Dan Dobry

AMC: The Future of Managing Investment Strategies 

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. An alternative that overcomes these limitations and has become popular in Europe and the USA in the last decade is actively managed certificates (AMCs). 

The Scheme

A securitization transaction represents a limited number of tradable or non-tradable assets transferred by a transferor to the securitization vehicle.

In return, the vehicle issues the corresponding notes (in the form of shares, bearer bonds, or profit participation rights). 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 securitization is a transaction in which a securitization vehicle acquires risks related to specific claims or assets and finances this by issuing securities whose returns are linked to those risks

The New Product Generation Creates More Options for Tailoring Investment Strategies

Currently, AMCs are in high demand and have already accumulated over one Trillion USD 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 more than five years. Exchanges are looking to expand their horizons and share in the lucrative 37 trillion Dollar 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 in the most efficient and economical way.

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. Securities generated can be structured are legally compliant and entirely negotiable. These financial products 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 are modular solutions to 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 favored 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 not available 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. 

The Tracker Certificate

We recommend the use of a tracker certificate to simply benefit from the movement of an underlying asset: Thus, to replicate the change in 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 if you exclude issuer risk.

The “raison d’être” of trackers is their ability to enable investments that would otherwise not be possible or economically feasible. For example, if you want to track an index, you either have to 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.

Product benefits

Flexibility: Tracker certificates offer an efficient way for investors to benefit from the
performance of an already running underlying (fund).

Secondary Market: Holders of the certificate are allowed (according to the term
sheet of the product) to sell their note via a bank or if the certificate has been listed,
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 (advisor) provides the issuer with the initial portfolio composition and any future adjustments (the Prospectus). 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 couple of 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 might include leveraged real estate and can 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 by using a single AMC as a basis. 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. 

Simply put – 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 as our research reveals, the landscape of creating innovative financial products has changed even more rapidly. Traditional processes are replaced by some of these high-performing securitization platforms.

Our experience is an eye-opener and shows an even more innovative future in the making. It explains a new generation of customizable, streamlined, and cost-efficient securities creation tools. Innovators no longer need to develop from scratch. Using a choice of the best White Label platforms can generate securities professionally and at the lowest costs.

About the Author
Dan Dobry was the founder and a director of the GlobalNET Investment House, he was one of the founders of the Union of Financial Planners in Israel (UFPI) and served as the first Chairman and President of UFPI. Dan was the Global Council Representative for Israel for the Global Community (FPSB) from 2012 - 2018 and was a member of the Committee for Standards and Qualifications for the European Union (SQC) until December 2021.
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