Markets Fund Solutions │RMB Performance Linked...
Transcript of Markets Fund Solutions │RMB Performance Linked...
Strictly Private and Confidential
BCI Roadshow
Global Markets Fund Solutions │RMB Performance Linked Investment
6 September 2016
Paul Mendes RMB Global Markets Fund Solutions
Equity Structurer
Sonja Kriel Ashburton Investor Services
Business Development Manager
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RMB — a division of FirstRand Bank Ltd.
Retail & commercial
banking
Corporate & investment
banking
Instalment
finance
Investment
management
FirstRand Bank Limited FirstRand Investment
Management
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RMB Alternative Investment Solutions
RMB non-traditional investment solutions include a combination of the following:
Alternative
assets
Capital
guarantees
Efficient
structure
Access to
funds
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RMB Performance Linked Investment (RMB PLI)
• Financial instrument issued by FirstRand Bank (trading as Rand Merchant Bank)
• Accessed via the Ashburton Investor Services Platform (AIS)
• Bank Note (wrapper) – OTC investment
• RMB PLI returns linked to RMB Products
(e.g. RMB Bespoke Note, SP90, SP100, PF80, ELN)
• RMB PLI can reference multiple RMB Products
− Allows for multiple strategies under one investment
• Redemptions
− RMB Product dependant (linked to liquidity of reference assets)
− Partial or Full
− IT3c tax certificate upon full/partial from the RMB PLI
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Efficient
structure
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RMB PLI Investment Products – RMB Bespoke Note (RMB BN)
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RMB BN reference assets
• SA listed equity (local classification on JSE), ETF’s, ETN’s
• SA CISs
• SA Hedge Funds (segregated portfolios, RIHF & QIHF)
• On balance sheet RMB Solutions:
IFA House/Strategic solution
External Asset Management ability
Access to
funds
Capital
guarantees
Efficient
structure
Alternative
assets
RMB BN Attributes
• On balance sheet Note
• Allows investor a choice of 3 strategies:
Tracking (pass through)
Gearing (leveraged exposure)
Guarantees (3-5 year term, variable %, max 100%)
• Efficient dynamic allocation
• CAT II or CAT IIA
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RMB Bespoke Note (RMB BN)
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Access to
funds
Capital
guarantees
Efficient
structure
Alternative
assets
RMB BN Product Summary
• CPPI risk management methodology (Constant Proportion Portfolio Insurance)
• Methodology allows for dynamic risk management of multi asset class, and multi asset portfolios
• Provides an alternative hedging technique to traditional optionality (Vol trading)
• Mathematical approach that allows for dynamic asset allocation
• All reference assets are allocated a risk adjusted Asset Quality weighting (AQ)
• Explicit capital guarantee
Variable percentage, maximum 100%, dependant on AQ of portfolio
Guarantee is term dependant (can be broken at MtM)
Degree of risky asset exposure is a function of the guarantee requirement and term
• Dynamic Gearing
Maximum 1x leverage (i.e. R100 Notional + R100 Gearing = R200 Exposure), dependant on AQ of portfolio
100% exposure to reference asset from inception
Dynamically adjustable (e.g. can increase with increase in NAV)
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How does a Geared RMB BN work with CPPI?
Dynamic Gearing Constant Proportion Portfolio Insurance (max 1x gearing, dependant on AQ)
What happens if equity market rises by 10%?
Bullish
markets
Term Initial
capital Scenario NAV
Cash
balance Exposure
Gap
risk Gearing Comment
Start of month 1 R100 R100 -R100 R200 50% 1x
End of month 1 Equity rises 10% R120 -R100 R220 55% 083x Less than 1x geared
Option to buy R20 worth of risky assets to get back up to 1x gearing
Start of month 2 R120 -R120 R240 50% 1x
Bearish
markets
Term Initial
capital Scenario NAV
Cash
balance Exposure
Gap
risk Gearing Comment
Start of month 1 R100 R100 -R100 R200 50% 1x
End of month 1 Equity falls 10% R80 -R100 R180 44% 1.25x More than 1x geared
Obligation to sell R20 worth of risky assets to get back down to 1x gearing
Start of month 2 R80 -R80 R160 50% 1x
What happens if equity market falls by 10%?
