Trading Tomorrow - Navigating Trends in Capital Markets

Exploring the Rise of Actively Managed Certificates (AMCs)

• Numerix • Season 4 • Episode 33

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Actively Managed Certificates (AMCs) are becoming more visible in global markets, with applications that range from traditional securities to alternative assets like real estate, collectibles, and even digital tokens. In this episode, host James Jockle speaks with Rico Blaser and Stefan Wagner of vestr A.G., to examine the structure of AMCs, what’s driving market interest, and how evolving regulation and technology—including AI—are influencing adoption and use cases.

This conversation offers a closer look at a fast-growing but often misunderstood corner of the structured products space.

James:

Welcome to Trading Tomorrow Navigating Trends in Capital Markets the podcast where we deep dive into technologies reshaping the world of capital markets. I'm your host, jim Jockle, a veteran of the finance industry with a passion for the complexities of financial technologies and market trends. In each episode, we'll explore the cutting-edge trends, tools and strategies driving today's financial landscapes and paving the way for the future. With the finance industry at a pivotal point, influenced by groundbreaking innovations, it's more crucial than ever to understand how these technological advancements interact with market dynamics. In today's episode, we explore actively managed certificates, or AMCs, a dynamic and rapidly growing market worth an estimated $2 trillion. These certificates act as investment wrappers for everything from traditional assets to more unconventional instruments like real estate collectibles and even jumping horses.

James:

Joining us today are two remarkable leaders from Vestor AG, bringing a wealth of experience in finance trading and fintech innovation, starting with Rico Blasser, chief Executive Officer of Vestor. Rico has a deep background in mathematics and trading, with nearly two decades of experience managing billions in trading volume across a wide range of financial products. His company, vestor, is a fintech leader, providing the most advanced white-labeled platform for AMCs, helping issuers, portfolio managers and investors navigate this growing market efficiently and transparently. We're also joined by Stefan Wagner, vice President of Business Development at Vestor. With over 30 years experience in the financial industry, stefan specializes in structured financial products and actively managed certificates. Since joining Vestor in 2019, he has leveraged his extensive background in AMCs and structured products to drive business growth Together. Rico and Stefan bring on parallel insights into the world of AMCs and structured financial products, and we're thrilled to have them with us today. Welcome, thank you for having us. Well, why don't we just jump in? What exactly are actively managed certificates and how do they differ from traditional investment products?

Speaker 2:

So I think let's start with the legal side of things, the difference sort of if you want to compare it versus a fund, in the sense in a fund you buy an equity and if you buy an AMC you're buying a debt instrument.

Speaker 2:

Usually it's issued out of the structure notes program at banks or off balance sheet fee, kekal, and in many jurisdictions because of that it's also treated as a structural product. But I think AMC is probably the name we will use today in our conversation. But there are so many other names used for the same instruments, for example, strategy node, dynamic equity nodes, strategic index certificates, actively managed trackers. Then when they start becoming listed, these products on exchanges, then they're called ETNs or ETPs or ETIs or, which actually reflects more, let's say, the legal definition, performant linked bonds because of debt instrumentings or direct note investments. And we also have now things like called EAMCs or electronically actively managed certificate, which is basically the tokenized version of it, or we probably will touch on that later. It's also called fractional bonds because you, via these products, you can get fractional ownership of underlyings.

James:

Basically, oh, and the AMC market is currently valued about 2 trillion. Can you explain what's driving this growth and why are AMCs becoming so popular?

Speaker 3:

Yeah, sure. So I would say there are two areas that should be discussed here. One is international growth and one is non-bankable assets. In terms of international growth, you see that the regulatory framework in multiple jurisdictions is improving and allowing these products. For example, in Italy, that is the case recently. There are also jurisdictions like France, where the financial authority have changed the regulations on how these products can be distributed to retail investors, or even, that's the case for South Africa, that they're allowed to be listed on exchange where they haven't previously been, and so, in the example of South Africa, this has led to over 60 AMCs actually being listed in the past two years, and so we really see the growth, not just in the traditional markets, but also in these new markets, and so it's quite exciting. Another example would be Latin America, where we see a lot of stuff happening in this area. Then, when we talk about non-bankable assets this area Then when we talk about non-bankable assets, people are looking for non-correlated returns, and one of the problems with ETFs is that, especially if they're broad-based, is that they're very correlated to traditional markets, whereas AMCs are extremely flexible in terms of the underlyings that you can put into these instruments, and so you can get exposure that you couldn't get with traditional ETFs.

Speaker 3:

An example of this is certainly cryptos. I usually bring this example that in the States, people try to create funds crypto funds and it took them several years to get them launched and to get them approved, whereas in AMCs you could trade, for example, bitcoin already quite a few years ago. And maybe the last point about this growth is basically the cost structure. To start a fund, you need, I would say, at least about $30 million in assets probably more actually, because you have so many costs associated with it like to start it up and running costs whereas an AMC can already be profitably launched with as little as a million in assets, and so that's quite a big difference.

