Actively Managed Certificates (AMCs)

Actively Managed Certificates (AMCs) are structured financial instruments that package an actively managed investment strategy into a tradable security. In essence, an Actively Managed Certificate (AMC) combines features of a traditional fund (professional portfolio management with dynamic asset allocation) with the format of a structured note​.

Like other structured products, an Actively Managed Certificate (AMC) is typically issued as a debt security by a bank or special purpose vehicle, and its performance is linked to an underlying portfolio selected by a strategy manager​.

Unlike passive index-linked notes, the underlying assets in an Actively Managed Certificate (AMC) are actively adjusted over time at the manager’s discretion in line with a defined strategy or investment mandate​. This means the composition of the AMC’s reference basket can change (e.g. rebalancing sectors, adding or removing securities) without issuing a new instrument. The strategy’s value is tracked either via a synthetic strategy index or notional basket that the Actively Managed Certificate (AMC) replicates, allowing for real-time valuation as the manager makes changes​

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Key features of Actively Managed Certificates (AMCs) include:

• Professional Management: The underlying portfolio is run by an investment manager (e.g. an asset manager or strategy provider) who makes active trading decisions to pursue a stated objective (growth, income, hedging, etc.)​. This active approach distinguishes Actively Managed Certificates (AMCs) from static trackers or index funds.
• Structured Note Format: The Actively Managed Certificate (AMC) is a securitized instrument (usually a note or certificate) issued by a financial institution. Investors in the Actively Managed Certificate (AMC) receive a security (with an ISIN) that can be traded or booked in custody accounts, giving them exposure to the managed portfolio’s performance without directly holding its constituents​. Because it’s a debt instrument, the AMC’s payoff to investors is contractually linked to the portfolio’s returns (after fees) rather than actual ownership of the assets.
• Diverse Asset Exposure: Actively Managed Certificates (AMCs) can cover a wide range of asset classes. The underlying strategy might invest in equities, bonds, commodities, or any combination and even alternative and illiquid assets like real estate, private debt, or cryptocurrencies​. This flexibility means Actively Managed Certificates (AMCs) can provide access to niche or bespoke investments that might normally be hard for investors to reach directly.
• Liquidity and Transferability: Because an Actively Managed Certificate (AMC) is a security, it can be traded on exchanges or over-the-counter similar to stocks or ETFs. Many Actively Managed Certificates (AMCs) are listed or at least assigned an exchange ticker, allowing investors to buy or sell units on the secondary market during trading hours​. This makes Actively Managed Certificates (AMCs) more liquid than traditional fund units in many cases.
• Transparency: Actively Managed Certificate (AMC) providers often disclose the certificate’s holdings and NAV on a daily basis, giving investors near-real-time insight into the strategy’s composition and performance​. This high-frequency transparency is a notable feature (traditional mutual funds might report holdings quarterly). Investors can track how the manager is allocating assets over time, just as they would for an exchange-traded product.

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Benefits of Actively Managed Certificates (AMCs) for Banks and Issuers

‍Low Set-up Costs:
Actively Managed Certificates (AMCs) offer banks and issuers the advantage of low set-up costs. Compared to launching traditional investment products, the process of establishing AMCs involves relatively lower initial expenses. This cost efficiency allows banks and issuers to allocate their resources strategically, maximizing their operational efficiency and optimizing their overall profitability.

Low Maintenance Costs:
AMCs also provide banks and issuers with the benefit of low maintenance costs. Once the AMCs are set up and launched, the ongoing operational expenses associated with managing and maintaining these investment products are relatively minimal. This cost-effectiveness helps banks and issuers to optimize their operational budgets and allocate resources to other critical areas of their business.

Fast Time to Market:
The time to market for AMCs is notably fast, which is a significant advantage for banks and issuers seeking to introduce new investment products swiftly. The streamlined processes involved in setting up AMCs, combined with the flexibility of customizable templates and pre-defined structures, expedite the product development and launch timeline. This agility enables banks and issuers to capitalize on market opportunities efficiently and stay ahead in the competitive landscape.

Easy Customization for Each Customer Segment:
One of the key benefits of AMCs for banks and issuers is the ease of customization for different customer segments. AMCs provide the flexibility to tailor investment strategies, risk profiles, and features to cater to the unique preferences and requirements of diverse customer groups. This customization capability enables banks and issuers to effectively target specific market segments, enhance client satisfaction, and foster long-term customer relationships.

Inclusion of Any Asset Class:
AMCs offer banks and issuers the flexibility to include a wide range of asset classes within their investment products. From equities and bonds to alternative assets such as cryptocurrencies or real estate, AMCs can be structured to encompass various asset classes based on the investment objectives and market opportunities. This versatility allows banks and issuers to meet the evolving demands of investors and offer diversified investment options that align with different risk appetites and market trends.

