VLK cashes in on back-to-back hedging strategy

Van Lanschot Kempen (VLK) has posted a net profit of €143.8m (US$161m) for 2021, up from €49.8m in 2020.

Client assets grew by 14% to €131.1 billion, the highest ever for the company, and assets under management (AuM) climbed to €112.1 billion (2020: €99 billion).

The result on structured products activities stabilised at -€1.3m (2020: -€33.2m) due to the combined effect of trading activities, secondary market sales and the winddown of its macro-hedging portfolio.

We are making good progress on the wind-down of exposures in the macro-hedge portfolio - Constant Korthout 

As a result of extreme financial market volatility in 2020, VLK had made significant losses on structured products activities. This resulted in the strategic decision to reduce the risks on this activity by moving from a macro-hedging strategy to an almost exclusively back-to-back hedging strategy, thereby decreasing most of the market risks in the portfolio.

Structured products activities’ trading limits have been decreasing in conjunction with the run-off of the macro-hedged portfolio, thereby reducing the market risks in the portfolio even further.

“We are making good progress on the wind-down of exposures in the macro-hedge portfolio,” said Constant Korthout (pictured), member of the management board, chief financial officer & chief risk officer, VLK.

Favourable market conditions helped to reduce these exposures to €385m at the end of 2021 (end-2020: €691m; end-March 2020: €783m).

“The outstanding volume of structured products based on macro hedging has halved since March 2020,” said Korthout.

In 2021, the bank continued to launch new structured products including 16 public offers worth an estimated €170m (2020: €60m from eight public offers). Of these, eight were issued on its own paper; three products each were issued via BNP Paribas and UBS; and single issues were seen from Société Générale and ING.

The latter was the manufacturer behind Index Guarantee Note ESG Global Dividend 21-28, a seven-year, capital-protected note that participates 100% in the rise of the Refinitiv ESG Global Select Dividend 40 Index.

In total, there were 14 products linked to a single index, including, among others, Eurostoxx 50 (six) and Eurostoxx Select Dividend 30 (five). One product was tied to an ETF while there was also one product on a weighted basket comprising Eurostoxx 50, S&P 500, iShares MSCI Emerging Markets ETF.

Four products provided at least 90% capital protection. The remaining 12 products, which were either Phoenix autocalls (nine) or Athena autocalls (three), put full capital at risk.

“For these new issuances we moved to an almost exclusively back-to-back hedging strategy,” said Korthout.

2021 pre-tax profit at private clients worked out at €114.3m. Commission income came in at €244.4m and accounted for 63% of the segment’s total revenues. Net inflows at private clients were €3.8 billion, with all client groups in all countries in which the company is active – Belgium, Switzerland and the Netherlands – contributing.

Pre-tax profit at wholesale & institutional clients stood at €9.6m on commission income of €81.4m. Total AuM at wholesale & institutional clients was stable at €67.6 billion (2020: €67.8 billion), thanks to positive market performance. Net outflows amounted to €4 billion in 2021.

Click the link to view the Van Lanschot Kempen annual results, presentation, and sustainability supplement.