When Nomura raided well-established rival Merrill Lynch's equity derivatives team two years ago to start its own business from scratch, it was the talk of the City. And the gamble has now paid off. Since then, the Japanese bank has been combining derivatives-based techniques with asset management skills, tapping one of the most lucrative retail opportunities in Europe: manufacturing undertakings for collective investments in transferable securities (Ucits) III-compliant funds.
In addition to its marketing platform, Altrus, Nomura has established three fund platforms. Its Ucits III fund platform, Enovara, is domiciled in Ireland and is used principally to distribute Ucits-compliant structured funds on a public, pan-European basis.
One of the Ucits III products launched in March this year is the Global Emerging Markets (GEM) 80% Protected Portfolio Fund, an open-ended fund of funds product that provides exposure to a portfolio of emerging market funds. It provides a minimum of 80% capital protection and a continuous lock-in of 80% of the fund's highest net asset value (NAV). The fund is registered for sale in the UK, Germany, Spain and Italy. What's more, Nomura has tapped the Scandinavian market by bringing the product to market in Sweden, Finland and Norway.
The underlying funds and the structure of the product quickly attracted the attention of private banks and other distributors. Banca Cesare Ponti, part of the Banca Carige Group, which covers private banking activities in Italy, is a key distributor of Nomura's structured funds.
The fund is also distributed by Hansard, an international fund distributor. According to Owen Donnelly, Hansard's Isle of Man-based head of investment proposition and client strategies, Nomura has introduced an underlying that was previously rare in other fund products.
But emerging market funds are not the only innovative underlying that Nomura has pioneered. In order to meet demand for exposure to the Japanese real estate market, Nomura has developed a benchmark index. There are 18 constituents in the customised index - the top six J-Reits are taken from the Tokyo Stock Exchange Reit Index and the top 12 Japanese real estate equities are taken from the TP Real Index.
As a result, Nomura launched a fund linked to this index in March. The Japan Real Estate Index-linked Fund comprises two elements: J-Real Estates Investment Trusts (Reits) and Japanese real estates equities. The 100% capital-protected fund is a bespoke product developed for a distributor based in the UK. Garry Topp, director, equity derivatives sales at Nomura in London, says the index can be used as an underlying for a variety of structured products.
To ensure the open-ended Ucit-III compliant funds can offer capital protection equal to 80% of the highest ever NAV without exposing investors to foreign exchange risk in the level of the funds' protection, Nomura successfully lobbied the regulators to change their initial interpretation of the rules. And now Nomura's Ucit-III compliant funds can provide protected returns in multiple currencies on underlyings ranging from emerging markets, property and commodities futures.
In order to offer tax-efficient structured funds and to provide products through private placements, Nomura has set up two other fund platforms: Architus, which is a non-Ucits platform established as a Sicav in Luxembourg, and an offshore trust platform domiciled in the Cayman Islands. These platforms are used to deliver different types of structured funds, including absolute return funds and hedge funds.
Structured funds are now the bank's staple offerings. Last year, Nomura announced that it had executed more than $500 million of structured transactions across Altrus, says Michael Fullalove, managing director, co-head of equity derivatives at Nomura in London.
WHY NOMURA WON
Distributors who bought Nomura's structured funds are most impressed by the bank's ability to offer innovative and unusual underlyings such as property and emerging market funds of funds in a Ucits III-compliant structure. The fact that Nomura has supported distributors from the initial development process through to the official retail launch is highly commendable.
The week in Risk.net, May 19-25 2017Receive this by email