Actively Managed Certificates

An actively managed certificate (AMC) is a derivative security linked to a predefined underlying and repackaging a customized index or actively managed portfolio. AMCs are securities with an ISIN and can be admitted to trading at a stock exchange. Actively managed certificates are issued by financial institutions under the prospectus directive and are not collective investment schemes.

AMC distributors buy and/or sell AMCs directly from or to the financial institution issuing the investment vehicle. They therefore do not trade exactly at NAV like a mutual fund but under normal circumstances trade at a spread between 0.75% and 1.50% for the benefit of the issuer.

An AMC combines features of a mutual fund, which is actively managed by an investment manager, but is more cost-efficient and flexible in terms of asset allocation, leverage, and diversification rules. Most AMCs are issued to track specific themes or alternative investment strategies that are hard or too expensive to track in a mutual fund.

Distribution Switzerland

AMCs are subject to the general rules for structured products. Distribution to non-qualified investors is restricted to those AMCs issued or guaranteed by a Swiss financial institution and a simplified prospectus needs to be published. The simplified prospectus needs to highlight that the AMC is not a collective investment scheme. The distribution of actively managed certificates to qualified investors is not restricted in Switzerland and foreign financial institutions issue AMCs to qualified investors.

Distribution in the EU & United Kingdom

Distribution of actively managed certificates in the European Union as well as in the United Kingdom is regulated by the prospectus directive. An offering of AMCs to professional investors is exempt from any regulatory approval. Offerings to the public and thus to retail investors as well as admission to trading at a regulated market are subject to publishing a prospectus for the issuance of derivative securities approved by the regulator. The marketing of actively managed certificates furthermore is regulated by the packaged retail and insurance-based investment products regulation.

Distribution Singapore

Distribution of AMCs to accredited investors in Singapore is subject to a filing with the regulator, but not subject to approval. AMCs can only be distributed by authorised AMC distributors licensed in Singapore, whereas the Issuer of the AMC can be in any recognised jurisdiction

Distribution Hong Kong

Distribution of AMCs to accredited investors in Hong Kong is not regulated nor subject to regulatory notification.

Issuer Risk

AMCs are derivative securities and not mutual funds. They therefore are subject to the issuer risk and not bankruptcy remote assets like units in mutual funds. Some actively managed certificates are issued as collateralized derivative securities to overcome this disadvantage, others are issued as unsecured derivative debt instruments with full exposure to the credit risk of the financial institution issuing the AMC

Investment uses

AMCs generally provide access to active and alternative investment strategies that are not replicable within a mutual fund or ETF. Compared to collective investment schemes they are more flexible and cost-efficient making them popular for the launch of smaller investment vehicles with up to 10 mio CHF assets under management.

Most actively managed certificates track the investment strategy of an external asset manager, called the strategy sponsor. Many financial institutions issuing AMCs offer their infrastructure to external, independent asset managers to structure and issue the actively managed certificate, while the asset manager is responsible for distribution and management of the underlying portfolio.

Notable Issuers

• iMaps Capital Markets: issues AMCs managed by independent asset managers as a service. Active in Switzerland, Germany, United Kingdom, EU, Singapore and Hong Kong
• Julius Baer: issues self-managed AMCs as well as AMCs managed by independent asset managers. Active in Switzerland, Germany, Singapore and Hong Kong
• Lang & Schwarz: issues AMCs managed by independent asset managers as a service. Active in Switzerland, Germany and Austria
• Leonteq: issues self-managed AMCs as well as AMCs managed by independent asset managers. Active in Switzerland, Singapore and Hong Kong
• Vontobel: issues self-managed AMCs as well as AMCs managed by independent asset managers. Active in Switzerland, Singapore and EU
• Zuricher Kantonalbank: issues self-managed AMCs as well as AMCs managed by independent asset managers. Active in Switzerland

References

1. The Rise of Actively Managed Certificates, published by CapLaw [1]
2. AMC Platform of Bank Julius Baer [2]
3. iMaps Capital Markets Blog on AMCs [3]
4. Article by CreaTrust [4]
5. Regulation handbook by the Swiss regulator [5]
6. EU Prospectus Regulation including Derivative Securities [6]
7. EU PRIIPs regulation [7]

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