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How does a Capital Guarantee RMB BN work with CPPI?
Capital Guarantee Constant Proportion Portfolio Insurance (CPPI)
• A formulaic asset allocation strategy with two aims:
Maximising exposure to an asset
Ensuring a minimum guaranteed value at maturity
• Dynamically balances portfolio investment between risky
asset and safe asset
Risky asset (Top40 Index, Hedge Fund, CIS, Listed
RSA Equity)
Risk-free asset (cash investment /zero coupon bond)
• Dynamic protection methodology that adjusts investment
in response to market conditions
If the risky asset performs well, more is invested in it
and less in the risk-free asset
Objective is to maintain a safety net to ensure a
minimum guaranteed value, and invest as much as
possible in risky asset to maximise upside
Full
exposure
Reducin
g e
xposure
Incre
asin
g e
xposure
Time
Value
Principal
Repayment
NAV of
RMB Note
Present
Value (PV)
Maturity
Distance Initial
Investment/
Guaranteed
investment
“Distance” is the benchmark for
re-balancing and determines trading
level
Risk-free asset (Cash)
Risky asset
Reference level (changes due to
changes in interest rates)
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Gap Risk
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Benefits of the CPPI structure
Advantages Constraints
• Protection strategy via explicit capital guarantees
• Flexibility to reset guarantee at a higher capital value
• Dynamic allocation strategy
• Cost effective guarantee
• Potential for 200% exposure to the Funds (Gearing).
Non- recourse gearing
• Low cost loan facility (RMB Liquidity Enhancer)
• “Knock-out” event
If the performance is extremely poor and the investor is
moved entirely into risk-free assets, the investor will not
participate in an “upswing” (if there is one) of the
performance of the risky asset
• Path-dependent payoff profile
• Poor performance in very volatile sideways trending markets
performance of reference assets
If the reference asset does not follow a clear trend, the
trading leads to diminished returns through market timing
differences which may lead the investor to effectively “buy
high and sell low”
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RMB Liquidity Enhancer
Issue Details
Term Same term as the investment product (minimum of 1-year)
Loan value 85% of Present Value of guarantee
Loan size Minimum of R 100 000 via Ashburton platform
Interest rate Prime-linked
Cash flows • One cash flow per month (not a transactional account)
• Full application amount paid out
Turnaround time Approximately 5 working days
Benefit Best of both worlds i.e. explicit guarantee plus liquidity and no redemption i.e. maintain exposure to
growth assets
Access to
funds
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For more information please visit
www.rmb.co.za/investments
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This presentation has been prepared by FirstRand Bank Limited, acting through Rand Merchant Bank (“RMB”).
The information contained in this presentation is confidential and intended solely for the use of the intended recipient. This presentation may contain information
proprietary to RMB and accordingly may not be reproduced, acted upon or disseminated in whole or in part without RMB’s prior written consent. By attending this
presentation, the intended recipient undertakes to keep the information contained in the presentation confidential and not to do any act or allow same to be done on
his behalf which is in breach of the above mentioned prohibition.
This presentation contains information which has not been independently verified by RMB. RMB and its directors, officers, employees and agents make no
representation and give no warranty with respect to, and assume no responsibility for:
the correctness, accuracy and completeness or otherwise of the information contained in this presentation; or
the correctness or otherwise of the conclusions based on such information.
Any liability of whatsoever nature and howsoever arising on the part of RMB, their directors, officers, employees and agents relating to the contents of this
presentation is hereby expressly disclaimed.
This presentation is intended for discussion purposes only and does not represent a commitment, proposal, recommendation, advice, offer open for acceptance or
agreement to enter into a transaction. Any transaction is subject to the agreement of final terms to be set out in a separate written agreement. You are required to
seek your own legal, tax and financial advice before entering into any transaction. The decision to enter into any transaction and to assume the risks associated
with the transaction rests solely with the intended recipient.
June 2014
Disclaimer
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