SECURITIES LIMITED
Kiev Q1 2011
Version 1.1
1
Agenda
•
ARMAJARO SECURITIES subsidiary of Armajaro Holdings
•
Defining structured products
•
Changes to the landscape
•
The evolution process
•
Trends in structured products
•
Strategies to benefit from current climate
•
Products
•
Armajaro … Final Details
2
Overview of the Armajaro Group
Overview
The Group
Locations
Armajaro
Securities
Limited
Structured Products
Global Bond Trading
Cash Equity
Futures & Options
• Armajaro has over 1,000 people working for its various Group and subsidiary companies
around the world. Armajaro has operations in Europe, North America, West Africa and Asia.
• Armajaro Asset Management LLP is an alternative asset management partnership that
specialises in the management of commodity hedge funds and other alternatives assets.
• Armajaro Trading Ltd is a leading supplier of cocoa and coffee beans to the worlds’ major
chocolate manufacturers and coffee roasters.
• Founded in 1998, Armajaro Securities Ltd provides financial instruments to a broad range of
UK, European and Asian institutional clients and “family” offices.
• In addition Armajaro has investments in cocoa processing, wine production, wine
distribution and a number of start-up businesses.
• For more information please go to : www.armajaro.com
Contacts
Settlements
3
Corporate Structure
Overview
Locations
Armajaro
Securities
Limited
Structured Products
Global Bond Trading
Cash Equity
Futures & Options
Contacts
Settlements
4
Armajaro Locations
Overview
Locations
Armajaro
Securities
Limited
Structured Products
Global Bond Trading
Cash Equity
Futures & Options
Contacts
Settlements
Africa
Asia / Pacific
Europe & Middle East
North & South America
Cote d’Ivoire
Indonesia
England
USA
Ghana
Malaysia
Germany (Petra Armajaro)
Brazil
Nigeria
Singapore
France (Petra Armajaro)
South Africa
Vietnam
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Armajaro Asset Management
Overview
Locations
Armajaro
Securities
Limited
Structured Products
Armajaro Asset Management LLP (AAM) specialises in the management of Hedge Funds. AAM has
in excess of US$2bn of assets under management in hedge fund products and currently operates the
following specialist Funds:
• Armajaro Commodity Fund (ACF) invests across the main commodity sector (also on the Lyxor
platform of funds)
• CC+ Fund specialises in soft commodities, mainly Cocoa & Coffee
• Armajaro Emerging Markets Fund Invests in Emerging equity, derivative & fixed income with a
macro focus
Global Bond Trading
Cash Equity
Futures & Options
Contacts
Settlements
• Armajaro STS Commodities Fund trades systematically in both Long & short exchange traded
commodity futures
• Armajaro Natural Resources Fund just launched in March 2011
• BNP Paribas Armajaro Agricultural Index (ARAGER) strategy uniquely combines Armajaro’s
discretionary management with the benefits of BNP’s systematic Quantitative risk modelling
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Armajaro Securities Limited
Overview
Locations
SECURITIES LIMITED
Founded in 1998, Armajaro Securities Limited (ASL) provides bespoke financial services to a broad range of
UK, European and Asian institutional clients and family offices.
Armajaro
Securities
Limited
ASL preserves the independence of its advice by not taking positions as a principal in any underlying
security.
Armajaro Securities Limited is authorized and regulated in the UK by the Financial Services Authority
Structured Products
Global Bond Trading
Cash Equity
Our Philosophy…
•Reliability - Permanent market coverage, a partner you can rely on.
•Anonymity – Each interest is dealt with particular discretion, that’s our priority.
Futures & Options
•Market experience and knowledge - Understand your expectations is our force.
•Technology - Latest and accurate trading tools, in constant improvement in order to provide efficient,
intelligent execution.
