperthwaite shifted to fixed-income derivatives in the treasury group at the freshly demutualised Halifax, although his passion for equity derivatives took him to Chase Manhattan two years later. The merger between Chase and JP Morgan followed: "at Chase, equity derivatives had been relatively small, but JP Morgan was enormous," he said. "Probably a third of the football field-sized equity trading floor at JP Morgan's building in Blackfriars was given over to derivatives". Cowperthwaite focused on structuring and automation that would increase the efficiency of pricing and idea generation.
A chance business meeting in Tokyo led to a move from structuring to sales, and from London to Hong Kong, Cowperthwaite's family home. There, together with colleague Daryl Chen, he took over retail sales covering private banks, insurance companies and retail banks. "That's when I did the first accumulator". The deal was done for JP Morgan Private Bank and arose from discussions with a relationship manager whose client was disappointed that he had missed the boat in a rallying market. "I had seen a similar idea used in reverse in corporate equity derivatives in London," he said. "The reworked idea allowed the client to buy the shares at the lower price that he had missed the previous week." His second deal soon followed, this time with Citi Private Bank.
The first accumulator had monthly observations and was traded as 24 separate options - a pair of knockout puts and knockout calls for each observation. "Daily observations were impossible because we would have had to book 480 options". The next advance, using 48 options to give bi-monthly observations, came quickly when they worked out how to book the options in a semi-automated manner. Some individual trades at that time were large - US$50m notional on HSBC shares was a notable example.
In 2003, changes to the offering rules in Hong Kong allowed structured notes to be sold to retail investors. Cowperthwaite moved to Credit Suisse to exploit the potential for taking structured products to the broader investing public. "The possibility of broadening access to structured products to the public was an exciting prospect," said Cowperthwaite. While JP Morgan was not inclined to follow the retail route, Credit Suisse's management was keen. At the time, equity derivatives sales at the Swiss bank was relatively small, primarily servicing hedge funds and OTC hedges for retail structured funds. The private bank business was limited - and they had never done an accumulator. Cowperthwaite quickly wrote a pricing script and the head of trading agreed to give it a try. The original script was used for the next two years before a closed-form model was written, "which is quite amazing now, considering the volumes that we traded". Cowperthwaite also developed a simple pricing tool that allowed salespeople to price very quickly, by simply inputting the stock code and a volatility level from the traders. The ability to price trades instantly gave them a huge competitive advantage, and allowed them to capture a large market share.
Over the next few years, as well as developing private bank coverage in Hong Kong and Singapore, Cowperthwaite built out the Hong Kong, Taiwan and Australia retail businesses - including the launch of three ground-breaking, award-winning listed capital guaranteed funds in Australia. When the financial crisis hit, however, volumes slumped across the industry and the bank displaced much of its equity derivatives team with a buy-out of a larger team from UBS.
Cowperthwaite joined Daiwa Capital Markets, as head of equity derivative sales for Asia ex Japan, and set-up a business covering private banks, hedge funds and South Korean securities houses. The tsunami in Japan was followed by a shutting down of the international expansion initiative at a bank badly affected by the devastation. Eighteen months at Hubbis, as a shareholder and chief operating officer followed, before the call came from Citi Private Bank, where Cowperthwaite is now a managing director and head of equity, Asia Pacific.
"It's not really buyside and feels a lot like going back to being a structurer," said Cowperthwaite. "The approach is more rounded, though. We focus primarily on the investment rationale, and then consider a range of implementation strategies and products to suit the client's profile. My focus is also increasingly on facilitating faster and more proactive, two-way advice on the full range of investments that clients hold in their portfolios. This approach is attractive to clients and is winning us both praise and a greater share of their assets."
An overriding theme in the investment strategies that Cowperthwaite proposes is simplicity. "The industry used to offer very complex products, not just in terms of risk, but also in terms of the convoluted payout profiles," he said. "These days, most products are relatively straightforward, which is definitely a good thing. There is also still a strong need for professionals to actively educate their clients. After 20 years, it is easy to assume the client understands what you are talking about, but you need to remember that, for most people, structured products are a small part of their portfolio and of their overall wealth strategy, and they haven't necessarily spent a lot of time working with them."
The Personality of the Year Award will be presented to Cowperthwaite at the SRP Asia Pacific 2017 Awards Dinner, which will take place on the evening of Thursday 25 May at The Park Royal Hotel on Beach Road in Singapore. Cowperthwaite was chosen on the basis of receiving the highest number of votes from the around 300 respondents to the SRP Asia-Pacific Awards Survey 2017.
The SRP Asia-Pacific Alternatives & Wealth Management Conference 2017 will take place on May 24 & 25 in The Park Royal Hotel on Beach Road in Singapore: the agenda and details of the conference are available at this link. For registration or information, please contact Helga Tirk at helga@structuredretailproducts.com.
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