#4 Anna Pinedo - Mayer Brown

The Vestr Securitization Podcast

Are you ready to navigate the U.S. landscape for active strategies?

In this episode, we delve into the complex yet opportunity-rich intersection between European structured products and U.S. investment regulations with Anna Pinedo, Partner at Mayer Brown and Head of the firm’s Global Capital Markets Group.

Anna explains how U.S. investors access AMC-like strategies through separately managed accounts, actively managed ETFs, and structured notes, and why the American regulatory framework surrounding indices, discretion, and tax treatment differs significantly from Europe’s.

We also explore how proprietary indices, QIS strategies, and securitisation vehicles (SPVs and repacks) are used to bridge active management across borders, as well as what European managers must know before entering the U.S. market.

You will also hear insights on:

• How U.S. investors replicate AMC-style strategies using SMAs and ETFs

• Why index discretion matters for both regulation and tax compliance

• How to package active strategies into notes or repacks for institutional buyers

• The difference between registered and private offerings (144A, 4(a)(2))

• What European managers should know before launching in the U.S.

This episode offers practical takeaways for asset managers, issuers, and product developers navigating cross-border investment structuring and regulation.

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🎙️ Transcript:  

Stefan Wagner: 00:23 Hello and welcome. In this series, we explore the cutting edge of investment innovation. I sit down with leading asset managers who use securitization vehicles to execute their unique investment strategy.

Anna Pinedo: 00:36 We do that by selling a product that was created for the European market solely to institutional investors in the US, which is a large part of the buyer market.

Stefan Wagner: 01:24 Hello, everybody. I'm here today with Anna Pinedo, partner at Mayor Brown, where she runs the Global Capital Markets Group. I'm here today to find out a bit more and learn about products and solutions available to investors in the US for investing in active strategy. What is considered active versus passive strategy, the sort of the regular landscape around, plus how and what is possible across borders between the United States and the European Union. Thank you, Anna, for joining me today.

Anna Pinedo: 01:54 Thank you very much for inviting me.

Stefan Wagner: 01:56 So in Switzerland, where a lot of our listeners these days are, we have sort of a wrapper called the AMC, the Actively Managed Certificate, which is often now in many of the European countries regulated as a structured product. Is there something that is sort of equivalent in the US and what wrapper options sort of exist to maybe deliver an AMC-like strategy to US investors?

Anna Pinedo: 02:22 So there's enormous interest in and an appetite for something like an AMC in the United States. And structured products clients and derivatives clients have a lot of interest, in particular from Latin American clients for AMCs, as well as from insurance and pension fund clients. for actively managed strategies. Unfortunately, at present in the United States, there are not very many easily comparable products. We can replicate actively managed strategies like AMCs in a few different ways at present. So one way to do this would be in a separately managed account. So separately managed accounts, SMAs, are one way to do this.

And SMAs have become increasingly popular in the US. As the name suggests, it's an account. So it is not a certificated product, it is not a security, it is actually not offered and sold generally to retail investors, unlike AMCs maybe in Europe, but it is one option. Another option that is kind of AMC-like would be an actively managed ETF, so an actively managed exchange traded fund.

And more and more, there are ETFs that are using derivatives or derivative-like strategies to replicate the types of returns that one would see in structured products. So those are two different types of examples or methodologies. And of course, we have many clients that are offering AMCs through the United States, but to non-U.S. persons who reside in Latin America or who reside in the Caribbean or otherwise are non-U.S. persons simply because of the popularity of the product and the structure.

Stefan Wagner: 04:56 No, we have definitely seen this also on our platform at Vesto that many, many Latin American clients are coming and making use of the AMC. Maybe one step a little bit back is sort of also what is actually considered active versus passive and dynamic. And sometimes some of these indices that I see around start looking very active-like. Where does sort of the regulator make the distinction?

Anna Pinedo: 05:26 So that also is not entirely clear cut in the United States. So unlike the EU, where you have a body of regulation, the EU benchmark regulation that regulates indices, we don't have a body of regulation for indices themselves. And there's somewhat less clarity relating to indices, and there's less clarity relating to the regulation of index providers, data providers, and such. We don't have that. So we look at a couple of different things. So within the securities laws and within the commodities laws, there are various definitions of what constitutes a narrow-based index and what constitutes a broad-based index.

So those are two important guideposts. And then we look at whether an index within it has discretion. And we look at whether an index has discretion for a couple of different reasons from a regulatory perspective. So we look at whether an index has discretion as a securities matter to determine if by furnishing the index, charging for the index, the index provider or the broker dealer that is selling a product is providing investment advice by virtue of offering the index. And then we look at whether the index is discretionary for, for purposes of our tax rules.

