In the second part of an interview with structured products specialist firm Lombard Investment Solutions, the two co-founders and managing directors, Charif Ben Romdane (pictured) and Nicolas Indych – formerly of Commerzbank – discuss the lack of appeal of issuing platforms for some buy-side players, the firm’s offering and why structured products have a place in any investment portfolio.
Do you use issuer platforms? What’s is Lombard’s view on automatisation?
Charif Ben Romdane: Nicolas and I we have kept the business model that we had at Commerzbank. We don’t believe in the issuer platform business model. I don’t think it is adapted to what we are trying to do. We are against the automatisation of our business. We believe our competitive advantage is our ability to provide a banking service to clients in small platforms, with flexibility as well as knowledge. This is the key.
Today, when you trade directly with banks, we trade directly with traders with whom we have worked in the past and we can guarantee that the service that we get from the banks and the pricing that we get from the banks is the best. There are not many providers out there that have the capacity to really beat us in terms of pricing, mainly because of our relationship with manufacturers. We believe this business is mainly about relationships. Price is very important but what is really important is the relationship you can have with both the providers and the clients.
There are already some small players even developing their own pricing tools and more. Are you saying platforms are not suited for specialist boutiques?
Nicolas Indych (right): You have to adapt to different clients, but we can provide the same service to an IFA that would do a trade for US$200k or to an insurance company that would trade for US$10 million. We don’t think smaller counterparties should provide access to electronic platforms because if you provide your clients the capacity to trade electronically then you lose your added value. Some providers believe that this business can be electronic and fully automated, but from where I come from I can tell you that this business is based on relationships only. A machine cannot replace the human element of this business because what we do is to provide flexibility.
Why do you think structured products are good for the type of client Lombard serves?
Charif Ben Romdane: Structured products are the most sophisticated tools for optimising risk and return. There is a potential of growth in the Middle East and that is why as a company, we need to be able to provide an offering as wide as possible with a tailor-made approach. Thanks to our cross-asset offering and our bespoke approach, we are able to adapt to any situation. We structure investment solutions linked to any asset class including equities, indices, commodities, FX, rates, credit and funds.
We also design managed accounts with some banks. They can replicate an investment strategy at a much lower cost than issuing its own fund. There are many aspects, in terms of costs, capital preservation, potential returns, market access, underlying tradability as well as risk, liquidity, and pricing.
Which characteristics of structured products resonate with your clients?
Nicolas Indych: Structured products have a value, without a doubt. They are great for diversification and they allow investors to profit from any kind of market environment. Structured products are for optimisation of risk and reward, and also work as a hedging solution.
We strongly believe that structured products have a key role in financial markets, and it is all a matter of risk. What is also very interesting for the retail client or the private banking client to have a position in the market is not easy, not all underlyings are easy tradeable, they are not all listed. A structured product has an Isin code, it has a daily mark to market value, liquidity, you can trade it any time, and it provides a lot of flexibility. Structured products are a super strong investment proposition.
Why then do structured products remain marginal in some markets?
Nicolas Indych: Some people still live in the past and think structured products are bad, not transparent. But that is a myth that has been proven wrong.
Charif Ben Romdane: You need a certain understanding of financial markets to be able to trade structured products, and they are not suitable for everyone. But they provide flexibility, access and protection. We don’t know of any other investment products that provides this.