#35 Rico Blaser - How are current trends in active management shaping the future of AMCs, and what should we consider when evaluating their potential?

The Nalu Finance Podcast

In this episode of Nalu Finance, we sit down with Rico Blaser, CEO of vestr A.G., to explore the evolving world of actively managed investment products.

Rico dives deep into the future of Actively Managed Certificates (AMCs), including:

• How his journey from competitive swimmer to Wall Street led to founding vestr A.G.

• Why AMCs are gaining traction and how vestr is transforming their operational efficiency

• Key risk management strategies for AMCs, from diversification to collateral protection

• How technology and quantitative thinking are reshaping the line between investing, speculating, and betting
  

He also challenges traditional investment beliefs, leaving listeners to rethink how they define risk, control, and value in modern markets.

🎧 Listen Now On: Apple Podcasts | Spotify | Youtube | Podomatic

🎙️ Transcript:

Stefan Wagner (00:00:43) - Good morning. I'm here with Rico Blaser, CEO of Vestr, a Swiss fintech. Good morning Rico, and thank you for coming on.

Rico Blaser (00:00:51) - Good morning Stefan. Many thanks for having me on your podcast. Much appreciated.

Stefan Wagner (00:00:55) - Now it's been a long time coming.

Rico Blaser (00:00:57) - I'm very excited.

Stefan Wagner (00:00:58) - To have you on finally. So let's start just with you a little bit. What motivated you to establish Vestr? And you know what drives you? Um, a little bit. Maybe you can tell us a little bit something about yourself, you know, that maybe maybe some people don't know.

Rico Blaser (00:01:15) - Yeah, sure. So I grew up in, in Switzerland, but in the early 1990s I moved to California, and I graduated from university in the middle of the dotcom boom. After a couple more years, I returned to Europe and and I moved to London. And there I worked for a very large US investment bank, both on the buy and the sell side in various positions. It was a very rewarding time and I spent a lot of it researching and implementing quantitative trading strategies. Later on in the same company, I also traded exotic derivatives at the same bank, um, before finally returning to Switzerland and only while working for a Swiss bank, I really discovered the potential for actively managed certificates and related products. These were somewhat less prevalent in the Anglo-Saxon realm at the time. We did have a few in London, but, um, mostly very complex structures that were managed basically completely manually by by individual traders. And so it became clear to me that this was actually a big market, nobody properly addressed.

Rico Blaser (00:02:33) - So on the trading side, we were using spreadsheets to keep track of everything. And we're talking about billions in assets. So it was successful as a business, but certainly not without operational challenges. And it wasn't unusual for us to have corrections or to to do manual adjustments after the fact because something didn't go smoothly. And so that's when we realized, um, and when I say we, I mean myself and my co-founders that that this was happening at every bank. And we decided that it was time to leave and to start a technology company.

Stefan Wagner (00:03:13) - And so who are now your clients and how do you help them? Or maybe have a case that the typical case that you can highlight?

Rico Blaser (00:03:22) - Yeah, we work with quite a range of customers. Some belong to the largest banks in the world. And then at the same time we have some regional banks, but also small and medium sized providers of special purpose vehicles and even some crypto banks. So it's it's quite a range. And and it's it's really interesting because many of them face similar challenges.

Rico Blaser (00:03:47) - The two areas where we can definitely help is, is for them to have a modern, intuitive interface between the asset manager and the issuer or provider, and including the ability for the asset manager to create very customized reports that are done in their own corporate identity. So that's that's one area. And then the other area is the infrastructure to actually manage the operational aspects of active investment products. So this is about these corporate actions rebalancing and so on. So these are really the two key areas where I mean we can help.

Stefan Wagner (00:04:23) - On an active investment strategy. You have hundreds and thousands of data points over its lifetime that you need to keep track of. And they all built on top of each other. You don't want to get that wrong.

Speaker 5 (00:04:34) - Yeah.

Rico Blaser (00:04:34) - That's right. I would say actively managed investments differ greatly from traditional static, um, structured products in that you have a really large universe of underlying that changes over time. And so you have a lot to deal with, a lot of events as you, as you call them.

Rico Blaser (00:04:56) - And it's not easy. And so certainly managing them in a spreadsheet is, is a dead end.

Stefan Wagner (00:05:03) - And risky and could be very costly at one point. Um, now, I mean, you mentioned the product. We're going to go into exactly what an actively managed certificate is a little bit later in the conversation, but obviously active management, um, there's a lot of, you know, discussions always does it make sense. Can it outperform or not outperform. And then also what is actually the difference between investing and betting. And I always like to ask people, you know, a bit of a philosophical question. But in in your opinion what distinguishes investing from speculating or and betting?

