Use of structured
products in wealth
management
April 2008
Tomas
Hochmeister
EQUITY DERIVATIVES
HOUSE OF THE YEAR
Agenda
 Why Structured Products?
 Innovation dedicated to investor
needs
Alternative to Equity Investments
Alternative to Global Asset Allocation
Investment
 Widen your horizons: Core Satellite
Niche Investments
Alpha Generator
This material is provided for information purposes only
There is no assurance that a transaction will be entered into on any indicative terms
2
Why Structured Products ?
 Structured Products have witnessed a huge increase in the past few years.
 Investors have exhibited enhanced appetite for these investment solutions
because of a variety of reasons
Enhancement of risk/return profile
Capital Protection has proved to be a very attractive feature
Possibility to benefit from innovative payoffs
Opportunity to be linked to multiple asset classes
Benefit from the performance of traditional and non-traditional asset classes
No currency risk ( CZK Quanto)
Insurance linked guarantees have also seen a huge demand
This material is provided for information purposes only
There is no assurance that a transaction will be entered into on any indicative terms
3
Structured Products a fast growing activity
 A business led by the European market
The most innovative
EUR Billion
Structured products Retail market volume 2004/2006
160
140
120
100
80
60
40
20
0
+52%
2004
2005
2006
39%
Europe
Asia
+26%
North America
Source: Structured retail products
This material is provided for information purposes only
There is no assurance that a transaction will be entered into on any indicative terms
4
Structured Products: created for a range of clients
Conservative Profile
 Investment with total safety
Medium Profile
 Investment with the optimal
balance
Dynamic Profile
 Investment with a maximum
leverage
 Pattern recognition for Target
 Pattern recognition for Target
Clients
 Lifestyle
: Simple and Safe
 Risk Tolerance: Low
 Current Portfolio: Bond Oriented and
Less Diversified
 Typical Age group: 50 +
 Behavior Traits: Highly concerned
about risks
100% Capital
Guarantee
“Play Safe” Solution
Clients
 Lifestyle
 Pattern recognition for Target
Clients
: Balanced
 Lifestyle
: Adventurous
 Risk Tolerance: Medium and Normal
 Risk Tolerance: Extremely High
 Current Portfolio: Equities & Bonds
(or deposits)
 Current Portfolio: Equity Options Bias
 Typical Age group: 25 - 60
 Behavior Traits: Willing to go the
extra mile with added risk appetite
Partial Capital
Guarantee
“Best Size  Fits all” Solution
 Typical Age group: 25-60
 Behavior Traits: Enjoy taking risks for
the additional upside potential
No Capital
Guarantee
Solution for “Gambling can be fun”
This material is provided for information purposes only
There is no assurance that a transaction will be entered into on any indicative terms
5
Encouragement for Innovation
Case Study on Principal Protected Notes
 From the distributor standpoint
A true and concrete tool to fight against the behavioural bias of small investors
6 200
5 400
CAC 40
4 600
3 800
3 000
2 200
50
In € billions
"Odd Lot Theory"
Illustration
In Index points
7 000
45,2
40
30
20
5,9
10
Net inflows in equity
funds in France
0
1998 1999 2000 2001 2002 2003 2004 2005
Source: Bloomberg
This material is provided for information purposes only
There is no assurance that a transaction will be entered into on any indicative terms
6
Enhancement of risk/return profile
Case Study on Principal Protected Notes
 From the investor standpoint
Value added as compared to balanced funds
Improvement of the efficient frontier
With Principal Protected SP
190%
100% in Equities
Expected 10-year gain
Without Principal Protected SP
170%
Portfolio
A
B
Equity
50%
10%
Bonds
50%
10%
SP
0%
80%
150%
B
130%
A
110%
90%
100% in SP
100% in Bond
70%
-20,0%
Cvar(95%)
-10,0%
0,0%
10,0%
20,0%
30,0%
40,0%
50,0%
Source : Edhec Risk and Asset Management
Research Centre. July 2005
This material is provided for information purposes only
There is no assurance that a transaction will be entered into on any indicative terms
7
Agenda
 Why Structured Products?
 Innovation dedicated to investor
needs
Alternative to Equity Investments
Alternative to Global Asset Allocation
Investment
 Widen your horizons: Core Satellite
Niche Investments
Alpha Generator
This material is provided for information purposes only
There is no assurance that a transaction will be entered into on any indicative terms
8
When did it begin?