James:

The concept of uncorrelated returns is quite fascinating. I'm going to come back to that in a minute. But you mentioned that amcs can be used from everything from traditional stocks and bonds to crypto. Even non-traditional assets like collectibles can. Can you share um some examples of some of the more innovative uh amc strategies we've seen?

Speaker 2:

yeah, I mean, I mean rico really mentioned it is on on the on. They call it the non-bankable asset. So we have, like we manage on our platforms that are used by our clients, for example, a portfolio of jumping horses. The trainer buys them young, trains them for approximately 18 months and then sells them, hopefully with a profit, and through the product you have access to the performance of that one. We have things like a Ferrari 250 GTO. Probably current price range is 50 million plus 50 guys got together and bought each 1 million of it of that product of the AMC, and each have a 50th share of the Ferrari 250 GTO.

Speaker 2:

That's sort of on the non-bankable asset. And suddenly, because it's a security, it's transferable, has an ISIN, it can be booked, it sits in your account. So that because it's a security, it's transferable, has an ice in, it can be booked, it sits in your account. So that makes it very attractive. That's probably sort of more the call it the exotic ones, but then let's say sort of more on the actively trading side. We also see more and more the use of artificial intelligence to pick actually the stocks or bonds that are being traded, and that sort of is quite interesting as well, and there's a lot of innovation happening there as well. Trying to get something like this, where regulation in other places, where regulation really has decided how not to, they have not really decided how to deal with AI, is difficult. You find then coming back and using the AMC vehicle to do that.

James:

For issuers and portfolio managers. What would you say?

Speaker 3:

the key advantages of using AMCs are yeah, I think a big advantage is time to market. Whereas it takes several months to actually launch a fund, you can literally start an AMC intraday or exchange listed the very next day, which is a very big speed up, and so that makes this instrument viable for tactical trading ideas and really gets you out there to the market. Another benefit is flexibility. We touched on the different underlyings, but there are also different forms in which you can manage the AMC. You could put in fractional shares, you could trade intraday, and so on. You have technology platforms at your disposal that you typically don't have with funds. And then the last one is just costs and fees. I mentioned that it's much quicker to set up, and this is primarily because you're leveraging the infrastructure of the issuer, and so you can really benefit from their trading infrastructure and from their setup, and so a lot of the things are done for you that you don't have to take care of yourself, and so, consequently, the costs are significantly lower.

James:

So you know, clearly I'm sure there's no research on the correlation between jumping horses and oil in emerging markets at this point in time, but you know it sparks questions as it relates to adoption Right? So when I look at structured notes here in the United States, you know education has been, has been, a barrier to growth, been a barrier to growth, especially in terms of retail investors, even for financial advisors, as it related to suitability or transparency among the underlyings, things of that nature, obviously, secondary markets, liquidity, has all been an issue. Some of that, obviously, is mitigated by the fact that some jurisdictions are on exchange. But you know what would you say. You know what is influencing the adoption of AMCs and how is this evolving.

Speaker 2:

There's definitely historically let's go back 10, I mean, I think the longest running AMC that we have on the platform is 14 years old. So you know the product has been around for quite a while, but historically it was purely distributed via private placement but more and more it's now becoming still a very small portion but it's more and more going also into being listed on exchanges and with this way even possible to go into public distribution and that way it's even closing the gap to ETFs. And if you actually look at some ETFs, the way they are structured, they're actually using an ETN structure, which makes them actually very close back to an AMC, only that basically the assets are segregated and that can be done in an AMC as well. So more investors are getting access to it. But you're absolutely right, education is very important. There's still a big gap with certain clients.

Speaker 2:

But the interesting thing because we have the statistics on our platform once an external asset manager has used an AMC, the form of an AMC they basically become repeat offenders. On average I think it's between three to five of them they manage. It's not a one-off thing they're using, so it's often they're using it more and more and they're telling other people in a sense, and because it allows for innovation. People often start with a great idea of doing it in a certain form and then realize there's actually the easiest one for them to do is actually AMC and come back. So we find a lot of innovation that way, and because it can be connected to other things, like Rico mentioned it crypto trading, different underlyings, but also other technologies like index calculation or analysis of things. It's very easy to plug that and people more and more use it, but it is definitely still much, much smaller than any other vehicle that is out there, but it's nicely growing on innovation and really allows it to be used.

James:

And one would argue right now that market conditions are conducive for, for taking on risk um kind of across the board. I mean, what kind of trends are you observing in terms of the issuance um and, ultimately, the management of of amcs?

Speaker 2:

I mean, I would say we definitely. Historically, there was always these non-bankable assets being securitized. I think probably, if you go really far back it, you would have found it probably with credit card loans and everything else that were securitized purely that's out of which the wallet came, and then it became more actively managed and then, obviously, stocks and bonds came back in. But it is so incredible broad what can be done with it that we, every day we find something new. What people thought about how to use it to solve a problem for them, it's. It's the trend is more that more and more adoption happens across markets and clients. But in which directness is going is very difficult to say because there's so many people exploring different avenues.

James:

And in terms of the trends, I'm sticking with that. Uncorrelated returns Are you seeing issuance impacted by rate environments, FX environments, equities? I'm just curious if there's a couple of catalysts.