So if an index is deemed to be discretionary, then that raises potential tax concerns. There is what. Many tax folks refer to as the basket notice, and that identifies transactions that may be reportable transactions or transactions that may be transactions of interest to our tax authorities to the IRS. because they put discretion in the hands of the taxpayer. So in terms of whether understanding or figuring out if something is discretionary, we look at whether the index rules can be reduced to writing, whether the index rules are replicable by a third party, whether there are any determinations that need to be made by a third party.

So for example, there is always going to be some measure of discretion, even in broad based indices, but it's acceptable to have market disruption events and other standard events for example, for corporate actions that involve some modest element of discretion. However, things that are beyond that would be deemed discretionary.

Stefan Wagner: 08:34 So if I think about it, I mean, the brought back indices, S&P or the FTSE, they have still an index committee because sometimes there's things that the rule book couldn't handle or some corporate action that coming in. But then I saw more and more the investments, all the developing sort of the QIS strategies and publishing index. They're very, very rule-based, very complex rule index books, but they are clearly rule-based and you can re-follow. But what happens then if suddenly somebody uses an AI to make the decisions what the index composition should be? If I make my index agent, for example, public so people can replicate it, would that help me to still keep it as an index that doesn't potentially have tax issues?

Anna Pinedo: 09:25 So it's not whether the index is public or not that is the determinant, but rather whether it could be replicated, whether, for example, the index administrator could be substituted by a third party and a third party could come in and perform the same function. and produce the same result in terms of calculating the index and making the determinations that are necessary to provide all of the inputs or the determinants that go into the index.

Stefan Wagner: 10:05 I see. Okay. You mentioned earlier the SMAs. Does the same thing also happen for them with the index side?

Anna Pinedo: 10:14 So with an SMA, so that's a managed account, right? That's a completely different animal in the sense that there is active management with an actively managed ETF exchange traded fund that is on investment companies. So it is regulated under the body of law under our framework that applies to investment companies. So it is de facto a managed product subject to the entire body of regulation that applies to managed products.

Stefan Wagner: 10:57 Okay. And if you would want to deliver, let's say, an index outcome inside a node or repacket if a client wants a security-like documentation, how would one go about that one?

Anna Pinedo: 11:11 So if you want to deliver on index return, we do that all of the time. We do that by linking a note to a proprietary index or to a third party index, provided that, again, the index is non-discretionary. So that we've made a determination, and when I say we, the index provider and the issuer of the note have collectively determined together with council that the index that we are referencing does not involve discretion.

So that the transaction does not result in a reportable transaction for tax purposes. Meaning that we can identify all of the index rules and reduce these to writing to the extent that there is any discretion. It's discretion that is understood to be within what is commercially acceptable. So is the standard market disruption events and the like.

Stefan Wagner: 12:30 Now, who can the product sort of in a sense being sold to public versus private and particularly it feels to me the lines between public and private offerings have been more and more blurred in the US. Rec FD and cleansing and other things. Could you maybe make some comments on that?

Anna Pinedo: 12:52 Sure. I mean, we have a very robust market in the United States for SEC registered structured products. It's a very large market. It has been growing every year for the last 10 or more years and continues to be on pace to grow.

Stefan Wagner: 13:17 Is that the one mainly in annuities these days?

Anna Pinedo: 13:20 No, that's registered structured notes, not annuities. So those are SEC registered notes that are issued by financial institutions largely. So bank holding companies and their affiliates that issue structured notes pursuant to a registration statement that's filed. with the Securities and Exchange Commission. And many of those notes are linked to well-known indices, some are linked to proprietary indices. In addition, Many of those same issuers will also offer notes that are linked to proprietary indices, some QIS based, that they offer on an exempt basis, so not subject to SEC registration, and they may offer those solely to institutional investors in reliance on 144A, so offering those to QIBS, Qualified Institutional Buyers, Like, um, hedge funds, pension funds, insurance companies, or some domestic banks or foreign banks that offer notes in the United States may offer pursuant to the three, a two exemption in the United States and offer likewise through private wealth channels in the U S.

Also, as you said, there is a thriving FIA market, right, the fixed index annuity market. And many banks are licensing their proprietary indices, including their QIS indices to annuity providers, the likes of Athene and others. And they are creating, uh, annuity products that reference these prop indices and, and offering and selling these to retail investors. So that is yet another Avenue where we see banks and index sponsors monetizing their, their indices.

Stefan Wagner: 15:36 I mean, we have seen that clearly in our platform that many of these securitization, these node vehicles are used sometimes to deliver QoS. And when I actually asked them why they're packaging node is often because it took so long. We didn't manage to put the ISTA in place with our client, but they wanted exposure to the strategy.

So instead of doing it with a swap and agreeing on a credit annex, they just packaged into node and sold it to institutional investors to give them that access. You touched earlier on this, that actively managed ETFs now also putting, let's say, derivatives-like strategies into payouts versus, let's say, historically when they were done in structured notes or maybe even annuities. I mean, some of these payouts maybe are quite complex in a sense.