Much earlier than what you guessed
One of the first derivatives in history:
“… If any one owe a debt
for a loan, and a storm
prostrates the grain, , ……
……. in that year he needs
not give his creditor any
grain, ……….. pays no
rent for this year…”
Hammurabi Code
1800 B.C.
Hammurabi was the 6th king of Babylonia. He
unified his kingdom creating a unique religion,
language and law: The Hammurabi Code
This material is provided for information purposes only
There is no assurance that a transaction will be entered into on any indicative terms
9
Case study: Market context at the end of the 90’s
 1998 LTCM & Emerging markets crisis:
Equity Market volatility is higher and higher
Risk aversion is high, interest rates are low or not high enough to match liabilities
requirements
Investors can hardly afford a principal protection and an exposure on the increase
 Client needs: Principal protected investments linked to Equities but not relying
on bullish markets to generate performance
Answer: Creation of "promises" products / Mountain range
This material is provided for information purposes only 10
There is no assurance that a transaction will be entered into on any indicative terms
1998: the Everest Concept
 Payoff at maturity:
200% + 100% of the performance of the worst performing stock positive or
negative
 If after 10 years, the worst performing stock of the portfolio displays a flat
performance, the investor’s principal is doubled
Equivalent to an annual return of +7.18%
As of October 1, 1998 10-Y swap rate was at 5.00%
This material is provided for information purposes only 11
There is no assurance that a transaction will be entered into on any indicative terms
Innovation in SP answered a Client need
What was possible at this
stage:
Bet on the increase or the
decrease of equity markets
What became achievable
with this new range of
Structured Products:
Bet on the non decrease of
equity markets with principal
protection
This material is provided for information purposes only 12
There is no assurance that a transaction will be entered into on any indicative terms
Agenda
 Why Structured Products?
 Innovation dedicated to investor
needs
Alternative to Equity Investments
Alternative to Global Asset Allocation
Investment
 Widen your horizons: Core Satellite
Niche Investments
Alpha Generator
This material is provided for information purposes only 13
There is no assurance that a transaction will be entered into on any indicative terms
An alternative to equity investments
 Structured products enable to manage what
asset managers dream of achieving:
 1. To get the BEST ENTRY point

Example: Strike min mechanism
 2. …and the BEST EXIT point

Example: Launch of emerald concept on 2002, first structured
product to offer a lock in mechanism and a high level of participation rate
Call on Max: Emerald innovation at a glance
 A 6-Year Fund
 Linked to a basket of 12 international stocks
 100 % capital guarantee
 The maximum performance of the basket
Every 6 months, the value of the basket is
observed. At maturity, the redemption
value of the product is based on the best
valuation of the basket reached on any
of the 12 observation dates
 Secure the gain


At each observation date, the price of the
best performing stock since inception is
locked-in, its performance is secured until
maturity
This material is provided for information purposes only 14
There is no assurance that a transaction will be entered into on any indicative terms
Agenda
 Why Structured Products?
 Innovation dedicated to investor
needs
Alternative to Equity Investments
Alternative to Global Asset Allocation
Investment
 Widen your horizons: Core Satellite
Niche Investments
Alpha Generator
This material is provided for information purposes only 15
There is no assurance that a transaction will be entered into on any indicative terms
Getting the BEST PERFORMING ALLOCATION
 Efficient Allocator
3 underlying profiles,
At maturity investor is exposed to the best performing profile, and the principal is
protected
PROFILES
Asset Class
Index
CONSERVATIVE
BALANCED
DYNAMIC
S&P 500
10%
20%
70%
REAL ESTATE
DJ Real Estate
20%
30%
15%
GOVT. BONDS
Lehman Aggregate
70%
50%
15%
EQUITY
 Payoff:
100% of Initial Principal + 100% of the BEST PROFILE’s Performance
–
The performance is calculated as the average of the performances recorded
every six-months since inception, negative performances being deemed nil
This material is provided for information purposes only 16
There is no assurance that a transaction will be entered into on any indicative terms
Agenda
 Why Structured Products?
