In today's ever-evolving investment landscape, the importance of diversification cannot be overstated. Investors are actively seeking bespoke investment strategies that encompass a wide range of asset classes, including equities, bonds, derivatives, and alternative assets. When it comes to managing asset allocation and inheritance for their clients, family offices are adept at providing a plethora of strategies aimed at augmenting investment returns for family members. One notable avenue involves assisting families in identifying promising investment products across investment banks. This article sheds light on a highly adaptable investment approach that empowers investors to deploy multiple investment strategies to their advantage.

• Actively Managed Certificates (AMCs) serve as versatile investment management tools that integrate various asset types, granting investors access to a diversified and flexible set of investment strategies
• AMCs offer unique characteristics that provide investors with the advantage of lower fees compared to traditional investment products, alongside direct access to these investment vehicles. Furthermore, AMCs cater to clients with varying fund sizes, offering a simplified and direct fund-style subscription model
• It is important to note that AMCs fundamentally differ from traditional investment funds, and it is crucial for investors to thoroughly comprehend the underlying logic and mechanics of these investment instruments

What is an AMC？

AMCs represent investment instruments that blend the characteristics of structured products and actively managed funds. Drawing on their deep investment expertise, asset managers adeptly combine diverse product types to create AMCs that align with specific investment mandates. In essence, the asset manager, such as a family office, employs their own investment ideas or those aligned with the investors’ and integrates different investment products into an AMC for active management. Instead of individually purchasing different products, investors can simply subscribe to the AMC to participate in the investment strategy.

Compared to traditional mutual funds, AMCs offer enhanced flexibility, allowing asset managers to navigate different market environments and manage assets more adroitly and efficiently. This innovative design has positioned AMC uniquely within the financial market, presenting investors with a multiple investment options to explore.

Investing in AMCs presents investors with a multitude of compelling reasons. First and foremost, AMCs offer a level of flexibility. Asset managers possess the nimbleness to swiftly adapt investment strategies in response to the ever-shifting market dynamics. This feature empowers investors to bolster the protection of their portfolios and cultivate their assets for optimal growth.

Secondly, AMCs can be established swiftly, granting them a heightened level of responsiveness to market opportunities when compared to traditional investment vehicles, such as mutual funds. This agility empowers asset managers to seize short-term investment prospects, thereby optimizing the performance of the investment portfolio to its potential.

Furthermore, the extensive array of assets encompassed by AMCs offers investors an expanded universe of investment choices. In addition to conventional stocks and bonds, AMCs can encompass derivative securities, such as structured products. This diversified asset allocation serves to mitigate portfolio risk and enables a more holistic approach to investment management.

‍What Sets AMCs Apart？

At the heart of AMCs lies the fundamental principle of active management. Family offices leverage their profound investment expertise, market insights, and extensive research to make well-grounded investment decisions. Through monitoring and analysis of market trends, they adeptly identify potential investment opportunities. By dynamically adjusting portfolio holdings, optimizing returns, and skillfully managing risks, family offices strive to achieve investment returns that surpass those offered by passive investment strategies.

AMCs possess unique attributes that distinguish them from other investment vehicles. Firstly, unlike many structured products, AMCs exhibit a decent degree of dynamism. Family offices retain the flexibility to modify the composition of their portfolios within predefined investment parameters as necessary. This inherent adaptability facilitates AMCs to swiftly respond to market fluctuations, thereby offering investors a more resilient and agile asset allocation strategy.

Secondly, compared to traditional funds, AMCs benefit from a lesser regulatory burden.  Thanks to their streamlined structure, AMCs generally entail fewer compliance procedures, enabling asset managers to concentrate their efforts on executing investment strategies rather than grappling with intricate regulatory processes. 