So what do you think is the best way to explain this or most effective way to communicate these payouts? I always say the joke a little bit on one side, it says high income ETF, that explains everything. And then the other side, if you want to sell a structured product, note, it would say dual worst of auto callable index with a snowball feature, which means nothing to somebody who has never worked in that industry.

Anna Pinedo: 16:56 Well, we go to great lengths actually to create documents that are retail friendly in the U.S. I think that with our free writing prospectuses, our term sheets, our documents that include illustrations and that include hypotheticals and examples, of how a note would perform under various scenarios, it actually goes a long way in terms of helping a potential purchaser understand how their investment in the note would perform if they chose to participate in the investment.

So setting aside the name of the product, If they actually dig in and look at the first two, three pages and look at the diagrams and look at the various examples for the scenarios, I think that it provides a really good opportunity for them to learn. and pretty much every issuer has a very plain English explanation of who the note is a good investment for, who it is not bad for, and so on.

Stefan Wagner: 18:27 I noticed that definitely between the difference, let's say, between US and Europe. In US, where the market has been growing significantly in AMs, while in Europe, it probably has been more stagnant. One of the stark difference I found is that the distributors spent way more energy in educating the investor with the tools and trainings than what I see in Europe, which I think is great. Coming a little bit back to the US securitization landscape, where is this Euclidus as in most hospitable for packaging actively strategies? You mentioned the ones, is SMA the simplest one or what do I do for, is there a way for me to do it in a securitization format?

Anna Pinedo: 19:13 So, yeah, I mean, we would not call that a securitization. So, repacks are certainly on approach.

Stefan Wagner: 19:25 So, repack… You mean SPVs with that off-balance sheet?

Anna Pinedo: 19:29 Yeah. SPVs, special purpose entities, special purpose vehicles are on approach. that many financial institutions are examining and considering. So that is definitely something that is currently under consideration.

Stefan Wagner: 19:47 Many of the listeners we have are in Europe. Is there a way of selling, let's say, a single product in the European Union and the United States? Can this be done?

Anna Pinedo: 20:00 Oh, of course. Yeah. Um, so we do that all of the time in terms of selling a product that was created for the European market, but selling it into the United States on a private placement basis. So selling it into the United States solely to institutional investors in the U S so on a one 44 a basis into the U S. or on a one 44, a basis and a four, a two basis into the U S. So that could be to qualified institutional buyers, quibs, and potentially to institutional accredited investors in the U S which is a large part of the buyer market.

Stefan Wagner: 20:45 I see. Any advice to a European manager entering the US for the first time with his or her active strategy? How to approach it?

Anna Pinedo: 20:56 I would just caution that it is a complex regulatory environment in that it is perhaps more fragmented as a regulatory landscape than the European Union.

Stefan Wagner: 21:16 What I take from it, basically they should give you a call first before they venture into this. So maybe I can also ask you a few, I always like to ask everybody at the end, a few little personal questions about themselves. And the first one is a little bit, so what drives you, or maybe you want to tell us a little bit something about yourself that most people actually don't know.

Anna Pinedo: 21:38 Well, I speak a lot and write a lot, so I think most people know quite a bit about me. Probably the part of doing all this that I enjoy most is helping clients come up with new products and kind of figuring out new solutions.

Stefan Wagner: 21:56 The other question I have is for you is, if you're willing to share it, what is on the top of your current music playlist?

Anna Pinedo: 22:04 Oh my gosh, it depends on my mood. Sometimes that's Aretha Franklin and Tina Turner. Sometimes that's New Order. Sometimes that's Teddy Swims. Sometimes if I feel I have to get back to my Cuban roots, that's Celia Cruz. So, you know, it's very eclectic. It's kind of whatever I feel is going to get me in the mood.

Stefan Wagner: 22:35 Excellent. Thank you. Thank you very much, Anna, for taking the time. Last question. If anybody wants to get in touch with you, what's the best way to contact you?

Anna Pinedo: 22:44 Email.

Stefan Wagner: 22:45 Got it. Thank you very much.

Anna Pinedo: 22:47 Great to talk to you.

Sponsor: 22:50 The Vestr Securitization Podcast with Stefan Wagner. Unlocking investment innovation. Vestr's end-to-end platform enables securitization providers and investment managers to streamline the lifecycle of dynamic investment solutions, ensuring better results for their clients and their operations.

Disclaimer: 23:12 The information in this presentation is for informational purposes only and does not constitute an offer, solicitation or recommendation to buy or sell any financial products. It is not intended as investment, legal, tax or accounting advice. Always seek the advice of your financial advisor or other qualified professional regarding your investments.