Q&A with Mike Fullalove

Q&A with Mike Fullalove

Stuart Fieldhouse

Are structured solutions the way forward for institutional investment in hedge fund portfolios?

Structured solutions offer a way for institutional investors to get the exposure they need to certain investments,hedge funds being a prime example. The ability of investment banks to understand, measure and trade within bespoke risk return characteristics is a clear advantage for institutions that are restricted by risk budgets. These attributes can allow investors to access hedge funds in a manner which is specifically tailored to their needs.

We can also offer access to hedge funds for investors in a structure, which offers improved tax efficiency, or more flexible terms over liquidity for example. In some markets, it is not possible to access hedge funds unless their returns are provided through a structured solution.

Would you be tempted to expand outside your fairly focused market in terms of equity derivatives – for example, into the Asian mid-caps space?

Markets can change rapidly and client demands are always evolving. It is up to us to constantly adapt ourselves to a volatile environment and to respond quickly to the needs of our clients. At Nomura, we are always ready to explore new businesses in order to be able to better respond to the market. We strongly believe that this strategy is one of our key drivers towards leadership and success, and we will follow these plans as we grow towards other regions and markets as opportunities arise.

What are the essential criteria for a successful platform in the funds industry?

A critical issue is that the platform must be flexible and well supported by the people running it.

The advent of UCITS 3 offers the promise of great simplification of platforms for the cross-border issuance of funds, but in reality there are many intricacies that must be understood.

This is especially true for structured products, which use derivatives linked to a wide range of different underlying investments such as hedge funds. The devil is in the detail, because different jurisdictions are not necessarily going to instantly allow any offshore fund into their country just because it carries a UCITS 3 label.

To work effectively and grow assets, we have ensured that our platform is supported by a detailed knowledge of the attitudes of individual regulators in the jurisdictions where we want to do business. Understanding their views on different underlying investments and having the legal and product management expertise in our team to manage these issues, has become vital.

We feel that it is important to understand the needs of the distributor that may be using the product issued from our platforms, and so we have worked hard to develop a service, which works throughout the value chain of the product.

Although we are an investment bank, we recognise that we must support the product beyond the trading floor, and help distributors and product providers grow assets. To do this we have hired product management professionals from asset managers and they provide support in the marketing and distribution of the product more akin to that received from the best asset managers. This is a new development, because in general the investment banks provide the derivative structure for a product, but not much in the way of support for the user or distributor of the product. We aim to change that.

How easy has it been to mesh the vastly different fund management and trading cultures within the operation? What have you been doing to make sure this is achieved?

By hiring carefully, bringing the two cultures together has not been too difficult. The trading floor excels at producing competitive and highly commercial products quickly and with great imagination. Having experienced people from fund management around (particularly those who are close to distribution) allows us to better understand how those products work in the marketplace. Our relationships with product distributors and providers are improved as a result, and we are getting very positive feedback and business from clients.

We achieved the successful blending of cultures by putting people from asset management and traditional equity derivatives together rather than apart in a different office. At Nomura you will find, for example, people from a fund management background sitting next to structurers, traders and lawyers.

We also achieved a successful blend because we took our time in hiring people. A great many people were interviewed before we found the blend of experience and personality that we wanted, and it is rewarding to see how people from different backgrounds are working effectively as a team in such a short time.

How has the initiative been received to date by the hedge fund community, especially in the UK?

We have had meetings with a number of hedge fund and fund of fund groups and they all appreciate our fresh look at the business. We realise that the business is now more mature and these groups require a different service in terms of single stock and index trading, multiple types of financing and the correct platforms to access both retail and intuitional investors. At present there are very few of our competitors that have these multi faceted conversations with hedge fund clients. We will be working with hedge fund groups to provide structured and financing products for their own distribution as well as creating products for Nomura’s global distribution.

Where would you like the business to be at by this time next year?

Nomura’s goal is to be a top five player in fund derivatives, to offer all aspects of the equity and fund derivative product range, and to be recognised as being at the forefront of client service and innovation.