The valuation of equity swaps may, at first sight, seem more complex than the pricing of interest rate swaps because the total return to the index is not known at the outset. However, as the equity index is a carryable asset, it is possible to develop an arbitrage-free value of the equity side of the swap in a manner analogous to the pricing a long-term futures contract.

For example, if a party were to pay the equity returns, it is effectively going short the equity market. This position could be hedged by buying the underlying index with the proceeds of a floating rate loan. The interest costs of the loan will be serviced from the LIBOR receipts under the swap. Read more »

Posted: June 8th, 2008 under Future Exchange, Future Fund, Future Investing, Future Management, Future Trading, Futures Contracts, Futures Market, Futures Quotes, Futures Trader, Managed Futures, Swap Futures.
Comments: 2

Asset swaps are different, in that they are linked to the purchase of an asset and the swapping of the cash flows of that asset. They are therefore used synthetically to engineer an asset structure rather than a liability structure.

The idea behind an asset swap is to enhance returns to the investor rather than hedging or lowering costs to a borrower. The objective is to find some underpriced fixed rate bond which is then purchased by an investor that would prefer a floating rate investment. The coupons are then swapped with a bank that has fixed rate liabilities at a lower cost. The bank thereby receives a fixed payment that is higher than the cost of its existing fixed rate debt. Read more »

Posted: June 8th, 2008 under Future Management, Futures Index, Futures Market, Futures Options, Futures Prices, Futures Spreads, Futures Trading System, Managed Futures, Swap Futures.
Comments: 2

Embarking on a marketing effort with the major European financial centers as the initial focus is, however, extremely arduous for new, particularly non-European, groups.

Given appropriate lists of contacts, one-on-one meetings can be arranged relatively straightforwardly, but their effectiveness is dependent on a series ofcriteria beyond the chemistry of the meeting itself.

Press relations, actively undertaken, will serve both to boost familiarity of a fund management group and, moreover, can prove a valuable information source to the group as well as from it.

Over the past few years, the European press has increasingly reacted positively—with certain exceptions—to the derivatives industry as a whole and to managed derivatives in particular. Read more »

Posted: March 17th, 2008 under Uncategorized.
Comments: 1

In Europe, as elsewhere in the world, institutions like when possible either to deal with specialist boutique operations or with operations the same size (or at least with the same standing in their particular industry) as themselves. Thus a middle-sized fund group with, say US$ 10m or US$ 25m under management is going to find itself with a very hard sell indeed. In these circumstances it is important, from a marketing standpoint, to quote all the capital/corporate size available. Thus if the middle-sized fund group is a subsidiary of a larger brokerage or banking operation, the capital worth of the parent should be brought into play.

If no parent company exists, attention should be focused on the specialist characteristics of the fund group and its investment programmes (words like flexibility and innovative are useful here) in an attempt to portray the fund group as a niche business. (This technique is often used by consultancy groups seeking to act for investment management groups.) Read more »

Posted: February 17th, 2008 under Future Fund.
Comments: 4

Embarking on a marketing effort with the major European financial centers as the initial focus is, however, extremely arduous for new, particularly non-European, groups.

Given appropriate lists of contacts, one-on-one meetings can be arranged relatively straightforwardly, but their effectiveness is dependent on a series ofcriteria beyond the chemistry of the meeting itself.

Press relations, actively undertaken, will serve both to boost familiarity of a fund management group and, moreover, can prove a valuable information source to the group as well as from it. Read more »

Posted: February 17th, 2008 under Future Management, Future Trading, Futures Quotes, Managed Futures.
Comments: 2

European Institutions

The preparedness of European institutions to purchase either managed derivatives funds or programmes varies across the continent and is dependent upon a series of factors some of which may be addressed by marketing.

1. The regulatory (and tax) environment;
2. general familiarity with the derivatives and managed derivatives industry;
3. familiarity with the fund management group attempting to sell product;
4. presence and format of a track record (at least for past funds if a new product is offered);
5. money under management within the fund group;
6. technical expertise within the fund group;
7. performance aspirations for the fund or investment programme;
8. quality and content of the explanatory/sales materials;
9. financial considerations such as fees implicit within the fund or programme.

Read more »

Posted: February 16th, 2008 under Foreign Exchange Futures, Future Fund, Futures Trading System, Oil Futures.
Comments: 2

Agents

One marketing consideration that generally affects fund groups attempting international retail sales is a need for agents in various countries.

Making contact with such agents has, in the past, normally been achieved by advertising (often classified) in such publications as The Economist or the International Herald Tribune supported by editorial coverage of a fund group’s ambitions in agents‘ trade magazines (of which there are a growing number).