Contacts
Settlements
7
Structured Products
Overview
Locations
Armajaro
Securities
Limited
Structured Products
Global Bond Trading
Cash Equity
Our Devoted Structured Products
Structured Note Product Range
Armajaro Securities Limited creates tailor-made Structured Notes using a combination of derivative and cash instruments, enabling its clients
to gain exposure to equity, foreign exchange, commodity and fixed income markets, with various degrees of capital risk. Armajaro
Securities has established trading relationships with derivative market makers and note issuers in the City of London and across Europe,
enabling us to offer our clients an extensive and innovative range of Structured Notes.
Secondary Markets
Armajaro Securities provides significant added value on secondary market pricing and portfolio restructuring. By applying our own
valuation models to secondary issues held in clients' portfolios, we have often been able to identify additional value when compared to the
valuation provided by the original bank issuer. This immediately unlocks potential value in the clients' investments at minimal cost in
terms of time and effort on behalf of the client.
Advice
Armajaro Securities is an independent securities business that does not take market positions, ensuring its independence. Our Structured
Notes professionals, each with considerable experience, assess clients’ needs in terms of strategy, capital at risk and investment portfolio
allocation.
Futures & Options
Contacts
Settlements
8
Structured Products
Overview
Locations
Armajaro
Securities
Limited
Structured Products
Global Bond Trading
Our Devoted Structured Products
Price
Our independence combined with a systematic process of price discovery and analysis enables us to provide our clients with pricing that
successfully competes with the largest international banks.
Service
In both the primary and secondary markets, we support clients with a reliable and prompt service through a dedicated contact. In
particular, our service extends across the entire life cycle of a product. In the primary market, our breadth of market knowledge and access
can save investors time and money. In the secondary market Armajaro Securities aims to provide continuous liquidity, bid/offer spreads and
prices based on fair values.
Settlement
All trade settlements are effected by SG Hambros, a 100% owned subsidiary of Société Générale, (AA1 rated), which also acts as principal
to each trade.
Cash Equity
Futures & Options
Contacts
Settlements
9
Defining structured products
•
An investment that bundles up a portfolio of securities and other derivatives to create a single product.
(Source: The ABC of Equity Derivatives and Structured Products)
•
Created to meet specific needs that cannot be met from standard financial instruments available in the markets
•
Can be used as an alternative to a direct investment, as part of the asset allocation process to reduce risk exposure of a portfolio,
or to utilize the current market trend
•
A structured product appeals to the investor who has a view on the market and a good idea of their risk/reward appetite
•
More cost efficient for retail investors
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Traditional structured products
•
Capital Protected equity structures
— Up to 100% protection on a wide range of listed shares
•
Capital Protected Commodities structures
•
Capital Protected Income structures
•
Capital protected managed investments
— CPPI – allocating between asset and bond, usually over manage funds
— Bond + call option – fixed allocation, usually over an index, existing products have been assisted by the fall in interest rates but
new ones are difficult
•
Structured products have been evolving to suit market environment…..why?
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Changes to the landscape
•
Market volatility at record high levels across most asset classes
— Cost of protection has increased due to higher risks
— Some CPPI strategies have cashlocked
— Increased demand for lower volatility underlyings e.g. Index-based ETFs
•
Counterparty risk to the fore
— Bear Stearns/ Lehman collapses
— Bank/Issuer funding rates increased
— Need for diversification
•
Interest Rates turned sharply down
— High break costs on fixed rate loans
— Increases cost of Bonds and Bond Floor rises
— Investors seeking returns above cash
— Inflation catching up
•
Competitive landscape
— Large losses in some trading books => risk appetite diminished
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Higher Volatility => Higher cost of Protection
13
Source: Bloomberg 15/03/2011
… World Equity Index
Source: Bloomberg 15/03/2011
14
Traditional Managed Fund investments
•
•
•
•
Psychology of investors often gets in the way of rational investment decisions – reluctance to take profits
Time poor investors – no time to “manage” their exposures
Many years of accumulated gains can disappear quickly in a year such as 2008
Dynamic ERI: measures market sentiment, investor risk appetite, and equity positioning
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Source: Bloomberg & UBS Q12011
The “Simplicity” and “Optimisation” phases
•
Back to basics
— What am I investing in? How will my investment
perform? Can I exit early?