Speaker 2:

There was definitely something that happened when interest rates went up, that people more started going into credit and bonds as underlyings because there was, you know, suddenly some yield to be achieved. Um, I would say that has gone a little bit back again. Crypto continued, obviously, with bitcoin now so high again, that is coming back as well, but it's become pretty much standard that that is possible in amc. Nobody's surprised about that. I was, was already there and I would say that it's. It's more also that other underlying so underlines.

Speaker 2:

For example, let's say you could see bankruptcy claims come in. That's clearly an uncorrelated thing. Or structural products are being used excellent inside as an investment for it. So it's, it's. It is not really a specific trend. I could tell you clearly between equity and bonds, it shifts around where, where the interest rate environment is and volatility drives a little bit of structural products are being used or not as a defensive mechanism. But it's the same way as a fund management site would look at it, or portfolio management in private bank or family office. But it's much broader and allows you much more flexibility in the vehicle if you use the AMC than versus. Let's, for example, use its fund.

James:

And what typical size range are the amcs on your platform?

Speaker 3:

so when I started out in this business, the sizes were still above 10 million on average, I would say, and now they have um do in part um to the availability of technology have decreased significantly. I would say, on our platform now the average size is about 4 million, but we have products as small as they're actually under a million, like 500,000 or so, but then we also have really large products that exceed 2 billion. So it's quite a range, but on average the ticket sizes have come down with automation.

James:

And how does Vestor's platform enhance the management and oversight of AMCs for both issuers and portfolio managers?

Speaker 3:

Yeah, I mean we have quite an extensive platform and so there's a lot of areas that we touch here, I mean.

Speaker 3:

So maybe I should briefly explain how our platform works.

Speaker 3:

So we're basically we're a white label technology platform for issuers of these products, for issuers of these products, and then these issuers then make that platform available to institutional portfolio managers or asset managers and they can then launch their AMCs or, in general, active investment products, with these issuers, and so one of the things we do is automate the interaction between the asset manager and the issuer.

Speaker 3:

Another thing we do is we standardize these rebalancing instructions of investment rules, constraints, but also the reporting to the end investor by allowing these institutions to create very customized reports, and so we actually speed up that process considerably. I remember back in the days when I was a trader of these products, days when I was a trader of these products, asset managers would come to us and we would have billions in these things in spreadsheets and we would create reports manually and do the rebalancing manually and all that kind of stuff. And this is now all automated, you know, all automated, and we offer this to quite a number of large and small issuers on and off balance sheet, and so asset managers and also the traders can access the platform from anywhere and manage their product.

Speaker 3:

So that's, in a nutshell, our offering.

James:

There are a lot of details involved. I'm happy to answer any questions. Yeah, I guess one of the questions and this is probably especially to our American audience illuminating, as we don't see these products here, but what would you say the key risks associated are with AMCs and how can issuers and investors mitigate the risk. How do they do that on your platform? You know one thing I could assume like a global hay shortage is going to hurt the horses. You know other than that, where do you see the risks?

Speaker 2:

I mean the number one risk that everybody needs to look at when they invest in AMC is the credit risk that is associated with the issuer. Like structured notes, you know you take the credit risk of the issuer and that's why usually investors not only invest in structured notes or amcs of one issue alone. They go across multiple issues to diversify their credit exposure. And that's why it still makes sense for even new players to come into that market because they offer this additional source of credit risk while, as we know, the overall market is more going the other way, consolidating.

Speaker 2:

You know, take switzerland you suddenly order two issue big issues. You only have one available anymore to invest with, and that's one. The first thing. The second thing you can go with issuers who collateralize the underlying assets to make sure you reduce the credit risk or you put credit overlays with it. And there's many vehicles like off-balance, where the assets are segregated in bankruptcy, remote compartments or, depending on the jurisdiction. For example, in Luxembourg there's something like called the fiduciary note program it's the same thing possible and it then becomes very much look like an ETN, like nearly an ETF, in some jurisdictions even get treated like an ETF on the trading platforms.

James:

Interesting. So well, unfortunately, you know, we've made it to the final question of the podcast. We call it the trend drop. It's like a desert island question. So if you could watch only or track only one trend in this market, what would it be?

Speaker 3:

I think at the current time it's undoubtedly AI. That's no surprise to you and I know you had entire podcasts on this topic. The impact of AI, you know, cannot be overstated, and both for automation of processes and there we already use it in some areas Also translation of certain areas of the term sheet or things like that. It really has a big impact already. But then also further down the line and people are already experimenting with this, for the actual investment decisions. And this is a very interesting topic for me personally, because I was working as a prop trader for a number of years for a large US bank and I also did my PhD in machine learning actually. So we watched this very carefully because we think it's not just hype, it's real and it will have an impact, and we try to very deliberately take advantage of the advancements in this space.

James:

Well, gentlemen, I want to thank you so much for your time today. I really appreciate your insights and opening up a new market to me as well as all of our listeners. Thank you so much, thank you, thank you very much, thank you. Thanks so much for listening to today's episode, and if you're enjoying Trading Tomorrow, navigating trends in capital markets, be sure to like, subscribe and share, and we'll see you next time. You.