Founded in 2017 and based in Zug (Switzerland), Vestr is an independent white-labelled business-to-business (B2B) software provider that facilitates the creation and lifecycle management of actively managed certificates (AMCs).

The startup went live with its first customers in 2018 and signed tier-one private bank Julius Baer as a client in 2019. The platform is backed by Six Group, as well as an undisclosed top five Swiss bank, and other private equity investors like DI Ventures, and EquityPitcher.

SRP spoke to Stefan Wagner, the former global head of structuring & product strategy at Citi and global head of delta one business at Vontobel, who is now head of business development at the Swiss firm. He told SRP about this booming class in the structured products market, and the challenges banks face to manage and scale because the composition of the underlying asset or index changes over the time at the discretion of the investment manager. Tailor-made certificates might include liquid securities, bonds, funds, shares, derivatives, currencies, etc.

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The whole world of active and passive investing seems to be mergingStefan Wagner, Head of Business Development at vestr

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Many companies active in the structured products market have their own pricing and risk management tools, and they work well until you have to manage an Actively Managed Certificate (AMC), says Wagner.

Actively Managed Certificates are structured products where the underlying can continuously change and doesn’t have to be static. This means that the AMC issuer has to be able to manage vast quantities of data for each product such as corporate actions, performance fees or in/out trading etc.

“Most investment banks don’t have the right tools to manage this,” he says. “Part of the reasons why they have not invested in this kind of functionality is that with structured products, you can discount upfront most of your P&L and show it from day one. With an AMC you have to use accrual accounting, and you can only show the P&L that has accrued so far.”

The vestr software aims to plug this gap in the market with a straightforward and easy to use set up and without a big upfront cost for the client.

“[The platform’s] fee structure is based on the AMC issuers revenues on those AMCs. This is part of our success as we align ourselves with the issuer of the AMC,” says Wagner.

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Active v passive

Structured products are considered passive investments but with AMCs that concept gets blurred as these are products that have an active management element.

Investors have also become more active in how they engage with the market and their portfolios – they want more visibility around the underlyings, and other market events, so they can react to the market.

“The whole world of active and passive investing seems to be merging,” says Wagner, adding “it is a reflection of how the market is evolving”.

“For example, more and more indices and quantitative investment strategies have rules which make them very dynamic so that they are daily changes in the composition, while some AMCs issuers convert the underlying baskets of the AMC into indices.”

The pressure to have ultimate transparency is coming from all sides for every investment product – the more information you can provide about the products, the better for all parties involved.

“Still, you have to be able to manage all these data points and address any mismatches quickly and efficiently,” says Wagner.

“It’s not just about providing tools but also granularity – you have to be able to solve issues quickly. That is a major driver for technology – it’s no longer about issuing a product and forget about it till maturity but about serving the products and allowing the client/investor to get in and out, reallocate assets, and have visibility of the whole portfolio.”

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Landscape

SRP has spoken to a number of players involved in this space which have noted that AMC market is growing significantly, although it doesn’t have much visibility.

“[We] estimate that 90% of AMCs are in the form of a private placement,” says Wagner. “We estimate there are over US$1 trillion in AuMs in AMCs, of which nearly half of it comes from Asia. AMCs were first seen in Switzerland, but they are now available in many other jurisdictions.”

There are also several exchanges making the listing of AMCs possible such as the Euwax, VSE, BX Swiss, and Six.

Wagner notes that often the main competitors for Vestr is the internal IT function of the firms it approaches.

“vestr is not a consultancy firm seeking to advise on an IT project – we offer a solution,” he says. “We have investment banking and risk management experience and know very well what needs to be done and how to connect the dots. This combination of knowledge is not something you find everywhere when it comes to the fintech industry.”

The Swiss fintech doesn’t claim that it’s “going to revolutionise the AMC market by competing with existing AMC issuers” either.

“We want to help AMC issuers to grow this market via a scalable, and competitive platform,” Wagner says. “vestr has fully dedicated resources to continuously improve the system for AMCs in a way that most investment bank can’t.

“Our flexibility gives us an edge as our decision process is shorter, and we only have one focus, and that is to provide a reliable and stable infrastructure to manage AMCs throughout their whole life cycle. Because of this dedication, we can add new tools and features weekly.”

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Opportunities

As demand increases and more participants enter the market, the Swiss AMC platform is seeking to capitalise on and leverage its technology to help grow the pie for everybody.

“We can plug our software into existing systems and platforms, or they can come to use the vestr platform as a starting point,” says Wagner. “We often see increase activity after implementing the Vestr platform because it improves the scalability of our clients’ AMC business.”

The startup had its second funding round before the pandemic started which was oversubscribed. “We are in a strong position to carry forward our plan to offer our solution to the market and improve the offering with new functionalities and tools,” says Wagner. “Our goal is to get more clients to use the platform. We don’t have geographical restrictions. Our clients are existing providers of AMCs but also new entrants.”

Wagner expects existing structured product players will enter the AMC market plus we will see more AMCs issued off-balance-sheet by using SPVs to bring new business models to the market.

“AMCs have opened up new opportunities and increased the choice of investment vehicles,” concludes Wagner. “From a company perspective, we are very positive because our technology can help democratise the use of new vehicles and help new market players build a track record with products that deliver value that can be easily created and needing fewer AuMs to start with.”

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