•
Low risk appetite
— Seeking to preserve capital
— Reduced demand for leverage strategies
— Looking to take advantage of lower prices
— Focus on counterparty risk
•
Income is a high priority
— Certainty of returns
— Strategies may deliver a minimum fixed return or a
regular income stream
— Low interest rate environment makes it difficult to
achieve income objectives
End of
Cycle
Start of
Cycle
More Complex
Simplicity &
Structures
Transparency
Increased
Yield
Leverage
Enhancement
Access to
Diversified
markets
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Trends in structured products
•
Shift towards capital preservation
•
Investment terms of traditional capital protected products
becoming longer
•
Underlying investment exposures
— Equity indices, ETFs
— Less thematic and alternative investment exposures
•
Mechanisms changing
— Shift away from traditional CPPT techniques
— Option on CPPT
— Lower levels of capital protection
•
Demand for leverage is decreasing
— No capital gains to offset
— Reduced risk appetite
Source: Barclays Equity & Structured Market Survey Jan 2011
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How do we adapt?
•
Employ more conservative gearing strategies
— Lower LVR’s and internal leverage
— Protected lending
•
Accept upside caps on performance
— Lower risk, lower potential return
•
Invest in less volatile underlyings
— Index vs. direct investment
— Choose funds which target lower volatility, and construct lower volatilityportfolios
— Risk overlays
•
Consider strategies designed to benefit from current conditions
— Take advantage of high volatility
— Sell option volatility
— Optimisation strategies, vol target strategies, reverse convertibles— Sell volatility
•
Consider payoffs which are suited to your client objectives
— Minimum and fixed return structures
— Limited protection
— Performance caps to improve participation/protection
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Each Class has its own Risk versus Return Profile
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Example: Optimisation strategy
•
High fixed income, paid regardless of underlying
share performance
•
Basket of 3-4 underlying shares
•
Investment term of say 6 months perhaps up to 2
years
•
Limited capital protection provided shares remain
above a certain level (e.g. 60% of initial price)
•
Investors forgo dividends and upside growth above
the fixed return
•
If barrier is breached (e.g. 60%) worst performing
share delivered at Maturity, plus income
•
If barrier is not breached (e.g. > 60%) capital
protection at Maturity, plus income
Potential Payoff – Capped Upside
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Summarised results on optimised strategy
•
Optimisation strategies can compliment traditional portfolios
•
Some downside protection to traditional investment portfolios
•
Diversification of strategies within the same asset class
•
Helps to meet investor objectives
— Capital preservation
— Minimum return or income stream
•
Tax efficiencies
— Potential for returns on capital account at maturity
•
May outperform other investments in sideways, slightly positive and slightly bearish markets
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USD 6 year Armajaro Commodity Fund (ACF) SUNRISE Note
Armajaro Commodity Fund (Societe Generale Lyxor
Platform)
...full capital protection
Tenor
6 years
Investor seeks:
Payoff
100% participation in the upside performance of the
Armajaro Commodity Fund, without a cap or averaging,
by giving up the best monthly performance of the
shares, within each yearly period.
Full principal protection at maturity
Underlyings
Soft Protection
100% Capital Protected
If held to maturity.
Commodity exposure via one of the
world’s top performing Commodity
Hedge Fund
Investor can accept:
Currency
USD
6 year investment term
Minimum Subscription
USD 1,000,000
Potential for losses of principal
invested if note is sold prior to maturity
Secondary Market
Issuer ensures a secondary market daily during the life
of the product with a maximum bid-offer spread of
1.0%, under normal market conditions.
