#15 Luigi Vignola - Actively Managed Certificates

The Nalu Finance Podcast

In this episode of Nalu Finance, we sit down with Luigi Vignola, Head of Markets at Bank Julius Baer, to explore the global rise of Actively Managed Certificates (AMCs).

Luigi dives deep into the growth, mechanics, and future of AMCs, including:

• Why simplicity, time to market, and efficiency have fueled AMC adoption across regions
  

• How Julius Baer supports complex strategies and leverages through flexible structuring
  

• Why Asia is emerging as a key growth market and how automation is driving scalability
  

He also shares what sets Julius Baer apart as an AMC issuer and why due diligence on capabilities matters more than just the issuer’s name.

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🎙️ Transcript: Luigi Vignola: We all know that if the sun is shining, it's very easy to be on the planet. When it starts to rain, then that's where you can make a difference and that's something that is important to the buyer, ultimately the investor of the MC.

Stefan Wagner: Luigi Vignola was appointed Head Markets of Bank Eurospare in July 2019. Previously, he was Global Head Structure Products in charge of all trading and advisory teams in that area. Prior to relocating back to Switzerland in summer 2017, he was head markets and advisory solutions Asia based in Singapore. He joined the firm in 2009 as head tailored solutions group in the structures products division. Luigi holds a PhD in economics from University of Zurich. Thank you, Luigi, for taking the time today. Let's jump right in. What is the importance of the AMC, the Actively Managed Certificate Business at Bank Julius Bayer?

Luigi Vignola: Thank you so much for having me here. The AMC business, as we call it, is actually very important for us. It has been growing at a tremendous pace, and it's more and more finding demand also in different areas outside Europe,

Stefan Wagner: And why do you think AMCs have been so successful over the last, let's say, three to five years? The growth rates have been spectacular.

Luigi Vignola: I think success comes with simplicity and that's the beauty of these products. They're relatively simple in nature, but you can solve a big problem. I mean, if you go back to the origins of AMCs, When you had external asset managers that had different accounts that were managing, they had to rebalance those accounts with different banks. It's very cumbersome to adjust and then sometimes you can't do it because there are sizes that you trade, there are transaction sizes and different client portfolios. Now with AMCs, all of that is solved. essentially a certificate, one piece of paper in the client's books, and you do the rebalancing within the MC. It solves a big, big problem, big issue in a very efficient way, and that's why they are so successful.

Stefan Wagner: I mean, I agree. Simplicity is clearly a huge benefit for these AMCs. And I think other ones probably also speed to market and versus other opportunities that you have if you're in the huge Delta One market. I think people forget often Delta One market is very big. It's, you know, mutual fund usage, AIMs and AMCs. It's

Luigi Vignola: Absolutely, but I think that's what you mentioned, the speed. This is a critical success factor too. If you're looking to build up a fund these days, it takes you, probably if you're fast, it takes you a month, potentially much longer. You need to have a certain minimum size, which is large. If you start up with an AMC, we can do that within a week if you want. If it's not too complicated in terms of structures, if it's somebody that we've done diligence on that manages it, we can really be fast and cost efficient.

Stefan Wagner: I mean, there's sort of out there, there's two different styles. People call them different way. I also distinguish them, I call them sort of an in quotation of the fund style versus the certificate style. The fund style is the aim has to allocate any new cash or that comes in versus certificate style. It gets automatically distributed equally, the same weighting as before. Are there any certain benefits or advantages for anybody doing one or the other? Or why are certain people doing one or the other?

Luigi Vignola: I think it's a question of the strategy that you use. Sometimes you can't do the due term certificate style, because maybe it's a closed issue. If you have to bond, you can't buy it in the proper amount, probably the fund style where you get additional cash and then have to allocate and decide. We see a tendency more towards the fund style type, just because it's kind of a natural way to look at new money that comes in. I won't say redemption, but there's a sale of the certificate by some client. I think both of it really depend on the strategy. For me, we offer both.

Stefan Wagner: I mean, you mentioned right at the beginning, particular growth rates outside Switzerland, probably where originated the original AMC. Asia, is there a specific market in Asia and why has been Asia so successful in picking this product?

Luigi Vignola: When you talk about Asia, you typically talk mostly, or many talk about China ultimately, and then it's very close to Hong Kong. So we've seen growth there in that space. The reason, my view being, that we have more and more private bankers probably that form their own external asset manager shops. So a similar structure as in Switzerland. Exactly, where over here in Switzerland and Europe in general, the market is much more mature. There it's still a growing market, not just in the sense of more assets, but also in terms of more people entering that market.

Stefan Wagner: Is the Asian customer, do they require a slightly different product or leverage or underlyings?