 Innovation dedicated to investor
needs
Alternative to Equity Investments
Alternative to Global Asset Allocation
Investment
 Widen your horizons: Core Satellite
Niche Investments
Alpha Generator
This material is provided for information purposes only 17
There is no assurance that a transaction will be entered into on any indicative terms
The Asset Management Industry is changing
rapidly
 The asset management sphere has evolved towards a core satellite
structure with a strong growth of the ETF and Hedge Fund industries
+30% annualized
growth since 2000
Global Mutual Fund
Industry
$ 10,000 bn
+20% annualized
growth since 2000
Hedge
Fund
Industry
$1,800
bn
ETF
Industry
$500 bn
Source: SG Marketing
This material is provided for information purposes only 18
There is no assurance that a transaction will be entered into on any indicative terms
Underlyings: Demand for Alternative &
Innovative Indexation
 ETFs and Structured Products indexation still focus on mainstream indices
 Traditional indices have well-known limitations
No niche markets in terms of regions
No niche sectors
DJ EuroStoxx 50,
CAC, DAX, FSTE
(~ €35bn)
Europe
USA
S&P 500
(~ €85bn)
Asia
NIKKEI, TOPIX,
HSI, ASX
(~ €30bn)
Source: SG Marketing
This material is provided for information purposes only 19
There is no assurance that a transaction will be entered into on any indicative terms
Exotic Equity betas: new types of underlying for SP
 Demand for alternative way to generate performance
 Play global long term growth themes which are not represented in main stream
indices
 Example: SGI Thematic indices: SG in collaboration with Dow Jones Indexes and
asset management specialists such as SAM Group (Sustainable Asset
Management) has created the following indices:
This material is provided for information purposes only 20
There is no assurance that a transaction will be entered into on any indicative terms
Core: β-research indices overview
Index
Theme
Advisor
Calculator
BIOX
Bio energy
SAM
Dow Jones
ERIX
Renewable energy
SAM
Stoxx
SOLEX
Solar energy
SAM
Dow Jones
WOWAX
Water
SAM
Dow Jones
Alternative energy
SAM
Dow Jones
Wood
Dow Jones
Dow Jones
Uranium
Dow Jones
Dow Jones
PRIVEX
Private Equity
Dow Jones
Dow Jones
SGI Global Waste
Management
Waste
Management
SG
S&P
Hedge funds beta
SG
S&P
Bonds
SG
S&P
SGI Global security
Security
SG
S&P
SGI Global wealth
Wealth
SG
S&P
SGI Global human
resources
Human resources
SG
S&P
SGI Global Senior
Senior
SG
S&P
WAEX
TIMBEX
URAX
SGI Alternative beta
SGI Bond
Source: SG Marketing
This material is provided for information purposes only 21
There is no assurance that a transaction will be entered into on any indicative terms
SGI Global Environment
 What is the environment sector?
Investing in environment means investing in companies involved in clean water, alternative
energy and waste management. Energy and clean water savings through recycling as well as
the production of heat and power in incinerators provide attractive approaches to mitigate energy
and water challenges. Vice versa, rising energy prices and water scarcity will drive demand for
recycled material and thus provide further impetus to the development of this sector.
 Index Description
SGI Global Environment aims to reflect the environmental sector. The global index comprises 30
stocks of companies which have their biggest share of revenues in either or several of the
following investment clusters: clean water, alternative energy and waste management.
Index components are selected and weighted according to their free float market capitalisation and
market liquidity.
1200
1000
SGI Global Environment
800
600
400
200
0
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
This material is provided for information purposes only 22
There is no assurance that a transaction will be entered into on any indicative terms
Satellite: generating α
 α-research range: designed to outperform a reference index
Systematic or discretionary strategies (hedge fund like) that aim at creating an
alpha over a specified benchmark index
Indexation to funds of hedge funds
This material is provided for information purposes only 23
There is no assurance that a transaction will be entered into on any indicative terms
Satellite: Access to the universe of funds of
hedge funds
 Total Return Strategies:
Alternative investments have traditionally been the province of professional
investors
This asset class has enjoyed exceptionally strong returns since 1990 with
remarkable consistency Indexation to funds of hedge funds
Lower market directionality of this asset class, plus its capacity to capture diverse
trends across all asset classes, and to benefit from arbitrage opportunities
450
400
350
300
250
200
150
100
MSCI World
50
0
Dec-93
MSCI Hedge Fund Composite Index
Dec-95
Dec-97
Dec-99
Dec-01
Dec-03
Dec-05
Dec-07
This material is provided for information purposes only 24
There is no assurance that a transaction will be entered into on any indicative terms
Conclusion
 Equity linked Structured Products are not trendy investments but long
lasting financial tools
 Their ability to provide added value encourages new developments &
innovation
 Their flexibility allows to address almost all client needs
This material is provided for information purposes only 25
There is no assurance that a transaction will be entered into on any indicative terms
And what is Adequity?