Issuer
The Issuer’s senior debt as at 01/01/2011 is rated
Aa3/A+ S&P
Credit risk of the Issuer and Guarantor
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Armajaro Commodities Fund
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EUR 2 year Incremental Autocall 13%p.a. Russian Equity Index Note
Underlyings
(Bloomberg)
Basket of Russian shares
o
ROSNEFT (ROSN LI)
o
MMC NORILSK NICKEL (MNOD LI)
o
SBERBANK (SBER RU)
o
MAGNIT (MGNT LI)
o
MOBILE TELESYSTEMS (MBT UN)
o
URALKALI (URKA LI)
Early redemption mechanism... If on
anniversary date, the level of the
basket is over its initial level, the
invested capital is fully reimbursed &
increased by a coupon of 6.50%
multiplied by the number of semesters
Tenor
2 years
...with conditional capital protection
Payoff
Semi-annual. The product is cancelled if at the
end of any 6 month period the basket has
a positive performance compared to date
0.
In this case, the product pays 6.50%*the
number of the relevant semester.
Soft Protection
70% European Barrier so if on maturity the underlying
index closes below the barrier the investor is
exposed 1:1 on the downside
After 2 years, if the level of the basket
has not declined by over 30% from its
initial level, the capital is entirely
reimbursed. If the contrary applies, the
capital will be lessened by the
(negative) performance of the basket.
Currency
EUR
Minimum Subscription
1,000,000 EUR
Investor seeks:
Soft principal protection at maturity
Russian Equity exposure
Investor can accept:
Secondary Market
Issuer
Issuer ensures a secondary market daily during the life
of the product with a maximum bid-offer spread of
1.0%, under normal market conditions.
The Issuer’s senior debt as at 01/01/2011 is rated
Aa3/A+ S&P
Two year investment term
Potential for losses of principal
invested if note is sold prior to maturity
or if on maturity the underlying is
below a 70% European barrier 24
Credit risk of the Issuer and Guarantor
Soft Principal Protected Note On Brazilian Equity Index - Euros
Underlyings
iSHARES-BRAZIL in EUR
Tenor
1 years
Payoff
Early Redemption (Every 3 months): If on any Observation
Date, the underlying closes at or above 100% of its initial
spot price, You are early redeemed and receive a coupon
payment of 14.0% p.a. plus 14.0% p.a. for each Quarter
previously unpaid.
At Maturity (no redemption): one of the following scenarios
will occur:
(i)If on the final Observation Date the underlying closes at
or above 100% of its initial spot price You receive
114.6%
(ii)If on the final Observation Date the underlying closes at
or above 60% and below 100% of its initial spot price You
receive 100% of your nominal
(iii)If the underlying closes below 60% of its initial spot
price You receive the performance of the underlying in
shares
Soft Protection
Early redemption mechanism... If at a
quarterly anniversary date, the level of the
Index is over its initial level, the invested
capital is fully reimbursed in anticipation and
increased by a coupon of 14.0%p.a multiplied
by the number of quarters of ownership.
... with conditional protection of the capital
After 1 year, if the level of the Index has not
declined by over 40% from its initial level, the
capital is entirely reimbursed. If the contrary
applies, the capital will be lessened by the
(negative) performance of the basket.
Investor seeks:
Soft principal protection at maturity
60% European Barrier so if on maturity the underlying index closes
below the barrier the investor is exposed 1:1 on the downside
Brazilian Equity exposure
Currency
EUR
Investor can accept:
Minimum
Subscription
1,000,000 EUR
One year investment term
Secondary
Market
Issuer ensures a secondary market daily during the life of the product
with a maximum bid-offer spread of 1.0%, under normal market
conditions.
