Over the last five years, Marex Solutions has established itself in the derivatives and structured products market as an alternative to traditional issuers with a diversified financial institution behind - Marex Group, which offers agency execution, clearing, market making, hedging and solutions.

Nilesh Jethwa (below), the CEO of Marex Solutions, who oversees the group's cross-asset derivative and structured product division, has put his eyes on the institutional market to expand the target audience among corporates seeking for hedging risk across commodities and FX rates, and financial institutions to bolster the distribution of structured products.

Structured products linked to actively managed funds are coming back - we have seen a resurgence - Walter Cegarra

The recent appointment of Walter Cegarra (pictured), previously CEO of FNZ Q-Hub and before that the global head of fund derivatives and QIS structuring at Credit Suisse, is aimed at developing the institutional side of the Financial Products business, “focusing on offering Marex-specific capabilities to institutional clients”.

Expanding ecosystem

As one of the pillars within the institutional business, Cegarra wants to increase the focus on global investment banks and highlights the complementary nature of Marex Financial Products in the structured products ecosystem.

"We have a relationship in both directions,” he says. “Sometimes they can help us do our business, and sometimes we can help them do theirs. We have been increasingly focused on helping investment banks hedge some of their risks, related to their clients’ transactions, where we may be complementary, in particular around mutual fund underlyings."

Indeed, one of the areas being developed under Cegarra's watch, together with his internal counterparts on the trading side, is fund derivatives, leveraging his previous experience on the sell-side and the tailwinds due to higher rates and investor needs for principal protection.

"Structured products linked to actively managed funds are coming back - we have seen a resurgence,” he adds. “This kind of underlying has gone through cycles and has had some incredible years in the past. Because of a combination of factors - rates, regulations, performance – they somewhat fell out of favour, but they are really coming back. We can see an acceleration with an increasing number of trades closing."

According to Cegarra, the use of principal-protected notes on funds with embedded leverage, offering both protection and upside participation, is a "very appealing proposition for institutional investors and wealth channels".

"These include leveraged exposure to funds for high-net-worth clients of private banks and protected versions of funds for insurance companies constrained by solvency requirements," he says.

Marex is also playing a more visible role in helping raise assets and providing structured access to funds for asset managers, discretionary managers, and hedge funds – the non-banking issuer already works with actively managed indices (AMIs), offering solutions for asset managers in the UK and France.

"We can help these asset managers raise assets for their funds from their investors, where their investors may need a structure to access the fund: this could be because they may not be able to access it directly, or they may need to change the risk and return profile of the investment," says Cegarra.

For asset managers working with private banks, in particular in regions like the Middle-East and Asia, who have clients seeking leverage on these funds, Marex would issue a warrant linked to the funds to give the excess additional exposure on the upside.

"Another use case can be applied to insurance companies which may be constrained from a capital perspective to allocate to more performance-seeking asset classes, such as diversified credit or equities. Offering a protected version of the fund can be a solution for that," adds Cegarra.

QIS, Long-term savings

Looking at the structured products landscape, Cegarra admits that the impact of higher rates on principal protection solutions has been positive for the market and “has also triggered renewed interest from institutional investors for yield enhancement through credit, asset-backed securities, and other higher-yielding assets used as underlyings on protected notes”.

Reverse convertibles and autocalls across asset classes will continue to be in focus for institutional investors looking for high yielding solutions - Walter Cegarra

Another area of opportunity is in quantitative investment strategies (QIS), where Cegarra will leverage his financial engineering background to strengthen Marex’ existing trading expertise and add to the firm’s ability to "differentiate and add value, rather than replicating what others have already done".

"QIS and AMCs are definitely an area of focus for us,” says Cegarra.

In this space, Marex will seek to capitalise on its expertise in commodities as well as in its crypto capabilities – the company has issued over US$5 billion in crypto-related products to date.

"We see investors, both distribution and institutional, starting to look at cryptos a lot more actively as part of their overall portfolio allocation,” he says.

Cegarra notes that for the more conservative institutional investors, access to crypto currencies through principal protected structures is a natural stepping stone; whereas risk-on investors, including some family offices, are looking at leveraged structures on crypto to be more cash efficient; while some investors are leveraging the higher volatility in crypto markets through yield enhancement structures (such as autocalls or reverse convertibles).

“Reverse convertibles and autocalls across asset classes will continue to be in focus for institutional investors looking for high yielding solutions,” he says.

“From a macro-economic perspective, we see demand for structures offering exposure to strategies that would benefit from the slowdown of global economies as well as regional exposure, including the US, China, India, and some emerging markets”.

The long-term savings space is also part of Cegarra's remit. In this area, the Marex executive sees the potential for insurance companies offering savings and retirement solutions to use,"an actively managed index as the underlying, in particular in the context of fixed index annuities (FIA)".

"We are also working with institutional investors for their own account, including insurance companies, pension funds, family offices, and sovereign wealth funds," says Cegarra.

Regional focus

Part of the global strategy at Marex Financial Products is to leverage the similar needs of institutional clients across regions, says Cegarra - the current focus is on Europe and the UK, but the company already has some projects in Asia and the Middle East.

"Our initial focus of the first few months was to build a strong offering in Europe to leverage the existing team and client base as we expand to other markets," says Cegarra.

The short-term plan, according to Cegarra, is to address client needs and differentiation, leveraging Marex's flexibility and technology. Marex's structured products and derivatives platform Agile has become a key driver of activity and revenue for the business as it "allows clients to construct and price a wide range of structured products transparently".

"Another key differentiator of Marex is flexibility,” concludes Cegarra. “Given the automation of our processes and use of technology, we seem to be able to facilitate transactions that others may not be able to, which is a clear benefit for our clients.”

In addition, with a growing offering available across the broader group, Marex Solutions will also be able to help institutional clients across topics such as prime brokerage, clearing or execution – while giving them the benefit of its institutional standing as an investment grade counterparty, listed on Nasdaq.

“We are not trying to be all things to all people but try to add tangible value in the areas where we differentiate ourselves,” he says.

Do you have a confidential story, tip or comment you’d like to share? Contact Us | SRP (structuredretailproducts.com)