Privé Technologies wins at SRP Asia 2019

On the 10th of April, Privé was amongst the coveted winners on the night, bagged the Best Structured Product Technological Solution for 2019. 

Privé Technologies has developed a structured product platform which generates the data to help clients understand the impact of the products to their portfolios by comparing them with regular securities.

The wealth management industry approach is changing from a product-driven push approach to a consultative portfolio advice approach. Being able to understand the impact of different securities to a portfolio risk/reward approach is becoming increasingly important. For regular securities, information could be easily obtained.

However, difficulties arise when it comes to structured products as they lack track record and analysis.

Privé Technologies Brings Structured Products Analysis From Rocket Science to the Level of Traditional Investments.

- Julien Musset

Privé would to thank SRP Singapore for presenting to us this award.  For more information on the winners, please click here: https://www.structuredretailproducts.com/event/

Structured Products Part 2: What are the risks of Structured Notes and how does it affect your Portfolio?

The term “Structured Note” does not provide much information about the nature of the product. A “Note” has similarities with bonds: its valuation cannot go below $0, and it has credit exposure to the note issuer (i.e. you may lose all your capital if the issuer collapses, think Lehman Brothers). “Structured” product could be principal protected (that means you will minimally get back your capital) or highly leveraged (and you may lose all your capital). The tenor could be 1 month, 10 years and longer, the underlying could be commodities, FX, equities, indices or funds.

When an investor is looking at the prospectus of a new type of Structured note, the first challenge is to understand the features of the payoff, how the product behaves in different market scenarios, and what the main risk factors are. Even simple products can reveal a high level of complexity.

Let’s look again at the example described in Part 1 of this series:

Tenor: 3 months
Underlying: Stock ABC
Reference Price: Stock ABC $10
Strike Price: $8
Coupon: 12% p.a.


Recall the two scenarios at maturity for this structured note:

Scenario 1: If ABC falls below the Strike Price of $8, you will get a coupon of 12% p.a. (which works out to be  3% for a 3 month structured note) and you have to buy $10,000 worth of that stock at $8 regardless of where the stock is trading at.

Scenario 2: If ABC closes above the Strike Price of $8, you will get your $10,000 back plus a coupon of 12% p.a. (which works out to be  3% for a 3 month structured note) of $10,000, totaling $10,300.

If we were to break this down further, this product can be replicated by having the following in a portfolio:

  1. Buy a 3 months bond and
  2. Sell a 3 months put option on ABC with a strike at $8.

Why is the coupon paid by ELN higher than that of a typical bond or deposit with the same issuer and maturity? By replicating the portfolio, we can see that the investor is, in fact, selling a put option on ABC stock to the note issuer, and is compensated for the risk by receiving a higher “premium”.

Going one step further, an ELN can be seen as a hybrid product, combining an equity component (the put option) and a fixed income component (the bond), within the same note.

The next important factor for the investor to decide is whether the product would fit the objectives of his or her portfolio. Total risk exposure, stress scenarios, and performance backtesting are common analysis used to monitor the different risks of a portfolio. To calculate these numbers, it requires a multi-asset portfolio management system, further integrated with a derivatives pricing engine, which are technologies generally only available to institutional investors.

Access to the models and technologies mentioned above can provide investors with better insights and clarity on their investment decisions.

At Prive Technologies, we hear the challenges which investors of structured products have highlighted and have built an innovative solution that aims to provide transparency and accessibility to both advisors and investors. With the right access to information, structured products can be a real value-add to one’s portfolio, and no investor should be deprived of that.

Structured Notes Part 1: What are they and how it works

Without getting into the technical details, the typical structured note sold in Asia is a financial asset (like a bond or stock) whereby the risk & return behaviour may mimic a bond when the product is performing well and conversely, it behaves like a stock when the product is performing poorly. Structured notes are commonly sold in banks in Asia, especially to service affluent and high net worth investors. In the retail or consumer banking space, it’s usually termed as “Structured Deposits.”

A structured note can be customisable in many different ways depending on the investor’s preference and risk profile. Think of it like a do-it-yourself pizza where you can put whatever components (called the underlying) you fancy. Depending on what your taste preference may be and who the pizza chef is, the pizza will be priced (the strike price or the coupon) differently.

The final payout of your structured product investment is dependent on the performance of some underlying instruments. Below is an illustrative example.

If you were to buy $10,000 worth of the following structured product:

Tenor: 3 months
Underlying: Stock ABC
Reference Price: Stock ABC $10
Strike Price: $8
Coupon: 12% p.a.

There’s a lot of jargon here, but this means at the end of 3 months:

Scenario 1: If ABC falls below the Strike Price of $8, you have to buy $10,000 worth of that stock at 8$ regardless of where the stock is trading at.

Scenario 2: If ABC closes above the Strike Price of $8, you will get your $10,000 back plus a coupon of 12% p.a. (resulting to 3% a Tenor of 3 months) of $10,000, totaling $10,300.


In this case, the risk here is in Scenario 1 where the stock falls way below $8. Generally, you should only buy this structured product if you have the following view:

  1. You take the view that stock ABC will not fall by more than $2 in 3 months.

  2. You fundamentally like the stocks and believe that they are potentially long term assets you want to hold on to. Such that, even if scenario 1 were to happen, it would not change your long term view on this product and are okay with a short term loss.

The details of a structured note can vary in its underlyings, terms and pricing levels. It is important that you know the details and risks of the product well, and the various scenarios that might play out. Structured notes are typically sold via financial advisors in banks, so be sure that your advisor is clear in explaining them to you.

If there’s one thing to know about structured products (or investments in general) is that there is no such thing as a free lunch. For every seemingly good “benefit” that you are receiving, know that there’s also an equal amount of risk you are taking at any particular given point of time.

At the end of the day, it’s never a question of whether this structured product is good or bad, but whether the risk/reward factors are aligned with you and your views.

In Part 2 of our Structured Note series, we’ll talk a little more about the risks associated with structured products and when might be a good time to have them in your portfolio.