In the second part of an interview Laurent Depus (pictured), senior country manager, Japan, and president & representative director of Natixis Japan Securities Co., talks about what products are in focus in the Japanese market and how investors are more tuned up about the products they want and why a 'product push' set up no longer works.

Natixis' client revenue has more than doubled since 2015 in Japan especially around the 'significant client' segment, and year to date the French bank has seen encouraging signs as suggested by its Q1 results which shows significant growth compared to last year, according to Depus.

"Regarding our funding efforts, the samurai business remains our core activity," says Depus. "Our local entity Natixis Japan Securities is one of the main underwriters for BPCE which is a leading issuer in this segment."

In addition to the samurai issuance, Natixis Securities remains a very active provider of Uridashi transactions for Natixis and BPCE, according to Depus. In this segment Natixis completed its shelf registration for continuous offering in Japan in mid-2016 with the aim of increasing our size and activity in this segment, and expand the pool of distributors it works with.

On the structured products market, yield enhancing structures have been very popular recently and most manufacturers have tapped into these products, according to Depus. "We see demand for equity-linked trades on baskets of indices (mainly Nikkei 225/S&P 500) and worst of- payoff profiles, and also exchangeable notes in the uridashi market," says Depus. "In the indexed annuities segment, demand remains strong for foreign currency transactions and we see a growing number of insurance companies offering AUD-denominated VA products. In terms of payoff types we don't have a preference but investors in Japan have been using auto-callable structures."

According to Depus, customised and tailor-made indexes are also driving significant activity and is a focus for Natixis. "We leverage our manufacturing capabilities to deploy those underlyings using different packaging," says Depus. "We are very well positioned to offer different ways of delivering these strategies and that also gives us an edge in this market."

Natixis also closed a number of trades involving smart beta strategies such as Natixis' Cac Large 60 index - which is an alternative to the traditional French domestic Cac 40 index, as well as Euro iStoxx 70 Equal Weight Decrement 5% Index which was licensed by investment bank in the summer of 2016 to develop a range of structured products.

"The appeal of these smart beta strategies is that they are geared to deliver higher returns and reduce volatility," says Depus. "We think these can provide added value to those investors seeking enhanced returns and reduce their exposure to volatility."

Local investors are seeking low volatility investments as they understand the returns will be lower but they understand they won't be subjected to sudden and acute market swings, according to Depus. "Investors are no longer seeking double digit headline rates but steady returns slightly above the current interest rates levels," says Depus. "Investors in Japan are also looking to address correlation around equities and rates and these strategic indexes provide an alternative to outperform traditional assets."

According to Depus, Natixis is also active in the credit-linked notes (CLN) segment either via hedging for third party distributors and for its own issuance, and has also done credit-linked loans.

"This segment is very active and depending on the risk appetite of investors there are a variety of assets that are being used in this kind of structure such as sovereign and corporate credit," says Depus, adding that Yen products with a credit overlay are popular in Japan mostly with exposure to one credit event. "[However] we have also done hybrid structures (CMS, Libor) with exposure to multiple credit."

Despite Natixis' product manufacturing capabilities, Japan is a very competitive market and the bank's main differentiating factor is not just its product mix but the overall set up, says Depus.

"The sentence 'we're big enough to deliver and small enough to care' is central to our philosophy," says Depus. "We are a very strong product manufacturer, but ultimately our goal is not just pushing products but to establish long-lasting relationships with clients and compete with the best houses out there."

Natixis is "relatively small" in Japan but "we don't see that as a disadvantage as our size also allows us to respond quicker to the market and our clients' needs", according to Depus.

"We remain a client-oriented provider and our custom index offering is testament to our efforts to provide value to investors and work with our clients to deliver the solutions they need," says Depus, adding that the 'product push' approach does not work anymore, although there are still investment banks that have a very siloed approach and have their shelves full of products.

"Our approach is about working with clients and develop products that can help them achieve their goals," says Depus. "Our focus is on bringing to the market new strategies and indexes that can actually address a particular need as opposed to offer the same product as our competitors with slight tweaks."

Depus points that Japan (and other Apac markets as well) is in a strong economic environment at the moment where the fundamentals remain stable but "uncertainty remains high" and this is a "source of fear".

"Concerns around geopolitical issues (Syria, Brexit, elections in Europe...) have generated an 'extremely cautious risk-on mood' and you have to be flexible to approach the market," says Depus, adding that rates are rising and that is always good for structured products as there is more room to provide upside - although we are still in a low rates scenario, and this is also forcing manufacturers to seek additional sources of yield.

"This is why smart beta and custom indices play a big role. It is a market challenge for all players but also an opportunity," says Depus. "Structured products remain an interesting way of addressing different market scenarios as you can bet on bull-, bear- and side-way markets."

Another area where Natixis is seeking to capitalise on opportunities is in the flow market "because investing in Japan can be very difficult which is why clients also look to us to get exposure overseas," according to Depus.

"Currently investors are not looking for a 'home run' but for additional sources of yield and structured products can provide just that," says Depus. "Investors now understand that you need to take some risk (credit, rates, market) to get the yield you are looking for. We are very well positioned to provide access to other markets such as Europe with products that make sense for the end client."

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