Andrew Wolfson, the Founder and CEO of Orpheus Capital, shares his expertise on Actively Managed Certificates (AMCs), a rapidly growing investment vehicle surpassing the US$1 trillion mark and still rising. Actively Managed Certificates offer professionals great flexibility for tailoring investment strategies. The well-known and widespread fund structures are often neither accessible nor suitable due to various limitations, such as high set-up costs, poor flexibility, and regulatory restrictions. We at Orpheus Capital can attest that an alternative that overcomes these said limitations and has become popular in the last decade is Actively Managed Certificates (AMCs).
A securitisation transaction represents a limited number of tradable or non-tradable assets transferred by a transferor to the securitisation vehicle. In return, the vehicle issues the corresponding notes (certificates).
The value of the notes results solely from the underlying assets and from the payments and income received (e.g., interest, dividends, rents, charter rates), which the deposited asset owes to the vehicle.
In summary, this means that securitisation is a transaction in which a securitisation vehicle acquires risks related to specific claims or assets and finances this by issuing securities whose returns are linked to those risks.
New Product Generation Creates More Options
AMCs are in high demand and have already accumulated over US$1 trillion, attracting investors globally, especially in Europe and the Far East.
Actively managed certificates are no newcomers to the structured products market and have existed for over five years. Exchanges want to expand their horizons and share in the lucrative US$37 trillion Alternative Market.
They have followed a strong growth trajectory in recent years. The new product generation creates more options for tailoring investment strategies. Through various new platforms, financial institutions can transform virtually any investment idea into bankable securities and create fully compliant, simple, and transparent investment vehicles. Some platforms enable alternative assets to become accessible, manageable, and bankable most efficiently and economically.
Through the streamlined, fast-track process of some of these platforms, alternative assets can qualify, also for registration and be on the Bloomberg screens, and be listed on major exchanges. The securities are structured to be legally compliant and entirely negotiable. They can even be structured free from any bank issuer risk.
Times and innovators are changing banking- and the financial sectors at an increasingly rapid pace. So, it is no wonder that some of these new platforms and their modular solutions focus on turning countless opportunities into financial products.
There are several ways for an asset manager to manage a client’s bankable wealth. Typically, a client assigns a power of attorney to the asset manager, who manages the deposits at the client’s favoured Bank. This approach lets the client see all portfolio positions and movements. However, this structure is not tax efficient and usually costly and inefficient.
Moreover, specific securities have a high minimum investment amount and are unavailable to every client with a diversified portfolio. These are the reasons, among others, why many asset managers work with AMC managers who have agreements with these funds and can deliver exposure to all their investors.
Every AMC is a Tracker Certificate if the portfolio doesn’t change
An AMC can be considered as a tracker certificate which benefits from the movement of an underlying asset and replicates the value of the price movement of an underlying asset 1:1.
The underlying can be, for example, a mutual (Foreign) fund, a share, a bond, a commodity, a currency, or a combination of different underlying. A tracker has neither a cap nor protection, and its risk is identical to the underlying asset(s) it tracks when there is no issuer risk.
The beauty of a tracker is its ability to enable investments that would otherwise not be possible or economically feasible. For example, if you want to track an index, you must buy all its components individually or buy a future on that index. The latter may not be possible because no end exists, and the former may not be possible because of minimum size requirements.
- Flexibility. Tracker certificates (AMCs) offer an efficient way for investors to benefit from an already-running underlying (fund) performance.
- Secondary Market. Holders of the certificate are allowed (according to the termsheet of the product) to sell their notes via secondary markets.
Flexible and Easy-to-Set-Up Vehicles
The standard structure of an AMC or a Tracker is an issuer, an administrator who establishes the certificate and continually calculates the strategy’s performance (NAV). The asset manager (strategy manager) provides the issuer with the initial portfolio composition and any future adjustments. The asset manager may combine securities from various asset classes, from liquid to real estate, private equity, and all alternatives.
AMCs and Trackers are no newcomers to the structured products market and have followed a strong growth trajectory in the last few years. In contrast to their fund counterparts, they are set up within a few weeks with low issue costs for the asset manager and offer ongoing cost advantages due to their efficient administration. In addition, the certificates are issued with an ISIN number, making them transferable securities which may be booked at various custodians.
Asset managers benefit from a high degree of flexibility in designing their investment strategy. The tailor-made certificates could include leveraged real estate and offer regular coupon payments. They might also be hedged against FX risks.
Individualization Through Feeder Certificates
Even the needs of investors with different risk profiles and preferences can be satisfied using a single AMC. A so-called feeder certificate for each client profile is plugged into the basic AMC while keeping the entire structure cost- and time-efficient.
The asset manager and advisor implement the primary investment strategy within the AMC. A leveraged feeder certificate can be issued for risk-seeking investors who want to increase their exposure to the underlying investment portfolio. The leverage is embedded in the certificate. It is non-recourse and can either be static or dynamically adjusted to keep exposure to the underlying portfolio constant.
The structures benefit from countless tailoring options for the underlying investment strategy and will continue to be attractive for professionals and asset managers globally.
The Road Forward
Banking has changed during the past couple of years entirely, and the landscape of creating innovative financial products has changed even more rapidly. Some of these high-performing securitisation platforms replace traditional processes.
Our experience is an eye-opener and shows an even more innovative future in the making. It explains a new generation of customisable, streamlined, and cost-efficient securities creation tools. Innovators no longer need to develop from scratch. Choosing the best white-labelled platform can generate your securities professionally and at the lowest costs.
Get in touch with Orpheus Capital to structure your investment strategy today.