Issuer
The Issuer’s senior debt as at 01/01/2011 is rated Aa3/A+ S&P
Potential for losses of principal invested if note
is sold prior to maturity or potential loss of
capital on maturity if the underlying is below a
60% European barrier on maturity
Credit risk of the Issuer and Guarantor 25
USD 1 year Booster 15%p.a. Russian Equity Index Note
Underlyings
Russian Depositary Index (RDX)
Investment Summary
Tenor
1 years
Leveraged performance on the upside (x 200%) but
capped
Payoff
On maturity: Long 200% the underlying
index with a cap of max 16%
Leveraged performance on the downside (x111%) if
the index closes below 90% of the initial value
Soft Protection
10% European Barrier so if on maturity the underlying
index closes below the barrier the investor is
exposed Short x1.1111 on the downside
Investor seeks:
Soft principal protection at maturity
Russian Equity exposure
Currency
USD
Investor can accept:
Minimum
Secondary
Market
Issuer
1,000,000 USD
Issuer ensures a secondary market daily during the
life of the product with a maximum bid-offer
spread of 1.0%, under normal market
conditions.
The Issuer’s senior debt as at 01/01/2011 is rated
Aa2/A+ S&P
One year investment term
Potential for losses of principal invested if note is sold
prior to maturity or potential loss of capital on maturity
in a geared fashion if the underlying is below a 90%
European barrier on maturity
Credit risk of the Issuer and Guarantor
26
USD 5 year 100% Principal Protected Note Floored Floating Rates
Underlyings
(Bloomberg)
USD LIBOR 3M
with a minimum of 2.90% p.a. and a maximum of 6.5% p.a.,
paid quarterly,
30/360, adjusted
...full capital protection
If held to maturity.
Investor seeks:
Tenor
5 years
Full principal protection at maturity
Predefined Interest Rate Returns
Currency
USD
Issue Date
April 6th, 2011
5 year investment term
Maturity Date
April 6th, 2016
Potential for losses of principal
invested if note is sold prior to maturity
50,000 USD
Credit risk of the Issuer and Guarantor
Minimum
Subscription
Secondary
Market
Redemption
Issuer
Investor can accept:
Issuer ensures a secondary market daily during the life of the
product with a maximum bid-offer spread of 1.0%, under
normal market conditions.
100% of the principal invested on maturity
The Issuer’s senior debt as at 01/01/2011 is rated Aa2/A+
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Global Bond Trading
Overview
Cash Bonds
Locations
Price
Our independence combined with a systematic process of price discovery and analysis enables us to provide our clients with pricing that
successfully competes with the largest international banks.
Service
Armajaro
Securities
Limited
We offer institutional investors a platform for Global Fixed Income execution services across Investment Grade Credit and High Yield
markets. We trade directly with asset managers around the world and have access to significant trading books covering the USA, Europe &
Emerging Markets.
Structured Products
Trading is enhanced by our Emerging Market Hedge fund overseeing equity derivatives, fixed income, mainly in Russia, Greece , S. Africa ,
Israel , Middle East , Czech Republic , Poland , Hungary and Turkey
Global Bond Trading
Cash Equity
Settlement
All trade settlements are effected by SG Hambros, a 100% owned subsidiary of Société Générale, (AA1 rated), which also acts as principal
to each trade.
Futures & Options
Contacts
Settlements
28
Cash Equity
Overview
Cash Equity Business Has Been Launched
Locations
Armajaro Securities Ltd now provides wide and complete range of advisory and execution services, on both Developed and Emerging
Markets, with sophisticated single stock, pair and basket trading specialties.
We provide to Institutional Investors, from renowned Hedge Fund to small Asset Managers a global investment and execution solutions.
Armajaro
Securities
Limited
Structured Products
We have developed a deep expertise on Emerging and Commodities markets, synergy from our asset management and physical trading socalled divisions.
Transparency of our investment advice guarantees the sole interest of our clients:
No proprietary trading,
Global Bond Trading
Cash Equity
No security transaction (no IPO, no ABB, no placement),
No credit line or loan proposed to corporate.
Futures & Options
Contacts
Settlements
29
Cash Equity
Overview
Locations
Cash Equity Business Has Been Launched
Our capabilities tend to be wider as possible; we propose bespoke solutions matching each client’s demands:
Slippage reduced to achieve Best Execution,
Algorithms (% volume, VWAP, TWAP, Stop, Stop Loss linked to Profit Taking, and many others),
Armajaro
Securities
Limited
Structured Products
Global Bond Trading
Multi-Trading Facilities : All trading will use our Smart Order Router to enable access to liquidity on Chi-X, NASDAQ OMX, BATS,
Turquoise and BLINK (crossing engine) unless client specifies otherwise.