Luigi Vignola: So we see less of an equity element, more of a fixed income element, but definitely more on the leverage side. And that's also maybe something that Julius Baer, we have been doing recently more and more, is we created kind of families so that you have a base strategy which is unleveraged. And it's a delta one, if you want, of the strategy. And then we create AMCs on AMCs, which means that you have the ability to go either on a leveraged way on that strategy, which by itself can be dynamic, meaning that the manager behind it can adjust the leverage within the certificate. And that's something that is very well received by many clients and predominantly out of the Asian market

Stefan Wagner: And do you see other markets also developing for the AMC?

Luigi Vignola: I think more and more also it spreads to the Middle East. Obviously, like I said, the markets in Europe are very saturated, very mature markets. There it's more of a question of how can you combine other instruments than just pure, say, strategies like equity strategies or fixed income strategies. How can you do a hedge and overlay? How can you introduce We also see more and more, at Julius Berg, that we have a significant business on structured products. We see more and more structured product being an element of an AMC. This is something that maybe not many competitors of ours can do, so we can structure it that way. That's where the growth is in Europe.

Stefan Wagner: I see other trends, for example some do their AMCs not as a basket but as an index, convert that one into it. Or exchange listings, in Europe a little bit there's exchange listing, in Asia pretty much zero as far as I can tell. And you see off balance sheet issues coming into the market as well.

Luigi Vignola: We have not seen, honestly we have not seen too much of an index linked products on our site. We don't list or prefer not to list because it's ultimately a question of distribution and the distribution by itself, at least in our case, is done by the asset manager, not so much our distribution. We don't distribute. As a bank, we just structure it and manage and service it, but we don't distribute it primarily. I think what can be said in terms of trend is what we just said, complexity. We see more and more instruments coming to an EMC which have not been there before, and leverage definitely like I described. These new families where we leverage on existing EMCs is something which is very well received by clients.

Stefan Wagner: Have you seen any demand for cryptocurrencies as an underlying in the AMCs?

Luigi Vignola: We have occasionally had some requests. We have put also some certificates in AMCs. That's something that we have done, but we have not seen a large, large demand, I would say, whereby somebody would have come and said, I want to manage a basket of different cryptos in that format. There were some requests occasionally, but I would say probably very limited compared to where the boss is or the news attention is for cryptos at the moment.

Stefan Wagner: And if you would sort of say, somebody would ask you, what is Julius Bayer's USP when it comes to being an AMC provider for an external asset manager who wants to issue such a product for his clients?

Luigi Vignola: I think it's definitely in terms of complexity. We probably are able to combine instruments into one MCs where not so many competitors can. Because as you can imagine, you need to be able to value those instruments, you need to be able to also do core production on those instruments, and then it's like a core production on an instrument which then itself could be subject to core production. The second thing is that thanks to a cooperation with the fintech called Vester, we have been able to come up with a tool which is highly automated. That's, as you can imagine, very cost efficient, but also allows us to remove any errors we would have done by communicating maybe via old style email or phone. I think that makes the business, again, very, very efficient and easy to access.

Stefan Wagner: Now, you mentioned earlier a little bit that when it came to distribution, why listing is not that attractive for you at this point in time. Obviously, that's because the AIM often brings the assets with them. Do you think there is room to build something on top of it that this could go more as I presume this is more high net worth individual family office that might also even go more to retail as other countries have tried to do it, not Switzerland.

Luigi Vignola: I think naturally it has a limitation because AMCs can grow to a certain size. We have a very large one, but at some point you might go for a fund structure. It has limitations on how much you can do and how much you can distribute. If you're looking to put it into a retail-like client base, you will probably go for a fund if it's large enough. If it's not large enough, yes, then you stay with an AMC. But then, by definition, you're not going into the retail space. I doubt that this will become the retail blockbuster. Just by nature, funds are better equipped to that because, as we all know, the assets are segregated. They have a fund administrator and so on.

Stefan Wagner: And what would you recommend to an external asset managers looking for an AMC issue or provider? What sort of should be their number one question on their mind be when they're trying to look for somebody? Is it credit, name?

Luigi Vignola: Obviously there's an element of name of the issuer, so that's a credit element to look at, but I would definitely do a due diligence on the capabilities of those providers. What do they do or what can they offer in terms of instruments that we want to trade? The devil's in the detail also in terms of the strategy. Where does my strategy fit the best with the issuer? There is a certain amount of rebalancing that you can do. That can be something maybe that doesn't work with your strategy, but at the same time, there is also an element of secondary flow market making that is very important. We all know that if the sun is shining, it's very easy to be on the planet. then that's where you can make a difference and that's something that is important to the buyer, ultimately the investor of the MC.

Stefan Wagner: Thank you and one question I ask everybody of my interviews is what are you up to? Three favorite finance movies and why?

Luigi Vignola: I don't watch finance movies, honestly, because I'm having a movie every day on a trading floor. So I will not do that. Privately, I'm a big Tarantino fan, so I've seen all his movies. They are also my favorite, but finance by itself. I've been off of that during my day-to-day business, which is one of the best jobs you can have.

Stefan Wagner: Thank you. Thank you for your time.

Luigi Vignola: Thank you very much.