An Update on Catley Lakeman Securities and
Private Placement Structured Products
September 2011
Who are Catley Lakeman?
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Founded July 2008
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Team of 7 people
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FSA authorised securities and futures firm
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Outsourced origination and distribution business that sells and supports Private Placement securitised derivative
investments to professional asset managers and institutions in the UK
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Represent seven banks on a contractual basis
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Citigroup
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Nomura
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HSBC
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JP Morgan
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Credit Suisse
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UBS
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Rabobank
Team
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Russell Catley - Sales
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Andrew Lakeman - Sales
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Tom May – Trading and Structuring
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Jonathan Dagg – Research, Trading and Structuring
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Chris Dagg – Trading and Rate Structuring
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Nina Gill - Sales
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Stuart Chandler – Non-Executive Chairman
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Combined investment sales experience – 44 years
Combined structured product trading experience – 20 years
Combined structured product specific experience – 36 years
Client Base
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All major Discretionary firms
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Small to Medium-sized institutions
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Multi-Asset Fund managers
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Larger Family Offices
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Multimanagers and Specialist Fund Managers
Evolution of Structured Investments Market
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10 years, Merrills, Citi, BarCap ………………………………….
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Radical volatility in equity markets 2008 / 2009, with rate falls
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Directionless yet volatile equity markets in 2010 with historically low rates
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Volatility settling from historic highs, but still above long-term average
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Rates started to rise across the curve back-end 2010, but off again 2011…..
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Equity Bulls and Bond Bears 2011
Source: Catley Lakeman Securities End of Year Client Survey 2010
Credit Risk
Bank CDS
Bank
BNP
Banco Santander
BoA
Barclays
Citigroup
Commerzbank
Credit Agricole
Credit Suisse
Deutsche Bank
Goldman
HSBC
ING
JP Morgan
Lloyds TSB
Morgan Stanley
Nomura
Rabobank
RBS
Soc Gen
UBS
Timestamp
07/09/11
07/09/11
07/09/11
07/09/11
07/09/11
07/09/11
07/09/11
07/09/11
07/09/11
07/09/11
07/09/11
07/09/11
07/09/11
07/09/11
07/09/11
07/09/11
07/09/11
07/09/11
07/09/11
07/09/11
CDS (current)
248
313
316
249
222
272
252
187
189
222
120
202
123
324
301
261
106
337
336
195
CDS (31-Dec-2010)
113
248
181
121
149
145
165
100
105
126
85
147
86
204
171
120
82
214
159
100
Credit Default Swap (CDS) levels relate to basis points over LIBOR per annum [Current as at 07 September 2011]
Evolution of Business
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Business has become much more client-led
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Bespoke and Lead-order trades
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Inevitable consequence of directionless markets
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Corresponded with lower platform costs – EIS v PCC / MTN for tax sheltered
Trade sizes and regularity has changed
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98 new securities originated and traded in FY to 31/07/2011
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62 new securities originated and traded 2011 to date
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204 new securities traded since 01/08/08
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Origination average size at trade GBP8.2mm
Originated and issued since 1 August 2008
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Over GBP1.75bn primary market notional
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Traded over GBP500mm secondary market
Evolution of Business
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Addition of specialist rates trader
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Ability to discuss strategic rate, currency and credit trades
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In detailed conversation with CIO/Head of Fixed Income with major discretionary firms
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Securitised and OTC hedging solutions tradable
Improvement in ability to execute
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Robust trading desk – 3 full time
Improved website and technological capability
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Client Portfolio has been rolled out
Website - Portfolio pages
Client Communication...
Client Survey Results - Equities
Source: Catley Lakeman Securities End of Quarter Client Survey 1Q 2011
Client Survey Results – Government Bonds
Source: Catley Lakeman Securities End of Quarter Client Survey 1Q 2011
Client Survey Results - Credit
Source: Catley Lakeman Securities End of Quarter Client Survey 1Q 2011
Meeting Risk Return Expectations Autocallables
SG Aggressive Auto-Call (17.3%)
FTSE
5 year maximum term.