DMA connectivity, CFDs.
Ideas origination and Market Colours
We originate trade ideas every day and, as Armajaro Securities Ltd is a principal outsourced trading desk for large fund managers, the
significant traded volume and flow allow us to identify market, sector, and thematic trends which help our execution decision process.
Cash Equity
Futures & Options
Contacts
Settlements
30
Futures & Options
Overview
Derivatives Brokerage Service
Locations
•Armajaro Securities Ltd has launched a derivatives brokerage platform to provide institutional clients and hedge funds with a real-time
market insight from research to execution.
Armajaro
Securities
Limited
•Our brokerage desk covers major futures exchanges & provides personalized execution across a wide range of listed derivatives from
commodities to equities, energy and fixed income.
Structured Products
•Our brokerage-unit is an independent body, therefore guarantees complete anonymity of service to its clients. Armajero Securities Limited
does no proprietary trading.
Global Bond Trading
Cash Equity
•Our office will always be striving the best it can to provide its clients with a multitude of bespoke OTC structured products thus ensuring
a permanent coverage of the market.
Futures & Options
Contacts
Settlements
31
ARMAJARO SECURITIES LIMITED: Settlement process
Overview
SG Hambros acts as principal for settlement trades.
Armajaro has a dedicated Euroclear account through SG Hambros: 11064 for its use only
Locations
Investors
Armajaro
Securities
Limited
Structured Products
Global Bond Trading
Price
Investment Banks
Insurance Companies
Corporate Treasuries
Private Banks etc.
Market Makers
Issuer of EMTN
Physical Flow
Depositary
Physical flow
Cash Equity
SG Hambros
Futures & Options
100% owned
Subsidiary by Société
Générale
Settlements
32
Contacts
Overview
Locations
Armajaro
Securities
Limited
Terry Manning
Helmut Kleinschrod
Sofiane Megharbi
Chief Executive Officer
Structured Products Solutions
European Head of Sales
Tel: +44 207 529 3662
Tel: +44 207 647 3100
Tel: +44 207 255 7913
Email: terry.manning@armajaro.com
Email: helmut.kleinschrod@armajaro.com
Email: sofiane.megharbi@armajaro.com
Group: futures@armajaro.com
Group: structuredproducts@armajaro.com
Group: structuredproducts@armajaro.com
Theodore Pitsillides
Andrej Gustin
Tony Myers
Structured Products Solutions
Structured Products Solutions
Operations Manager
Tel: +44 207 255 7920
Tel: +44 207 647 3100
Tel: +44 207 647 3118
Email: theodore.pitsillides@armajaro.com Email: andrej.gustin@armajaro.com
Email: tony.myers@armajaro.com
Group: structuredproducts@armajaro.com Group: structuredproducts@armajaro.com
Group: structuredproducts@armajaro.com
Giuseppe Ardito
Tim Manning
Rex Hill
Structured Products Solutions
Structured Product Solutions
Aid Compliance
Tel: +44 207 255 7929
Tel: +44 207 647 3143
Tel: +44 207 255 7936
Email: giuseppe.ardito@armajaro.com
Email: tim.manning@armajaro.com
Email: rex.hill@armajaro.com
Structured Products
Global Bond Trading
Cash Equity
Futures & Options
Contacts
Group: structuredproducts@armajaro.com Group: structuredproducts@armajaro.com
Group: compliance@armajaro.com
Benjamin Chekroun
Guillaume Roy
Cross Asset Solutions
Commodity Broker
Tel: +44 207 529 3679
Tel: +44 207 529 3688
Email: benjamin.chekroun@armajaro.com
Email: guillaume.roy@armajaro.com
Group: equity@armajaro.com
Group: futures@armajaro.com
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