Outlook 2020: ESG, digitalisation and diversification

Ayal Leibowitz (pictured), chief innovation officer, LPA

There are several themes that we see which are big topics in the market. One of them is ESG. Right now, with ESG there is a lack of standardisation in the market. There are lots of ESG rating agencies, however, each one speaks in slightly different wording. We are trying to harmonise the market, providing a solution that would bring everyone to speak the same language. This is critical for the industry. There is a taxonomy done at the EU level but this is a rather long process. Regulatory initiatives take a long time.

For structured products too, it is not quite clear what is an ESG structured product. With structured products the money flow is not that clear. You have a synthetic exposure to the company so there needs to be standardisation around what ESG really means in term of structured products.

Another topic is the Ibor transition. We are trying to assists banks with the transition. It looked simple at the start but then in real life you realise that it is much more complex that what you could have imagined. We have the technology that can read automatically documents with AI machine learning capabilities. We are trying to find and suggest alternatives for the transition and to automate those processes.

Ian Lowes, managing director, Lowes Financial Management (LFM)

The next year, will no doubt to prove to be like every other – ‘interesting!’ Hopefully pricing conditions will be favourable to facilitate a continuing supply of attractive contracts and as far as maturities are concerned, well, as ever, it depends on the performance of the underlyings and as such, for the retail plan market, predominantly on the performance of the FTSE 100 Index. Current levels of around 7,600 and above will do very nicely as that will mean most possible maturities, certainly in the first half of the year, will be triggered. 

Of course, there is always potential for ‘black swans’ but even in the event of a significant correction, as most of the retail market, certainly at least in terms of autocalls, now have maximum terms of eight and 10 years there will hopefully be adequate time for a recovery, which could ultimately lead to those structures producing returns at maturity, that far out-strip other market linked alternatives.

Whilst we appreciate that in the institutional space structured investments come in a huge range of different shapes, the UK retail market is, with a few exceptions, a much more straightforward place. The majority of products are competitively priced and linked solely to the FTSE 100 Index. Advisers and investors are missing out. Our annual reviews show that there have been over 2,200 retail plan maturities over the last five years and only a few of these resulted in losses and even then, these were typically, higher risk trades that performed exactly in line with their stated terms. 

Patrick Stettler, senior sales manager, Six Digital Exchange (SDX)

For 2020, looking at the market from a market infrastructure providers point of view, I primarily see interest from regulators and legislators in digital assets. The Central Bank shows a lot of interest in digital currencies and this is something that is rather new. This is exemplified by the fact that we as Six Digital Exchange are engaged with the Bank for International Settlements and the Swiss National Bank in an innovation project exactly on that topic.

We have observed that other exchanges are also engaging in digital assets and are developing projects around the globe. We don’t see that as competition but more as a validation of what we are doing. We are developing cases with clients. We want to engage them in the digital asset area to make sure they build up capabilities and that they are ready when the market is ready for digital assets.

We work on projects and services together with clients to give them a voice into this co-creation process and make sure that what is finally coming out in terms of products and services is fit for purpose and adds value for the clients. We are going live at the end of the year with the first products and services.

Ferran Vila, head of structured products desk and flow desk, Morabanc

Despite a back drop full of contingencies and uncertainty (commercial war, brexit) we believe that the market is providing opportunities to use capital at risk structures that are conservative and that resonates with investors

From an equity perspective, private banking investors are starting to understand that they can hedge themselves (bullish or bearish) with those barriers to get the full added value of the investment proposition, as opposed to focus on the headline rate or the coupon. People are also looking at the overall expected yield from a portfolio perspective and looking to deploy the instruments that meet that need. So we can offer higher or lower yields and more or less risky products based on that client need.