In July 2019, Avaloq acquired Zurich-based Derivative Partners, the leading information and data provider for structured products and derivatives in Switzerland. Derivative Partners has been providing highly valuable market information, tools, research and calculations for complex financial products for its clients in Switzerland and Europe for over 15 years.

Derivative Partners provides solutions to more than 40 market participants including issuers, private banks, asset managers and exchanges with valuations of option-linked securities and complex financial products. Its main capabilities include:

  • Calculation of independent values of structured products with a focus on equity and FX products
  • Lifecycle management for structured products
  • Calculation of risk figures: value at risk, summarized risk indicator (SRI), barrier-hit probability, product risk classification (PRC)
  • Calculation of a wide variety of key figures of structured products
  • Media services, such as ghostwriting, reports, statistics and events

For Avaloq, the acquisition places the company at the forefront of utilizing differentiating data (valuations, risk and key figures) and information for structured products on its platform.

Market needs

Derivatives and structured products have become mainstream financial products and are no longer just the preserve of sophisticated, institutional investors. Avaloq’s global client base of banks and wealth managers are now dealing with these products on a daily basis for their clients. As such, it is vital that Avaloq’s own product suite is able to accommodate their use and help Avaloq’s clients capitalize on this market normalization.

Case study – European private bank

A private bank discovered that the equity exposure of many of its clients' portfolios was too high due to the unattractive interest rate environment. As a result, the portfolio risk was higher than the client's risk profile would allow in many cases. The bank also noticed that the ratio of structured products in client portfolios was lower than the market average. The bank approached Derivative Partners and asked the company to bring more transparency to its clients’ portfolios. The bank’s objectives were to:

  • support client advisers during the sales process for structured products;
  • support client advisers with the management of their product portfolios;
  • ensure that the risks of the client portfolios correspond to the clients’ risk profiles;
  • increase the share of structured products in client portfolios.

Together with the bank’s product management, Derivative Partners defined and implemented a client-specific lifecycle monitoring service in combination with an alerting system. The solution covers the following key figures:

  • Product redemption dates
  • Barrier-hit probability
  • Knock-out probability
  • Autocall probability
  • Risk figures/VaR
  • Yield estimations

The service was implemented in under two months. Shortly after the lifecycle monitoring service was introduced, the bank recorded an increase in the sale of structured products. Key benefits for the bank include:

  • a more efficient sales process thanks to re-investment and switch proposals;
  • transparency over the whole portfolio of structured products for both client advisers and sales officers;
  • control of portfolio risks – ongoing and documented;
  • higher sales revenues and ratio of structured products in client portfolios.

Avaloq vision

For Avaloq, the ambition with Derivative Partners is to establish a global footprint with our service offering. As a centre of competence for structured products, Derivative Partners will support any enquiries and services in the context of structured products and quantitative market information.

All services of Derivative Partners can be offered to any client using any banking system.

The acquisition of Derivative Partners also underpins Avaloq’s vision of reinventing the financial experience in a fully digitalized, always-on and data-driven world through powerful data analytics. We know that superior data models are absolutely critical for the future of the global financial services industry.

Roadmap

The next six months

In terms of short-term goals, the following has been defined:

  • Identification and onboarding of pilot clients
  • Implementation of lifecycle monitoring services for new clients
  • Implementation of independent valuation services for new clients

The next 12 months

Over the next year, the aims are:

  • Derivative Partners services are known, understood and implemented in the service offering process
  • Global footprint for independent valuation
  • Establishing a centre of competence for structured products

The next 24 months to three years

Looking further ahead, beyond 2020, Avaloq expects to launch the following functionality:

  • Portfolio valuation
  • Product risk classification
  • Primary market-specific services