There are three principal messages that need to be put across. The first, most obviously, is the size of the upfront sales commission and of the so-called ‘trail’ or ‘trailing commission’ (the ongoing income to an agent whose clients stay with the fund). Quite reasonably, fund companies have become uncomfortable with an exclusive focus on upfront commissions since certain groups found themselves being burnt by commission earning money coming into a fund and then, mysteriously, moving on somewhere else.

The second message is support. Agents increasingly respond well to formal training sessions — both about the managed derivatives market in general as well as about the specific product on offer. Supplementing such events, many fund groups also put together specific agents packages which include simplified written explanations of aspects of the derivatives industry and on the historical/academic arguments often used to promote derivatives funds—Portfolio Diversification^,Futures as a Separate Asset Class, Modern Portfolio Theory and so on. Read more »

Posted: February 12th, 2008 under Managed Futures.
Comments: none

Advertising

Beyond the requirement for agents (discussed below), fund groups undertaking retail sales tend to support their marketing efforts with fund advertising. Advertising regulations are both complex and highly variable between different countries but that does not mean that effective campaigns cannot be developed.

One problem to be faced here is that the most effective marketing statement— the expected performance of a new fund—is the one most difficult to get past the regulations. (Past performance is no guarantee of future results, for example.)

Fund Structure

Retail orientated managed derivatives funds may often differ from their institutional counterparts. The best example of this is in the employment of guarantees of return of capital. So-called guaranteed funds appeared in the mid-1980s and have thus far escaped the best efforts of numbers of regulators (outside the USA) to force a name change to something less overtly promotional (assured capital funds and so on).

Guarantees have their supporters and detractors but they do sell to retail investors and investors who (in most, but not all, countries) like the assurance of a guarantee when trying a new type of investment vehicle and are less swayed by comments about performance dilution than are the institutions. Furthermore, from a marketing standpoint, the presence of a guarantee or more accurately a guarantor creates the opportunity to include the name of a bank (often a major bank) as an additional sales incentive.

Marketing Materials

There is no proof of the assertion that retail investors are more swayed by brightly coloured marketing materials than are institutions. What is clear, however, is that the content of such materials should spend time introducing the concepts of derivatives and of managed derivatives at a more basic level. One worry expressed by many fund groups is the inclusion of the notorious word commodities within documentation about a diversified fund and various awkward attempts have been made at euphemism.

In fact it is probable that commodities — pictured rather than discussed— have a positive rather than negative sales impact since they are much more readily comprehensible than certain classes of financial instruments. When a retail investor understands that the natural way to invest in oil or (tax-free) gold is through derivatives he or she is often on the way to becoming the purchaser of a certain type of fund.

Joint Ventures

Creating joint venture arrangements between a fund group and a financial group capable of distributing product is one of the most efficient ways to obtain investment capital, but at a price. The key requirement in arranging joint ventures is not marketing but having a clear understanding of the financial structure of the proposed fund and the income consequences of various splits of the managed or sales fees or brokerage commissions.

Marketing can help initiate discussions, however. Here, a high profile in the press is desirable, particularly if supported by occasional conference platform speeches (see below). It may also be helpful for a member of the fund management team to be an active member of a derivatives or managed derivatives trade association—to give more strings to the marketing bow.

Posted: February 12th, 2008 under Future Fund, Future Management, Futures Spreads, Futures Trading System.
Comments: 2

In one sense, marketing cannot affect the fee structure within a fund but fees and other financial considerations are so important a consideration to the potential fund buyer that it is worth examining the marketing impact of certain fee structures before the final shape of a fund is settled.

For example, in Europe as in the USA, the trend in funds is to increase the levels of performance fees (to 20 per cent or even 25 per cent) and concomitantly reduce levels of management fees (to 4 per cent per annum or lower). Fund groups with expectations of a high volume of sales should go lower than this.

Furthermore, European institutions and more and more European retail investors are becoming increasingly suspicious of front-end sales commissions designed primarily to encourage agents. Read more »

Posted: February 11th, 2008 under Future Fund.
Comments: 3

Conventionally, funds are promoted in Europe through a prospectus, some form of explanatory memorandum or summary and, often, a sheaf of figures to substantiate the various financial claims. (Reprinted press cuttings may also be included in the pack.)

Prospectus

US and European prospectuses tend to differ not only in content (forced on the writers by different regulatory jurisdictions) but also in lay-out and style. Whereas in the USA, prospectuses are normally economically printed in one colour only, European prospectuses which are often significantly shorter may also double as sales support documents and may thus be produced more artistically to include performance graphs and other coloured charts. European prospectuses also often have separate (card) front covers. Read more »

Posted: February 11th, 2008 under Future Fund.
Comments: 3