Skandia, the mutually owned long-term savings and financial group, started out in Sweden as an insurance company in 1855. The company, which has two million customers and assets under management exceeding €60bn, has been active in the Swedish structured products market since 2008.
In 2015 Skandia sold 90 structures worth €100m to retail investors leading to a 3% share of the Swedish market; this year to date Skandia has distributed 38 products with estimated sales of €40m.
In part one of an interview, Wiveka Burvall (pictured), head of structured products, and Erik Svensson, structurer, at Skandia Investment Management, talk to SRP about the competitive Swedish market, the companies favourite counterparties, the popularity of baskets and the 'home bias' of the Swedish investor.
Structured products are not a big part of the total assets managed by the group but significant within Skandia's unit-linked business, according to Svensson. "Around 75% of AUM is in traditional with-profits life insurance," says Svensson. "The remaining 25% of assets are managed in unit-linked policies and structured products amount to roughly 10% of that," he says.
"Our goal is to supply Skandia's internal sales force and third party distributors with attractive investment propositions where structured products add value compared to our other solutions, such as the traditional with-profits insurance product and the mutual funds," says Burvall. Being part of a big, well renowned asset manager certainly helps, according to Burvall. "We can leverage on a lot of internal know-how in diverse areas of asset management: asset allocation, equities, credit and emerging markets strategy to name a few," she says.
Skandia's structured products are targeted at the retail investor, generally in the "affluent" segment of the market, and are distributed on an advised only basis, via internal sales force and selected third party distributors, according to Burvall. "The ratio between internal and external sales force is about 50/50. Our products can only be bought via advisers and not via the internet, not yet anyway."
Over the years Skandia, as an arranger, has worked with a wide range of counterparties, both local and international, and new banks are added from time to time, according to Svensson. "We currently have distribution agreements with about 10 issuers," he says. "We have a very good relationship with SEB at the moment, but we also work with e.g. Handelsbanken, UBS, SocGen and BNP Paribas," says Burvall. "When we select our counterparties we look at for example the historical relationship between Skandia and the counterparty, pricing consistency on the structures, the quality on the after sales service, idea generation and so on," she says.
Baskets with up to ten stocks are - by some distance - the most used underlying, not just at Skandia, but also in the Swedish market as a whole. In 2015 Swedish investors bought €1.8bn worth of structured products linked to in equity baskets, more than half of the total volume for that year. Svensson thinks one of the reasons behind the popularity of this underlying is brand recognition. "The products become more tangible for advisers and end-clients compared to for example bespoke indices," he says.
Another aspect is competitive pricing, with many hedge counterparties being able to quote on these equity baskets while for capital protected products the indicative terms often look quite appealing compared to using a benchmark index, according to Svensson. "There are probably structural drivers behind this, volatility supply/demand imbalances between indices and single stocks," he says.
According to Burvall, Swedish investors are generally more interested in the Swedish stock market than, for example, its market cap would justify when compared to the global market. "This 'home bias' usually becomes more apparent when markets are as volatile as they have been for the last six to 12 months - people tend to stick with what they're more familiar when the future looks more uncertain," she says.
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