Rico Blaser (00:05:40) - It's a good question. I mean. This may sound somewhat provocative, but I would actually say there is no difference. Um, so in both cases, you first attempt to understand the range of possible outcomes and, and estimate their probabilities. And then if the probability weighted outcome is positive, that is if you're essentially dealing with a positive expectation, but then you place a carefully sized wager.

Rico Blaser (00:06:07) - And and of course, if the bet has a negative expectation, you don't play at all. And so from that perspective, the two are very similar actually.

Stefan Wagner (00:06:17) - Is there a sort of a common myth about your industry, the investment industry that you want to debunk?

Rico Blaser (00:06:25) - Well, I yeah, this is kind of related because if consistently beating the market is is difficult, I think most people would say it's easy or many people would say it's easy. But from a quantitative point of view, this is just complete nonsense. I've spent enough time rigorously researching market inefficiencies to know that it's actually really, really hard. Um, it's doable. And I know organizations that have done this, but it requires an outsized effort. Most claims simply don't hold up when you remove the unintended factor exposures or gap risks and the like. And I would actually claim that the biggest inefficiencies today are probably in areas that are best exploited by by investors that have long lockup periods and don't get held accountable to the daily or even monthly PNL swings.

Rico Blaser (00:07:20) - So, for example, you know, family offices or endowments, in theory, even pension funds, but they just have too many restrictions. And I read this once and it made a lot of sense to me. And this is kind of a corollary to to what I said, which is that organizations that spend their budgets on marketing will perform worse than organization that spent their resources on market research.

Stefan Wagner (00:07:47) - That's a good.

Stefan Wagner (00:07:47) - One. If you're an investment company, you mean, right?

Stefan Wagner (00:07:50) - Yeah.

Stefan Wagner (00:07:51) - I mean, we talked about it already. You mentioned it actively managed certificates. Let's let's explain a little bit maybe to the listeners.

Rico Blaser (00:07:59) - To just AMCs. Yeah. So so basically, you know, if you have an investment expertise and you would like to make that expertise available to others for a fee, then the best way is to actually manage a portfolio and then place that portfolio into some kind of a legal wrapper that others can then buy. So there are different kinds of wrappers around active portfolios now actively managed certificates.

Rico Blaser (00:08:27) - That's the question you ask there. They're structured products. And of course, one of the bread and butter businesses of many banks is to issue and deal in structured products. And so the idea was that if you already issue structured products on a daily basis, then why not issue a product that lets an internal or external asset manager decide what goes into it? In effect, the asset manager leverages the bank's infrastructure. This is a win win situation for both parties, and that's what AMCs are really all about.

Stefan Wagner (00:09:01) - Are there different styles of AMCs out there? I mean, I heard one style versus certificate style and how do they distinguish themselves?

Rico Blaser (00:09:12) - That's a good question for certificate style AMCs. Inflows get automatically allocated in proportion to the current allocation.

Stefan Wagner (00:09:22) - So it's comparable to like an index.

Rico Blaser (00:09:24) - Yeah exactly. So you can really think of it as an index. You invest into it and your investment doesn't change the index. It just increases the size of of the index tracker, if you will. And if you contrast that with what is called fund style, they're what asset managers from traditional fund management backgrounds typically prefer they are.

Rico Blaser (00:09:45) - The inflows into these instruments appear in the form of cash that the investment manager then later, at a later time, allocate at her discretion. I think overall fund style is a little bit more flexible and you don't carry any market risk as an issuer. So I think there are definitely some advantages. So I would say unless you you focus on the specific, um, indexing advantages, like having a third party calculation agent, then I think probably fund style makes more sense.

Stefan Wagner (00:10:20) - Hmm.

Stefan Wagner (00:10:20) - You just spoke about risks. What risks do actually investors take when investing in AMC, and what steps can be taken to mitigate such risks?

Rico Blaser (00:10:29) - So investors primarily carry the market risk, but also the counterparty risk, the counterparty risk to the issuer. And I was in New York at the time when the people at Lehman Brothers walked out of the building with their boxes, and I was in the building right next door, observing this.

Stefan Wagner (00:10:48) - Same here I was looking down to the onto the Lehman office in London. Yeah. And so.

Rico Blaser (00:10:52) - You know, what can happen. And so so the counterparty risk should not be ignored. Right now. The market risk can be addressed by diversification and by including hedging elements into the portfolio such as index puts or others. The counterparty risk is a little bit more tricky. You can also partially address it by diversification. If you have multiple AMCs, you can issue them with different issuers, right? But in addition, there are some collateral schemes like TCM Cozy in Switzerland that can eliminate the risk for a fee. Now, this is, of course, particularly interesting when working with issuers with lower credit ratings, so you won't see a lot of these, um, at a Triple-A rated issuer, for example. But it's good to have that instrument available.