 First structured products brand fully dedicated to European wealth
managers since 2001
 Offering a complete range of investment solutions and related
services dedicated to wealth managers
 Every month, at least one product launch embedding the latest
techniques of structured management
 Benefits from the renowned expertise of GEDS in terms of market
opportunities and investment solutions
This material is provided for information purposes only 26
There is no assurance that a transaction will be entered into on any indicative terms
Thank you for your attention!
This material is provided for information purposes only 27
There is no assurance that a transaction will be entered into on any indicative terms
Important Information
The contents of this document are given for purely indicative purposes and have no contractual value. Prior to any investment in the product, you
should make your own appraisal of the risks from a legal, tax and accounting perspective, without relying exclusively on the information with which you
were provided, by consulting, if you deem it necessary, your own advisors in these matters or any other professional advisors. Subject to compliance
with legal and regulatory requirements, Société Générale may not be held responsible for the financial or other consequences that may arise from the
investment in this product.
This product may be subject to restrictions with regard to certain persons or in certain countries under national regulations applicable to said persons
or in said countries. It is your responsibility to ensure that you are authorised to invest in this product. This document does not constitute an offer for
sale of securities in the United States. The securities can be neither offered nor transferred in the United States of America without being registered or
being exempted from registration under the US Securities Act 1933, as amended.
The documents relating to this product will provide for methods of adjustment or substitution in order to take into account the consequences on this
product of extraordinary events which may affect one or several of the underlying instruments on which it is based or, as the case may be, the early
termination of this product.
Moreover the investor should be aware that the capital protection feature requires for the Issuer, the Guarantor and/or their affiliates, to enter into
hedging transactions which have a cost and which may affect the market price, liquidity or value of the Notes, especially when comparing them to the
market price, liquidity and value of the underlyings of the Note. The Issuer and the Guarantor assume no responsibility whatsoever for such
consequences and their impact on the investment
WHEN SIMULATED PERFORMANCE OR PAST PERFORMANCE ARE DISPLAYED, THE FIGURES RELATING THERETO REFER TO PAST
PERIODS AND ARE NOT A RELIABLE INDICATOR OF FUTURE RESULTS. When future performance is displayed, the figures relating to future
performance are a forecast which is not a reliable indicator of future results. Furthermore, where past performance or simulated past performance rely
on figures denominated in a currency other than that of your country of residence, the return may increase or decrease as a result of currency
fluctuations. Finally, when simulated performance or performance (whether past or future) are displayed, the potential return may also be reduced by
the effect of commissions, fees or other charges.
For the products benefiting from a guarantee of Société Générale or of any other entity of Société Générale group (hereinafter referred to as the
«Guarantor»), the due and punctual payment by the principal debtor of the obligation of any sums due in respect of these products is guaranteed by
the Guarantor according to the terms set forth in the deed of guarantee. In this case, the investor bears in the end a credit risk on the Guarantor.
The attention of investors is drawn to the fact that, by the maturity date, the price of certain products can be subject to volatility due to the evolution
of market parameters and more precisely the price of the underlying and the interest rates. For certain products, except when Société Générale
undertakes to assure a secondary market, there is no liquid market on which these products can be easily traded, and this may have a material
adverse effect on the price at which these products might be sold.
The information presented in this document is based on market data at a given moment and may change from time to time. Back testing permits the
calculation of returns that the product would have had if it had been launched in the past, presented according to the maturity date. It allows an
understanding of how the product would have performed at different market stages over previous years.
This document is confidential and may not be communicated to a third party (with the exception of your external advisors on the condition that they
themselves respect the confidentiality) without prior written consent from Société Générale.
The accuracy, completeness or relevance of the information provided is not guaranteed although it has been drawn from sources believed to be
reliable.
This material is provided for information purposes only 28
There is no assurance that a transaction will be entered into on any indicative terms