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SRP Europe Awards: SG Index –a three-pronged approach
from SRPInsight 24
by SRP & FOW
Société Générale (SG CIB) has leveraged the capabilities of its index business SG Index to complement its equity derivatives structuring and hedging activities and be a top provider of custom index strategies during 2022.
The French bank was recognised as the Best House in Europe for the 10th consecutive year at this year’s SRP Awards Ceremony. SG CIB took six other accolades including Best House ESG for the third time in four years; Best House France; Best House Yield Enhancement; Best Warrant Provider; Best Proprietary Index; and Best Issuance platform.
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Pierre Gimenes (pictured), head of equities & equity derivatives pricing, Europe, at SGCIB spoke to SRP about the merits of SG Index in supporting the banks equity derivative activities.
“SG’s index platform was set up to complement our offering and serve investor across different target markets,” he said.
SG Index (SGI) platform offers access to the bank’s own branded indices such as its range of ESG indices where SG is the index sponsor and owns the IP, but it also promotes white label indices developed by third parties. Overall, the platform comprises north of 2,000 indices across asset classes and client types.
SGI is based on three pillars and is used for several types of clients and products.
The custom index segment covers indices optimised for structured products and includes a range of thematic indices used in delta one and leverage certificates – notably popular in Germany – which is a growing market for the bank through b2c channels.
Then there is the bank’s QIS strategies unit which is used more often to respond to needs of private banks, especially around discretionary portfolio mandates, but also to deliver strategies for distribution purposes.
The third leg of the pillar - what the bank calls the ‘execution platform’ - offers solutions to manage discretionary strategies and puts SG’s execution capabilities at the disposal of clients who want a wrapper to implement their own views, strategies and IPs – which can be algo based or discretionary.
“The three categories have different applications but are very complimentary to each other and offer solutions to different needs,” said Gimenes.
Public distribution
In the public distribution market Gimenes sees a continuation of the trend of the past years around ESG criteria being used in equity indices - over the past three years, the volume tracking ESG indices has been quite significant as volumes quadrupled over three years.
“We observe a clear trend towards ESG but with a new approach compared to five years ago when the focus was on broad ESG filters – using ESG scores – and considering all the three pillars for the ESG score,” he said. “As time goes by, we observe a growing interest in more specific aspects of ESG which is pushing us to create new industry standards and become more precise when we develop new index strategies.”
The ‘E’ of ESG remains on top of the agenda due to current concerns around climate change. Climate is very much at stake but there are some other themes linked to the environment where people want to invest.
“Biodiversity or the transition towards a circular economy, for example, epitomize this trend within the evolution of ESG indices beyond the traditional carbon intensity theme,” said Gimenes.
The French bank reported US$17 bn Aum in Europe for its range of structured products linked to bespoke indices including decrement equity indices, vol target on multi-assets allocations, etc.
Input/output
Most of the indices and strategies developed by SGI are the result of the combination of the input from the structuring team which usually is seeking to respond to a client need and uses third party calculating agents and index sponsors “to leverage their operational calculation capabilities and reliability”.
According to Gimenes, in the ESG space some index providers have specific capabilities on certain themes, because they have either internal expertise on the matter, or partnerships with external ESG data providers.
“We usually discuss with the client the investment goals and then we build up a proposal looking at the best way to achieve that objective and choose the right partner to deliver the strategy,” he said.
Biodiversity which is the theme of the French bank’s submission to SRP’s awards, is a good example, as it is something that only a limited number of data providers have a robust expertise on at this stage.
“This is a key element at a product development stage as it guides towards the index provider with the relevant specific expertise,” Gimenes said.
Delta one
The delta one offering of SGI has been growing steadily over the past few years and most of the activity is driven by thematics of which ESG takes a good share.
Themes driving investment include electric vehicles and sector based strategies, but exposures can also be broader, according to Gimenes.
The French bank launched a delta one certificate recently linked to the MSCI theme rotation index which covers a universe of 22 big themes to mega trends.
“We think this index offers a lot of value because it uses quite sophisticated AI techniques to rotate and extract value from the best performing investment themes,” said Gimenes.
Fueling innovation
From a structuring perspective and a product development standpoint indexing is at the core of innovation in the structured products market, according to Gimenes.
“Developing new underlyings has become one of the most critical aspects of products structuring. You can see across the board and the value chain the use of indices in the structured products market and how investors are looking at new underlyings,” he said.
The increase of custom and optimized underlyings for structured products shows the evolution of the market from broad market indices and stocks to less standard underlyings that implement investment strategies broadly proposed in the asset management space and are designed to extract potential alpha from the market.
“This has enabled us to offer additional value in our products and improve the value proposition of structured products, closing part of the gap to the richness of investment thematics offered in the mutual funds,” concluded Gimenes.