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Alternative Investments - July 13, 2005

Interview with Christophe Mianné, global head of equity derivatives at SG Corporate and Investment Banking

In recent weeks, we have seen the launch of the Edhec Hedge Fund Diversifier Benchmarks in partnership with Lyxor AM, and the release of an Edhec research paper on structured products sponsored by SG CIB, entitled “Structured Forms of Investment Strategies in Institutional Investors’ Portfolios”. In this interview, Christophe Mianné, global head of equity derivatives at SG Corporate and Investment Banking, discusses the nature of the partnership between SG CIB/Lyxor and Edhec and his views on the future evolution of alternative investments and derivative products.

Christophe Mianné

Why did SG CIB and Lyxor choose to enter into a strategic partnership with the Edhec Risk and Asset Management Research Centre in creating the Edhec Hedge Fund Diversifier Benchmarks and supporting Edhec’s structured products research?

Christophe Mianné: We appreciate the dynamic approach and rigour of the Edhec Risk and Asset Management Centre in conducting quality research that can be qualified as state-of-the-art academic work while providing a very practical facet to asset management issues. We have always considered structured products as an asset class that institutions need to integrate in their asset allocation decisions and we are delighted to see that Edhec’s research has actually been able to support this view.

With regards to the Diversifier Benchmarks, Edhec Risk was looking for a platform in order to build its investable benchmarks. After extended research within this framework, Edhec Risk has come to realise to what extent the Lyxor Platform, with its appropriate infrastructure, is perfectly adapted to suit its needs in terms of transparency, security, and liquidity.

What strategy is SG CIB pursuing in the area of alternative investments?

Christophe Mianné: SG CIB is one of the main players in the area of financial services to hedge funds as well as in the field of hedge fund linked products.

  • SG CIB provides financial services to hedge funds, including brokerage, OTCs and sophisticated structured transactions.

  • SG CIB's credit services respond to the needs of Funds of Hedge Funds for operational and leverage financing. The recent acquisition of Bank of America’s hedge fund related activities (BoA) reinforces SG CIB's commitment to that business.

  • The award-winning equity derivatives department has developed innovative products for final investors (institutional and retail investors) linked to hedge funds of funds. The broad range of structured products covers capital guaranteed products (Options, CPPI, etc.) as well as leveraged structures (leveraged certificates or funds).
Moreover, SG CIB offers a wide-range of onshore solutions through its asset management arm, Lyxor AM. Dedicated fund of hedge fund vehicles are set up according to local legislations (such as a French FCP, German KAG, Italian SGR, etc). In addition, portfolios can be structured using the Lyxor Managed Account Platform - the largest and most diversified platform worldwide - which provides institutional investors with the necessary transparency, risk control and liquidity.

SG CIB seeks to reinforce its leading position in these businesses across the three continents: Europe, the Americas and Asia. The development in the US has received a significant boost thanks to the acquisition of BoA's hedge fund related activities, while Asia is being marked by significant distribution transactions. In Europe, the development of onshore solutions will continue to receive particular attention in the light of growing demand from institutions and distributors.

Where are the Edhec Hedge Fund Diversifier Benchmarks situated in SG CIB/Lyxor’s strategy?

Christophe Mianné: Edhec has decided to use the Lyxor Managed Account Platform for their investable Benchmarks as a direct consequence of their research regarding hedge fund failures. Their latest study concludes that managed account platforms such as Lyxor's substantially mitigate operational risk, which accounts for 85% of hedge fund failures.

The main objective of the Edhec Hedge Fund Diversifier Benchmarks is to take advantage of the diversification effect of alternative investments by offering clients optimal diversification of their traditional portfolios, while benefiting from stable returns and reduced volatility.

Therefore, the two FCPs constitute a milestone in the development of specific solutions for institutional investors, who want to optimize the risk/return profile of their asset allocation with hedge fund investments, provided they respond to their needs for risk-control, liquidity and transparency.

The two FCPs, combining the expertise of Edhec with the benefits of the Lyxor Platform, constitute an exciting proposition for institutional investors.

Why did SG CIB choose to sponsor Edhec’s research in the field of structured products, when one would imagine that SG CIB have nothing left to prove in this area?

Christophe Mianné: It is precisely because we have a leading position in the field of structured products that we want to offer our clients products that are not only the most innovative ones, but that also provide benefits supported by academic concepts. We strongly believe in our products and the important role they have in asset allocation decisions of institutional investors. We hope that the Edhec research on this subject will improve the understanding of such benefits.

How does SG see the development of derivative products in the world of asset management?

Christophe Mianné: Risk management has increasingly attracted the attention of asset managers, and there is no indication that this will change in the near future. In this context, derivatives constitute an appropriate tool as they not only aim at reaching a specific performance result but moreover allow risk to be controlled thanks to their non-linear return characteristics. As such, the use of derivatives will continue to grow in the future, and banks, especially SG CIB, will make sure to provide the most suitable solutions to their clients.