Downside
Soft protection at 60%, European
Upside
Autocallable after 3, 4 or 5 years if the FTSE is
above 120% of its initial level (currently ~ 7200)
Autocall Coupon = 17.3% p.a. so following
payouts:
Year 3: 151.9%
Year 4: 169.2%
Year 5: 186.5%
Credit Suisse FTSE Defensive Autocall (10.5%)
6 year maximum term
Final defensive barrier 75%
Soft protection at 60% (European)
Launched on Tuesday 13th 2011.
HSBC FTSE Defensive Autocall (8%)
6 year maximum term
Final defensive barrier 70%
Soft protection at 60% (European)
Launched on Wednesday 18th May 2011.
Meeting Risk Return Expectations Inflation Linked
SG 295 Inflation Plus Income Notes
SG Issued medium term note (taxed as income)
6 Years
Issued at 99.75%
Struck on 21st Feb with FTSE at 6014.80 and Jan 11 RPI fix of 229
Issue date / settlement 7th March
Upside:
Coupon paying 2.74% plus any increase in Year On Year RPI
Coupon is therefore floored at minimum of 2.74% should YoY inflation be
negative.
Downside:
Capital Protection linked to the FTSE 100
At maturity, capital is at risk only if the FTSE 100 level is less than 50% if the start
level. Capital at risk on a 1:1 basis in this case.
Meeting Risk Return Expectations Nikkei Hedged Supertracker
Nomura Nikkei Accelerator (180%)
This is the first trade to utilise the alternative to the GBP quanto on Japanese
Equities. This structure is linked to the FX hedged Nikkei Index that has been
created to mitigate much of the currency risk inherent in Sterling investors in
Japanese Equity. For an explanation of how the Benchmark index works in terms
of the currency hedge, please see the note attached to the product detail page or
call as always.
Nomura Excluded Index Security (EIS)
6 Years
Issue date / settlement 9th March
Upside:
180% participation in the upside of the FX hedged Benchmark Index
Downside:
142.86% downside participation from 70% of the initial index level
Why is the market for institutional Structured Products
booming in the discretionary market?
Why is the market for institutional Structured Products
booming in the discretionary market?
• Autocall research back to 1990 shows exceptional outperformance
over equities (Actual product from 2004, simulated from Bloomberg
1990 – 2004)
• FTSE Autocall bought and “rolled” from 1st January 1990 –
Outperformed the FTSE Total Return Index by 60.83% to April 2011
• FTSE Defensive Autocall bought and “rolled” on the same basis
from January 1990 –
Outperformed the FTSE Total Return Index by 149.13% to April 2011
Who is buying them and what are they buying?
• All major discretionary firms
• Family Offices
• Multi-asset Fund Managers
• Small institutions and pension schemes
• Charities
Who is buying them and what are they buying?
Payoffs (Approx. Returns)
Underlyings
• Autocallables (10 – 14% pa)
• Equity Index
• Defensive Autocallables (8 – 12% pa)
• RPI-linked
• Range Trades (8 – 11% pa)
• Commodities
• Synthetic Zeros (6 – 10% pa)
• Currencies
• Supertrackers (150 – 220% pcn)
• Stock Baskets – less common
• Call Spreads (Variable)
2012 and Beyond
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Core business should continue to evolve
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Ambition to expand “upstream” as suits our technical capabilities
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Clients are absolutely key to our evolution
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Complaints, improvements, suggestions…….. Always welcome and in fact essential!
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Thank you again for business to date
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We are passionate about investment and about creating investment solutions that work
Disclaimer:
The information in this document is derived from sources believed to be reliable but which have not been independently verified. Catley Lakeman
Securities makes no guarantee of its accuracy and completeness and is not responsible for errors of transmission of factual or analytical data, nor is it
liable for damages arising out of any person’s reliance upon this information. All charts and graphs are from publicly available sources or proprietary data.
The opinions in this document constitute the present judgment of Catley Lakeman Securities, which is subject to change without notice.
This document is neither an offer to sell, purchase or subscribe for any investment nor a solicitation of such an offer. This document is intended for the
use of institutional and professional customers and is not intended for the use of private customers. This document is not intended for distribution in the
United States of America or to US persons. This document is intended to be distributed in its entirety. No consideration has been given to the particular
investment objectives, financial situation or particular needs of any recipient.
Catley Lakeman Securities is a LLP registered in England and Wales, Registered Office : One Eleven Edmund Street, Birmingham, B3 2HJ. Registration
Number: OC336585, FSA Reference: 484826