PRESENTATION SUMMARY Link to Event website Comparing structured products in Europe and Asia European and Asian investors have markedly difgerent product preferences, due to shifuing wealth patuerns, product limitatjons and cultural traits, explained David Schmid of Leonteq Securitjes at Hubbis’ Structured Products Forum 2015 in Singapore. Structured product usage in Asia has panding at 15% per annum. Asia’s great potentjal due to its relatjvely min - overall wealth AUM is expected to grow iscule usage and the rapid expansion of to surpass Western Europe in 2016, wealth in the region, but this growth according to a McKinsey study. requires more automatjon and tailoring of products, David Schmid, chief ex - “What is quite remarkable is growth in ecutjve for Asia at Leonteq Securitjes, the number of millionaires in Asia over said at Hubbis’ Structured Products the last fjve years,” said Schmid. Forum 2015 in Singapore in early June. “In 2009 there were 3 million million - Schmid ofgered a summary of the key aires, but now there are 4.4 million difgerences between the usage of struc - millionaires. That is a 45% growth rate “In 2009 there were 3 million millionaires, but now there DAVID SCHMID Leonteq Securitjes are 4.4 million millionaires. That is a 45% growth rate over fjve years.” Link to Presentatjon Video tured products in Asia and Europe. The over fjve years. Asia is probably the Link to Speaker Biography key underlying statjstjc was the growth biggest opportunity for structured prod - of overall wealth in Asia, which is ex - ucts in terms of growth.” 1 INVESTMENTS
Structured products account for only Perhaps most surprising is the diversi - “Asia is difgerent; only 30% [of products 4% to 5% of overall wealth investments, fjcatjon of structured products by un - are] in the securitjsed format, and about so they have plenty of growth potentjal derlying type. 50% are in deposits, with an OTC in the region. format. A lot of investors in Asia like to In total, 75% of the products sold in buy accumulators, which you come RISING VOLUMES Europe are equity-linked. In contrast, across in an OTC format, whether in FX European investors have been placing around 40% of outstanding products in or in equitjes.” less money into structured products, Asia are equity-linked, and a further partjcularly in Italy and the UK. 50% are FX-linked. Investors in Europe also take a longer, more investment-themed approach to structured products. The investment horizon of the products in the contjnent is typically two to three years, as opposed to Asia, where is it only around “In my view there is a lack of pre-trade and market six months. analytjcs. People need to understand risks and de-compose risk of underlying products and transparency.” The far broader product range in Europe also comes with many more pay-ofg structures too; there are around 400 in Europe, versus just a few in Asia, with the likes of accruals, accumulators and Even so, around USD800 billion is out - “Other asset classes like credit and com - equity-linked notes representjng 75% standing through 3 million products, moditjes are almost non-existent,” of the market. Schmid said the breadth many of which are listed retail distribu - Schmid observed. of payout structures in Asia will grow tjon products. with greater product transparency. PRODUCT TYPES Asia ex-Japan, meanwhile, has seen its The most popular product types also “In my view there is a lack of pre- structured product volumes steadily pointed to some marked difgerences trade and market analytics. People grow from USD700 billion to close to between Europe and Asia, and in par - need to understand risks and de- USD800 billion today. tjcular the preference for more listed compose risk of underlying products products in the former. and transparency. However, the range of products is far smaller in this region, with only around 50,000 products outstanding – mostly because there are very few listed prod - “People do not look at structured products as a black box ucts outside of warrants in Asia, while that they buy and hold untjl maturity but are startjng to retail distributjon has fallen away since the global fjnancial crisis. look at them in terms of the performance they can lock in while they have the product.” Schmid revealed that investors in the latuer tend to be very regionally focused on their preferred investments. “Asian investors tend to invest into Schmid said that almost 50% of product “Increasing regulatjon since the global Asian markets, but also we have seen issues in Europe are in a note format, fjnancial crisis has reduced the number recent rallies in Hong Kong. And inves - such as securitjsatjons with certjfjcates. of products, and rightly so, but there tors are investjng more into Europe too, The OTC market only accounts for 9% are stjll worries about the potentjal for as it is doing betuer.” of the entjre market. mis-selling, with people cautjous afuer 2 INVESTMENTS
the experience of [Lehman Brothers] EUROPEAN STRUCTURED PRODUCTS AUM minibonds in 2008.” 1,000,000 Outstanding products 3,000,000 BESPOKE SOLUTIONS 900,000 A key to ensure growth is for individu - 2,500,000 800,000 Outstanding sales volumes (USDm) als to betuer understand the risks as - 700,000 2,000,000 600,000 sociated with structured products, and 500,000 1,500,000 have the liquidity to trade in and out of 400,000 them. This is beginning to happen. 1,000,000 300,000 200,000 500,000 100,000 “People do not look at structured prod - 0 0 ucts as a black box that they buy and Year End 2011 Year End 2012 Year End 2013 Year End 2014 Year End 2015 hold untjl maturity but are startjng to Outstanding sales volumes (USDm) Outstanding proudcts look at them in terms of the perfor - mance they can lock in while they have Source: StructuredRetailProducts.com the product instead of holding it untjl maturity,” said Schmid. ASIA PACIFIC STRUCTURED PRODUCTS AUM Leonteq is trying to meet this need. Its 800,000 technology platgorm allows investment Outstanding products 50,000 45,000 advisers to pick individual stocks or 700,000 Outstanding sales volumes (USDm) 40,000 baskets of shares, and structure them 600,000 35,000 with specifjc derivatjves to meet the 500,000 30,000 preferences of the investor. Schmid 400,000 25,000 believes such automated solutjons will 300,000 15,000 help create the ease of use that will 200,000 10,000 encourage more investments into struc - 100,000 5,000 tured products into the future. It will 0 0 Year End 2011 Year End 2012 Year End 2013 Year End 2014 Year End 2015 also help the market keep up with the Outstanding sales volumes (USDm) Outstanding proudcts rising trend of more, smaller transac - tjons taking place. Source: StructuredRetailProducts.com “It’s important to have increasing rounds of automatjon to reduce the workload, JAPAN STRUCTURED PRODUCTS AUM and narrow processes need to be au - tomated,” he said. “There are a lot of 3,000 Outstanding products ongoing platgorm developments that 500,000 450,000 will let us focus on bespoke solutjons. 2,500 Outstanding sales volumes (USDm) 400,000 2,000 350,000 “Once we can do the majority of fmow 300,000 1,500 on platgorm solutjons it will free up 250,000 200,000 some tjme to create bespoke solutjons 1,000 150,000 based on risk-return appetjtes. 100,000 500 50,000 0 0 “This will, afuer all, generate betuer prod - Year End 2011 Year End 2012 Year End 2013 Year End 2014 Year End 2015 ucts, more performance for clients, Outstanding sales volumes (USDm) Outstanding proudcts happier clients, and ultjmately more revenue for the distributor.” Source: StructuredRetailProducts.com 3 INVESTMENTS
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