Derivatives powerhouses UBS Warburg and Deutsche Bank are setting up desks in Europe to structure derivatives wrapped as mutual funds. "[These products] are one of the most rapidly growing...within the asset management business and is therefore a new market that derivatives firms are now looking to tap," said Johan Groothaert, global head of structured products sales and origination at Deutsche Bank in London. Deutsche Bank plans to work on the products with DWS Investments, its asset management sister company with EUR115 billion (USD124.07 billion) in total mutual funds under management.
Europe's approximately USD4 trillion mutual fund industry dwarfs the USD40-50 billion structured products market. "Although these products will not be attractive to every mutual fund investor, the market still offers huge potential," explained Henrik de Koning, executive director at UBS Warburg in London.
The plans were sparked by a European Union regulation that will make derivatives available more widely to mutual fund investors. The new regulation, know as UCITS III (Undertaking for Collective Investment In Transferable Securities), will be implemented across Europe by February (DW, 3/24).
UBS will work with its asset management arm, which has USD403 billion under management, to develop products and use the firm for distribution. Groothaert said Deutsche Bank has put in place a six-person team, including three former DWS staffers, to work on the funds. UBS has not determined whether it will staff the group internally or externally. Both firms also plan to structure funds for third-party asset managers.
Morgan Stanley started offering these products to U.K. retail investors in November and plans to expand its desk to cover all of Europe, according to Hugh Fraser, spokesman in London.
Société Générale is considered by several bankers to have been the first firm to set up a dedicated desk, via its Lyxor Asset Management, subsidiary. Alain Dubois, Lyxor board member and head of development in Paris, said Lyxor has been active in the structured fund market since 1998.
De Koning joined UBS earlier this month, from BNP Paribas, to spearhead the effort. At BNP, he reported to Christian Kwek, head of London equity derivatives and head of derivatives marketing to European institutions in London. Kwek said BNP has been in this business for several years, but is continuing to strengthen this effort by developing more products for jurisdictions outside of its core Francophone markets. De Koning will be replaced.