FNZ was founded as a start-up business in 2004 in New Zealand. Originally created as a business unit within the New Zealand branch of Credit Suisse investment bank, the firm is backed by Caisse de Dépôt et Placement du Québec, Singapore’s Temasek, Generation Funds - the venture capital fund of former US vice president Al Gore, as well as its employees.
SRP spoke to Walter Cegarra, the former managing director - global head of QIS structuring at Credit Suisse who joined in early 2020 as chief executive of FNZ’s Q-Hub, the firm’s structured investments platform, about the increasing use of technology for investment administration and asset servicing.
FNZ is not the usual software-as-a-service (SaaS) provider but a platform as a service (PaaS) company offering technology solutions together with the supporting infrastructure and operations as a single managed service.
“This approach is very powerful because the company can have a more strategic impact on financial institutions, including in terms of cost savings: the business model is based on bps on AUM as opposed to large fixed software licensing fees,” says Cegarra. “It is important for the company to be aligned on the success, and risks, of its partners and clients.
Our mandate is to accelerate and expand our role as facilitator of structured investments
“This allows us to customise the platform to meet the needs of each client across technology (software) but also in terms of investment administration and asset servicing.”
The company has now more than US$800 billion of assets under administration from over 100 clients globally including Standard Aberdeen, Barclays, Generali, Zurich, Vanguard, and Singapore’s UOB.
iCPPIs and iTIPPS
FNZ also houses iProtect, a module which was initially launched as a solution platform to support individualised protection transactions from a technology and operational perspective - aimed at iCPPIs and iTIPPs.
“Although FNZ may have kept a relatively low profile, it is servicing some of the largest tier 1 institutions in the market,” says Cegarra. “The first time I came across the iProtect team was at Credit Suisse - we were developing an iCPPI for an Italian insurance company and they had selected iProtect technology and operational platform.”
The firm has been around for over 15 years as a financial technology and operations provider offering services to the wealth management space by delivering the full platform value chain including front-end, on-boarding, account management, trading, and back-office capabilities.
According to Cegarra, when FNZ approached him, the opportunity was “very aligned with what I had tried to build over the last 22 years on the sell-side and a very good fit overall - same solutions, same clients on the buy-side in addition to my previous colleagues on the sell-side, and a great team with a strong track record and even stronger values and principles”.
He joined them on February 2020 to head Q-Hub, the firm’s broader structured investment platform, which includes iProtect, with a mandate to develop and move the platform to the next level with his team.
“Our mandate is to accelerate and expand our role as facilitator of structured investments: beyond individualised protection to cover the full long term savings spectrum (accumulation and decumulation, protected or not), as well as QIS, including actively managed certificates, and leverage finance,” Cegarra says.
Q-Hub
FNZ’s Q-Hub provides technology and operational services to support long term savings, QIS and leverage finance.
Long terms savings is the firm’s traditional area of expertise, in particular in the individualised protection space.
“This is the origin of the iProtect platform. But certainly, over the last year we have seen increasing interest for different types of solutions, in particular around decumulation, and different types of pay-offs, including option-based MaxNAV protection which we also support,” says Cegarra.
“The decumulation space has been particularly active over the last few months and we have developed some very interesting capabilities.”
According to Cegarra, the increasing interest in decumulation comes from both investors and providers.
From an individual investor’s perspective, traditional general account solutions have become less appealing given the reduction of the guarantees and rates offered.
“Even more so given that they do not provide any potential upside to the markets,” says Cegarra, adding that for example, in France, the guaranteed yield for the fonds en euros has about halved over the last six years.
From a provider’s perspective, the same general account solutions are increasingly challenged from a regulatory capital perspective, and the lower yields guaranteed on the liability side and government bond yields available on the asset side.
“Given such evolution, we have seen insurance companies, banks and asset managers work on innovative decumulation solutions for investors with the aim to combine protected income with some upside exposure to the markets,” Cegarra says. “While working with distributors, manufacturers, investment banks and other hedge providers on such solutions, in addition to facilitating the operational management and hedging of the underlying product, our services have been in particular requested around individualisation and digital engagement.”
The full lifecycle
Cegarra notes that for solutions which are very long term by construction and combine accumulation and decumulation, known in the UK as “to and through” retirement, clients want to be able to provide their advisors and end clients with the ability to customise the solution, “not only at the time of the initial subscription, but even more importantly, through the whole life of the investment”.
With personal needs, goals and life expectancy, individuals are no longer comfortable with static one-size-fits-all solutions, which creates technology and operational challenges.
The other aspect is around client engagement and the presentation of relatively sophisticated investment solutions and the choices provided to end clients - typically with the help of an advisor, in a way which can be properly understood.
“To that end, we have done a lot of work on digital tooling, which is made available to our clients on a customised and white-labelled basis, aimed at striking the right balance between providing a comprehensive picture of the benefits and risks of the solutions, of the trade-offs related to the choices, and in a way which is intuitive, engaging and never misleading,” says Cegarra. “The reception of such type of tool has been really strong”.
Q-Hub offers specific capabilities and tools to support decumulation solutions under a module called “RetireProtect+”.
QIS and AMCs
On the QIS side, FNZ Q-Hub focuses on the support of actively managed certificates (AMCs) and actively managed indices (AMIs) with services designed to facilitate the technology and operational resources to manufacture, hedge and distribute these products.
“We already power some of the leading retail brokerage platforms in the UK which are even more operationally intensive – our proposition around AMCs is based on a lighter version of those, purpose built for AMCs,” says Cegarra, adding that the related key challenge that needs to be addressed by product providers is operational risk.
“Operational risk can be very punitive for providers if they miscalculate/mis-aggregate thousands of AMCs on their balance sheet both in terms of potential losses and in terms of capital charge. As part of our standard service, we underwrite such operational risk on behalf of our clients and provide the operational risk cover directly from the balance sheet of a robust financial institution.”
The third aspect of the Q-Hub offering is the digital interface to deliver the product to the audience, the input from the manager or advisor going into the AMC, the distributor and all the way to the end client for pre- and post-sale engagement.
“People don’t want spreadsheets or exchange of emails,” concludes Cegarra. “In the world of Uber, Deliveroo and other mobile apps, clients expect their financial interactions as automated and user friendly as the ones they have for their private life.
“We have a lot of requests from clients asking to design the digital interface between them and their distributors, and the distributors and their clients, in addition to our services around the manufacturing, rebalancing and hedging of the products themselves.”