Why actively managed certificates may catch on in Asia

In the search for cheaper and more efficient means of investing in today’s current market environment, actively managed certificates (AMC) may provide a cost-effective means for tapping more than one strategy at a time.

In Asia, most discretionary portfolio managers are currently using AMCs, or looking to use AMCs for specific investment objectives amid a low-yield and highly volatile market environment, according to experts at The Asset’s Actively Managed Strategies and Discretionary Portfolio Management Roundtable, held at the Conrad Hotel, Singapore.

Roundtable discussion at Conrad Hotel, Singapore, on June 13 2017.

AMCs are vehicles set up by an asset management company which typically target multiple investors, usually private banking or high net worth investors (HNWIs). Depending on the investment strategy, the AMC serves as the “wrapper” for underlying assets such as equities, fixed income, commodities, etc., that are included in the asset allocation of the investment strategy. The underlying assets of the AMC are then rebalanced periodically depending on the investment strategy.

In terms of structure, an AMC is similar to a collective investment scheme (CIS) which pools the investors' money into a portfolio, which is then managed by a professional investment manager.

Unlike a CIS, however, the AMC is classified as a structured product designed for professional investors, and therefore does not need to be registered with the Securities and Futures Commission (SFC) in Hong Kong or the Monetary Authority of Singapore (MAS). This makes the AMC less expensive for investors compared to a CIS or other SFC/MAS-registered investment vehicles.

“An AMC is a structured note based on an index that is structured into an asset allocation agreement. It can be used for implementing thematic ideas or income ideas,” says Fayez al-Hicheri, head of structuring, APAC investment solutions group, Credit Suisse.

The investment ideas usually come from a combination of macro trends, themes or investment demand that is translated into an asset class, geography and time horizon, and implemented in the form of an investment strategy. The AMC can then be used to implement the investment strategy.

According to Myron Cheung, senior structurer, APAC investment solutions group at Credit Suisse, an AMC can provide access to a single product for many investors at the same time.

“For the asset manager, it can also provide a low entry barrier in terms of assets under management. For the product structure and distribution, it can also provide a faster time to market,” says Cheung.

In terms of risk, investors in an AMC should look out for counterparty risk and examine the methodology of the AMC closely. Also, since an AMC is an active management strategy, the more active the strategy, the more costs may be involved.