Fortem Capital partnered with Lowes Financial Management to launch the UK Defined Strategy Fund which invests in a variety of strategies most commonly seen within structured investments, aims to deliver in excess of a cash (Libor 3-months) plus five percent return per annum over the medium to long term.
SRP caught up with Ryan Rogowski (pictured), partner at Fortem Capital, to talk about the firm’s activities, how technology is changing the industry and his outlook for the structured products market
What is the added value of Fortem as a provider in the structured products market?
In terms of our firm, we are an alternatives boutique with strong expertise in both derivatives and factor-based investing. Moreover, we have exceptionally strong relationships with key partner banks across the street.
The current marketplace appears to be split between passive and active providers.
As a client driven business, we continue our focus of listening to the needs of investors and delivering solutions that meet those needs, through leveraging off the strengths mentioned above.
The current marketplace appears to be split between passive and active providers. On one hand, passive providers are in a race to the bottom in terms of fees. On the other hand, there is definitely a similar trend of fee compression happening in the actively managed space. We believe that Fortem fills a need in the market at a price point that remains attractive to most investors.
We have seen a number of broker dealers launching click-and-trade type of platforms. Are there any dangers/conflicts of interest with this setup?
On the solutions side you have to be careful not to completely detach the human element. There are load of things we have built that can be scaled out to clients. Fundamentally as a boutique our job is to make investors’ lives easier. On the asset management side, we are now running two Fortem branded funds along with aiding Lowes in powering their fund of structured products. We have invested heavily in backend functionality and technology, from building our own proprietary SQL databases, our own cloud based pricing models, and a unique infrastructure to visualise and monitor all of our positions on a regular basis.
We see technology as a critical factor for scalability in the asset management sector. The shackles of big firm bureaucracy have been lifted and we can now even offer banks complementary asset management services to help them and their clients launch funds investing in derivatives.
Can technology help you grow your business?
Technology will help grow the structured products market although not always in the way that people expect. For example, we’ve developed internal tools to help streamline and coordinate more of the manual day to day tasks, reducing the risk of human error in parallel. We’re not yet convinced that current offerings in the market of RFQ tools or multi dealer platforms in fact offer users value for money. Instead, we have developed more practical in house tools to aid in everything from risk management, calendar management (i.e. how far is an index away from its next potential autocall) and price request automation.
In a nutshell, from a solutions-based perspective, we have invested in technology as a complimentary tool to strengthen our business offering. We are constantly working on offering tools to clients to make their lives easier around reporting, costs and charges, price feeds and anything else that that can help to standardise processes.
Are you using structured products to restructure portfolios?
We are constantly reviewing existing trades along with investor portfolios to identify whether restructuring a position could offer improved value for money. That being said, the number of trades where a restructure would in fact off this value added is historically quite low, particularly when considering the costs incurred both in exiting an existing trade versus placing a new trade.
Over the last number of years, geared growth products have made sense to restructure due to their MTMs having benefitted from a long bull market. Where investors are up sometimes, 20%, 30% or even 40%+ they can take the opportunity of banking profits and restructuring protection levels.
We regularly work with our clients to ensure that their portfolio holding best match their investment views. Sometimes, replacing an active fund or ETF with a structured product can make perfect sense if investors are after increased upside participation along with an element of capital protection.
Has the perception around structured products changed among wealth managers?
Products here in the UK, particularly post-RDR, don’t have any distribution fees embedded for wealth managers. When you have a professional investor that is therefore not incentivised by any sort of product fee, as has been the case for years, then an investment will be purchased solely on its merit. Fortem regularly works with professional investor with decades of experience who can easily buy stocks, ETFs and funds. A structured product must therefore stand on its own two feet, otherwise they will not be considered.
As an independent firm, we live and die by the choices that we make in our business. Things like our reputation and associated regulatory risk fall 100% on our shoulders. These products and solutions exist to make client’s lives easier and to offer good value for money on a holistic basis. There will always be challenges in every asset class and every product type. However, the structured products market is growing steadily, and it is very clear that with banks continuing to focus on very large clients, firms like Fortem Capital have a clear role to play in filling the coverage gap.