Stefan Wagner (00:11:42) - When you keep that in mind. But what questions should actually an external asset manager or invest manager who wants to use one of these issues when he does his due diligence on the AMC issue? What questions should they ask or look at?

Rico Blaser (00:11:55) - I think I would definitely start with the with the credit rating.

Rico Blaser (00:11:58) - I think that's an important one. But then I would also look at at the issuance history to see what types of products that issuer has actually released in the past and is most likely to handle adequately. Right. Um, I would also make sure that the investment universe matches my needs, and one opinion that I have is that I think they should have a platform that I can access to, monitor and manage my products. Not only is this more convenient over the lifecycle of the product, but it's also an indication on the degree of automation the issuer has achieved, and this is positive for both pricing as well as a reduction in in operational risks. And maybe I'm talking my own book here, but I have definitely observed a correlation between people who have a platform and and the management of their of their risks.

Stefan Wagner (00:12:51) - I think there's another important question for the external asset managers a little bit. They're not only managing their own money, they were usually managing money for other people. You know, they need reporting for their client.

Stefan Wagner (00:13:02) - What kind of reporting and updates, sort of should investors expect from issuers, you know, during the life of such a product?

Speaker 5 (00:13:11) - Yeah, that.

Rico Blaser (00:13:12) - That varies quite widely between between different issuers. So ambassador, we take this topic very seriously and we heavily promote transparency and so on our platform. Asset managers can monitor their portfolios in real time, from anywhere and at any time, and, and can create highly customized reports in their own corporate colors and corporate identity at any time. And this is in sharp contrast to to issuers who do not have a technology platform, because they're often only provide you with with monthly or pre canned reports and those you cannot turn around easily and and pass them on to your customers.

Stefan Wagner (00:13:53) - Thank you for really good information here for the listeners. If people want to learn a bit more about actively managed certificates and. Or how Vestr can help with that product. Where can they find something like this?

Rico Blaser (00:14:06) - We have quite a few resources on our webpage by now. It's kind of building up over time.

Rico Blaser (00:14:11) - We have a bunch of articles. We have podcasts like this one and also white papers now, and there's quite a bit of interest in these, and they explain very well how active management works, how our platform works and so on. So also feel free to to get in touch with us if you have any further questions.

Stefan Wagner (00:14:33) - So that's that's dot com.

Rico Blaser (00:14:35) - Yes. Correct. And you can also reach out directly to me via LinkedIn as well okay.

Stefan Wagner (00:14:41) - Very insightful. I have two last questions left for you. They're probably more personal. Always try to get this. Is there something that you can tell us about yourself that probably most people don't know?

Rico Blaser (00:14:53) - Most people probably don't know that I used to be a competitive swimmer, so in my first junior Nationals, I placed second in the 100 freestyle. And then while I was in in high school in the Midwest, in the US, I actually broke six school records. And then later in university, I swam for an NCAA team in California that was coached by a well-known Olympic coach.

Rico Blaser (00:15:19) - In total, I won more than 100 medals and I competed internationally, though I never attended the Olympics. But I think the sport did teach me a lot about persistence and what it takes to achieve the goals you have set for yourself. It wasn't unusual for me to get up before 5 a.m. most mornings, or to swim 15 miles. It's about 20 to 25km in a single day. Um, looking back, that was quite an achievement. I think today I would struggle even to run that far, but. But certainly the lessons have stayed with me.

Stefan Wagner (00:15:54) - Remind me never to enter into a swimming race with you.

Rico Blaser (00:15:57) - Some people have done so unsuccessfully. Um, I've had quite a few bets because I don't look like a swimmer anymore, but the technique is still there.

Stefan Wagner (00:16:07) - So unfortunately.

Stefan Wagner (00:16:08) - This revenue source is now gone.

Rico Blaser (00:16:10) - With this podcast.

Stefan Wagner (00:16:12) - Yes. And my last question is what's your favorite music or album right now? What's the last song you enjoyed that you could recommend to the listeners?

Rico Blaser (00:16:20) - I really enjoy listening to music and I am quite broadly interested in different styles, so it's difficult to narrow it down.

Rico Blaser (00:16:29) - But if you haven't listen to the Koln concert by Keith Jarrett, then I would definitely recommend that you would.

Stefan Wagner (00:16:38) - I can only second that. Um, thank you very much, Rico. It's an absolute pleasure to have you on.

Rico Blaser (00:16:44) - Thank you very much, Stefan. Much appreciated.

Stefan Wagner (00:16:47) - Thank you.