Momentum has an established presence in South Africa's structured products market, not least due its introduction of some of the more interesting underlyings, notably the multi-asset diversified strategy index offered by BNP Paribas. SRP talks to Twané Wessels (pictured), head of structured solutions and Rowan Burger, executive, large corporates at Momentum about the scope of coverage and the preferences of a broad investor base.
What kind of products do you provide in South Africa and how does the offering differ between the various investor types?
Wessels: Momentum offers a number of alternative solutions that include capital guaranteed structures and investment-return and retirement-income guarantees to corporate, upper and lower retail and international investors. A large part of what we do is provide portfolio products where the underlying returns are smoothed through more stable bonus declarations, but with a minimum bonus of zero percent after fees.
For corporates, we have products specifically for mining rehabilitation in which investors can choose the term of their investment (5-10 years), the underlying and minimum maturity value. The payout is the higher value of the market or the minimum maturity.
In retail, there is a large demand for five-year capital guaranteed endowments, most of which are based on a simplistic asset structure using fixed-income assets and meeting the needs of conservative investors. We are starting to explore index-linked endowments for retail, with products designed to offer a guaranteed and enhanced return if the underlying asset is above a certain level at maturity, and exposure to international assets without currency risk. We have recently launched a product linked to the BNP Paribas Multi-Asset Diversified Vol 8 EUR Global Index.
The appeal of these products comes from exposure to a multi-asset strategy with capital protection and the 5% guaranteed return per annum, and the hedging of foreign currency risk. Investors like the floor or capital guarantee and a higher upside potential than other traditional structures.
This product was a success to the point that we decided to issue a second tranche to respond to the demand and interest from clients.
In terms of asset classes, a large part of the underlying assets is balanced funds, which include a mix of domestic and foreign exposure.
How influential has regulation been on the way Momentum works, and how has the Retail Distribution Review and Treating Customers Fairly provisions been received and interpreted?
Burger: The investment industry is set to change significantly as a result of the proposals put forward in the Retail Distribution Review (RDR) paper and the Treating Customers Fairly (TCF) framework. The new guidelines will address the issue of financial incentives not being aligned with customer outcomes, and the market expects it will change investment product distribution significantly in the retail market. The proposals cross over to the institutional market too, requiring many players to rethink how they position their advice offerings.
RDR looks to move the individual investment and risk market away from the existing commission-based system to one focused on charges aligned to activity, disclosed and agreed by clients. This effort to level the playing field between product providers and ensure appropriate advice and intermediation should make the high net worth individual market hotly contested.
The middle income market will, in turn, be dominated by those advisors best able to quickly determine financial needs for clients and fulfil these at the lowest cost.
What do structured products do best for retirement accounts?
Wessels: Structured solutions can meet a specific need for retirement investors and can often provide the best of both worlds as retirement nears, ie. a capital or investment return guarantee, but with the potential for upside performance through an aggressive underlying growth engine. Asset liability management towards retirement is an important factor in our investment strategies.
Structured products also offer diversity or access to uncorrelated assets that could also improve portfolio risk and return profile, with capital protection also appealing.
The products and the guarantees they offer have to be understood by investors, otherwise expectations may not match actual performance. Structured solutions offer an alternative to pure market-linked investments in the asset management industry and are a worthy consideration for investor portfolios.
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