Why banks should consider an AMC offering

Suppose smaller or mid-sized banks want to offer Actively Managed Certificates to their financial intermediary clients. In that case, they usually have to cede some of the business to the larger players in the market. But if they could retain the entire value chain in-house, this would offer them the chance to benefit from the expansion of their brokerage and result in increased fee revenues and custody business.

Although there are different ways to securitize assets, most banks are looking into issuing Actively Managed Certificates (AMCs) via a special-purpose entity. This approach offers great flexibility for tailoring investment strategies, and many banks will find developing their unique AMC offering quite exciting and lucrative. In many cases, the clients who purchase these products through third parties may deposit them in accounts held at the bank, resulting in net new money and increased customer loyalty at the same time.

AMCs are also highly modular. They can be created for large or small (even very small) ticket sizes in various asset classes; even digital assets or alternative assets can be constituents of an AMC. This gives banks the flexibility to collaborate with a broader range of partners on asset management and servicing. It also allows them to turn their own investment ideas and strategies into bankable products, to add to portfolio diversification.

DIY vs. working with a partner

To reap these benefits, banks need to decide if they want to build their own offerings or work with an external partner to build an AMC platform.

While building its own offering can have some advantages, setting up an AMC platform is an expensive and complicated endeavor that can take months or even years of resources to complete. Banks will, for example, need to change or update IT systems, keep track of the AMC rebalancing in their trading books, measure risk, and create a new application for the manager of the AMC assets.

For a typical bank, setting up a platform to service new types of assets requires hiring a team of 20 to 25 people with the requisite expertise. It can typically mean one to two million US dollars in legal fees and a one- to two-year setup period. Then there is the cost of the infrastructure to consider.

For these reasons, most banks who enter this business only do so for big-ticket items, typically projects over 200 million dollars. This leaves untapped the vast universe of smaller but highly interesting opportunities that could attract new clients to increase assets under management. In this case, third-party platforms, like the one we have built at GenTwo, can help to access this universe fast, cost-efficiently and with no integration efforts.

Second-generation AMCs with GenTwo

"At GenTwo, we offer a "plug-and-play" securitization service that banks can leverage to build their own AMC platforms at a fraction of the cost and effort involved in doing it themselves."

Based on our "second-generation" AMCs and using our sophisticated digital platform, a bank can implement a new product line in a matter of weeks or even just a few days, not years, which makes the whole process very cost-effective.  Next-generation AMCs do not carry credit risk, nor are they subject to other common restrictions of traditional structured product issuers.

With GenTwo, banks can have their own AMC offering as a white-labeled solution without any integration issues. The AMC is set up as a standard client, meaning the manager of the AMC assets can use the same banking tools that they are already familiar with. In our Set-up with great flexibility, Banks can act as Custodian and Broker, keeping vital parts of the value chain inhouse and thus increasing customer loyalty. As GenTwo clients, they can also access other GenTwo solutions, giving them and their clients efficient access to private market assets as securities with Swiss ISIN and expanding their investment universe.

In the next article in this series, we will go into detail about how banks can efficiently set up an AMC platform with GenTwo.