Diverse Names and Strategies

Actively Managed Certificates go by various names in the industry, such as Exchange Traded Notes (ETNs), Exchange Traded Instruments, Dynamic Equity Notes, Strategy Notes, Strategy Index Certificates, and Actively Managed Trackers. These structured products derive their returns from the performance of the underlying assets, often with reference to specific benchmark values.

Beyond Mirroring Funds and Indices

In recent years, AMCs have gained popularity as investment managers seek to customize strategies according to their clients' unique needs. Actively Managed Certificates are not limited to replicating actively managed funds or indices; they have expanded to encompass non-bankable assets, including cryptocurrencies, art, illiquid assets, and various asset class combinations. This flexibility allows portfolio managers to dynamically set up and adjust investment strategies, providing tailored solutions for their clients.

Actively Managed Certificates (AMCs) provide investors with a range of offering options to suit their preferences and investment profiles. These securities can be offered to the public with a typical subscription amount as low as $100, making them accessible to a wide range of retail investors. Additionally, AMCs can also be offered to professional investors without any minimum requirements, allowing for greater flexibility and customization in investment offerings.
Actively Managed Certificates (AMCs) bring together the sought-after stability and predictability of fixed rate returns and maturity dates, akin to CDs (Certificates of Deposit).

The Role of Active Management

At the core of Actively Managed Certificates lies the concept of Active Management. Skilled portfolio managers leverage their expertise, market insights, and research to make informed investment decisions. They continuously monitor and analyze market trends, identifying potential opportunities and risks. By actively adjusting the portfolio holdings, these managers aim to optimize returns, manage risk, and potentially outperform passive investment strategies.

On-Balance Sheet vs. Off-Balance Sheet Actively Managed Certificates (AMCs)

There are two primary structural models for Actively Managed Certificates (AMCs):

• On-Balance Sheet Actively Managed Certificates (AMCs): These are issued directly by a bank or broker-dealer and sit on the issuer’s balance sheet as debt obligations. The underlying assets are typically held by the issuer (or its custodian) as part of its own assets. For example, a bank might issue an Actively Managed Certificate (AMC) that references a basket of stocks; the bank will itself buy/sell those stocks to replicate the strategy. On-balance sheet Actively Managed Certificates (AMCs) usually stick to traditional asset classes (equities, bonds, etc.), and investors take on the credit risk of the issuer – if the bank were to default, the investor may not receive full repayment​. Some issuers mitigate this credit risk by providing collateral: e.g. Swiss banks use COSI (Collateral Secured Instruments) or similar mechanisms to pledge assets that secure the note​. Still, an on-balance sheet AMC’s promise to pay is only as good as the issuer or its guarantor.
• Off-Balance Sheet Actively Managed Certificates (AMCs): These are issued through a Special Purpose Vehicle (SPV), which is an independent company or trust set up solely to issue notes and hold assets. In an off-balance sheet setup, the Actively Managed Certificate (AMC) is segregated from the bank’s balance sheet, often to reduce issuer credit risk. The SPV will hold the underlying portfolio in a bankruptcy-remote structure, meaning investors have recourse to those assets regardless of the sponsoring bank’s condition​. Off-balance sheet Actively Managed Certificates (AMCs) are popular for including non-traditional or illiquid assets – e.g. private equity stakes, hedge funds, loans, or cryptocurrencies – which a bank might not want on its own balance sheet​. By using an SPV, the product can directly hold such assets for the benefit of certificate holders. Often, the SPV issuance will be facilitated by a bank (which arranges trades and provides administrative services), but legally the investors become creditors of the SPV, not the bank. Collateralization techniques can also be used here to further secure the notes​. The outcome is that investors in an off-balance sheet Actively Managed Certificate (AMC) largely avoid the issuer default risk, focusing instead on the underlying strategy performance and any collateral arrangements.‍

Tokenized Actively Managed Certificates (AMCs)

‍A newer innovation is using blockchain technology to represent Actively Managed Certificate (AMC) shares as digital tokens. Tokenized Actively Managed Certificates (AMCs) still have the same underlying mechanics (an actively managed strategy) but transfers and record-keeping occur on a distributed ledger. This can enable peer-to-peer trading and potentially greater efficiency in settling trades. Tokenization has been “a recent market trend” especially for strategies involving digital assets​. In principle, both on- and off-balance sheet Actively Managed Certificates (AMCs) can be tokenized – the token is essentially a digital wrapper representing a claim on the AMC’s economic performance. For example, an issuer might register the Actively Managed Certificate (AMC) on a blockchain and investors hold tokens in a wallet instead of a traditional security in a brokerage account. Jurisdictions like Switzerland have updated laws (e.g. the DLT Act) to recognize tokenized securities, making this an emerging reality. While still a nascent development, tokenized Actively Managed Certificates (AMCs) point to further digitalization of structured products, improving accessibility and settlement speed.

We created vestr to act as the 'operating system' for your AMCs. Instead of manual workflows and fragmented data, you get a single platform that automates rebalancing and compliance tracking. It’s a modern way to manage investment products that keeps you focused on the markets, not the paperwork.

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