Most significantly, AMCs provide asset managers the flexibility to tailor their management and performance fees in response to market conditions. This enables them to receive fair and just compensation that is directly linked to their actual performance, while simultaneously affording investors a range of personalized investment management options. This mutually beneficial arrangement ensures that asset managers are incentivized to deliver superior results, while investors can align their financial goals with customized fee structures, fostering a symbiotic relationship that enhances transparency and accountability in the investment landscape.

Moreover, AMCs offer a multitude of advantages for banks and issuers, serving as compelling motivations for their issuance:

• Low startup costs: In comparison to conventional investment products, AMCs offer banks and issuers the advantage of lower initial startup costs. This cost-effectiveness allows institutions to strategically allocate resources, thereby enhancing operational efficiency and overall profitability.
• Low maintenance costs: Once established, AMCs incur relatively low operating expenses. This economic efficiency allows banks and issuers to optimize their budgets and allocate resources to other critical areas of their business, bolstering their financial standing.
• Expedited listing process: The streamlined process associated with setting up AMCs, coupled with customizable templates and predefined structures, translates into accelerated listing timeline. This flexibility enables institutions to promptly capitalize on market opportunities and swiftly adapt to changing investor demands.
• Tailored customization for diverse client segments: AMCs offer flexibility in customizing investment strategies, risk allocations, and features based on the unique preferences and needs of different clients. This customization capability fosters long-term client relationships and enhances customer satisfaction.
• Inclusive of diverse asset class: AMCs encompass a wide range of asset classes. In addition to traditional stocks and bonds, AMCs can encompass derivative securities, including structured products. This broad diversification empowers banks and issuers to provide investors with a comprehensive array of investment choices aligned with varying risk preferences and market trends, further enhancing their appeal to investors.

Who is Suitable for Investing in AMCs？

AMCs cater to the needs of professional and institutional investors seeking customized investment solutions. With its inherent flexibility and a plethora of customization options, AMCs grant professional investors to fine-tune their investment strategies according to clients’ individual needs. This tailored approach positions AMCs as an ideal choice for meeting the specific demands of seasoned investors. For instance, family offices can allocate AMC products from financial institutions like Goldman Sachs, to clients who hold private banking account with UBS, providing an enhanced investment option for clients.

Simultaneously, AMCs also extend their appeal to small investors by offering lower investment thresholds. This inclusive approach ensures that a wider spectrum of investors can participate in the market, fostering greater diversity and fairness in the investment industry. By providing quality investment opportunities to a broader range of individuals, AMCs contribute to driving the democratization of investment and expanding access to valuable investment prospects.

Differences between AMCs and Traditional Funds

Investors sometimes find themselves perplexed by the distinction between AMCs and the various investment funds available in the market. To provide clarity, we present a comparison between the two in terms of their definitions, product transparency, costs, regulations, and trading characteristics.

Nevertheless, like any investment, AMCs have their own set of limitations. Firstly, it is important to recognize that AMC does not provide capital protection. The risks and returns associated with AMC investments are contingent upon the underlying product structures held within them. Investors should be mindful of this dynamic when evaluating potential investments. Secondly, a significant portion of AMCs is not traded on exchanges and falls within the realm of derivative securities. Consequently, the regulatory oversight for AMCs may be relatively less stringent compared to traditional funds and other asset classes (although they are not entirely unregulated). Additionally, the credit risk of the issuer is another potential factor to consider when investing in AMCs. 

Summary and Recommendation

AMCs have proven to be a win-win proposition for both investors and asset managers, offering a range of advantages including flexibility, transparency, and customization. Investing in AMCs not only bolsters the preservation and growth of portfolios amidst market fluctuations but also provides investors with a broader array of diversified investment choices. As the market continues to evolve, AMCs are poised to assume a more prominent role in the future, becoming an integral component of investment portfolios and guiding investors towards a more flexible and innovative investment landscape. In line with this trend, the Poseidon Partner is currently devising plans to introduce actively managed certificates with distinct investment objectives. This move aims to provide investors with a more convenient, efficient, and comprehensive investment approach.