Adrian-Missen-Senior Investment Specialist-BCP

Adrian Missen – Senior Investment Specialist, BCP Asset Management

Nine years ago, on September 15th 2008, Lehman Brothers filed for bankruptcy following the capitulation of the firm and the loss of billions of dollars of client and investor money. It was the largest bankruptcy filing in US history and became a focal point of the global financial crisis that decimated investment portfolios across the world. The crisis took almost everyone by surprise and left no hiding place for investment managers as all asset classes were impacted. In March of the following year the US equity market halted its dramatic decline and started on an exceptional run of positive performance which has lasted to this day. The size of the crash (markets fell almost 60%) has been surpassed by a bull run lasting 8 and a half years and generating over 250% performance for some equity investors, measured by the US equity Index the S&P 500, as illustrated in the chart below. The chart shows the current bull run and its march to surpass the previous record bull run from 1990 to 2000;

Over the course of this eventful 9 year period for investors, BCP has witnessed a variety of investor reactions and behaviours. As the leading provider of capital secure investments in the Irish market for over 25 years we have seen it all when it comes to markets and investments but this period was particularly eventful and telling for most Irish investors. In 2008 there was legitimate panic in the calls being made to BCP by concerned clients and advisers, followed by the reassurance that capital secure products were doing what it said on the tin and protecting capital. These products are designed to withstand the most volatile of markets and the strength of the banks supporting BCP products meant investor capital remained secure at all times. As the recovery in markets took hold, and particularly in the last 5 years or so, some investors have been focused on maximising growth and reintroducing risk, rather than protection, however for the majority of our client base there has been a consistent level of fear or mistrust in the recovery and a demand for at least a portion of their investment or pension portfolio to be allocated to a capital secure strategy.

As a result, BCP achieved record levels of inflows into its capital secure structured products over this period, even though markets were in recovery mode, increasing its assets under management to €2.5bn and raising assets of €350m to €500m a year from investors. This demonstrates the appeal that capital secure products offer to investors in a variety of market conditions, and that investors and their advisers recognise the cyclical nature of markets.

Where Are We Today?

In the last 6 months or so the conversations with investors and brokers has taken another interesting turn as many market participants have started to question the longevity of the current bull run and are concerned about how they can best protect the gains made over the last few years, while still generating the kind of returns required to grow their money. While few anticipate a near term risk of another financial crisis, there is legitimate concern over the future direction of equity markets in particular and global economic performance in general.

Capital secure investment products have always been built with dual-objectives of protection & growth, however investors may focus on one particular component over another depending on what stage of the investment cycle we are in. BCP meet both objectives by pairing some of the strongest banks in the world with some of the best funds, indices and investment managers in the market. Due to our size, our expertise in the market and our negotiating power with the banks we can construct products that offer high capital protection (from 90% to 100%) and high rates of performance potential (up to 200% participation), and access to some of the best fund managers in the international market.

As with other areas of the investment world, capital secure products have witnessed significant innovation in the last 8 years as the market has tried to ensure their products are more robust, more flexible and better designed to withstand another seismic event. In our opinion capital secure products still represent the only traditional way for investors to put an absolute floor on the amount of capital they are putting at risk and therefore providing a level of reassurance on their investments that other strategies simply can’t provide. Through product innovation improvements BCP are now able to provide better performance potential, a wider variety of funds and asset classes and improved liquidity/access features.

For low or lower risk investors, capital secure strategies such as BCP Bonds in our opinion remain the best solution in the market to balancing the dual objectives of security & growth.

Below is a table illustrating some of the key features of a sample modern and innovative capital secure investment product produced and distributed by BCP:

Name BCP Global Portfolio Solution (GPS) Bond
Term 5 years
Access During Term Daily liquidity, subject to normal market conditions
Growth Potential Either 100% or 200% of the growth of a multi-asset portfolio of funds & indices
Capital Security 95% or 90% capital security at maturity
Provider of Security BNP Paribas – One of the strongest banks in the world
Investment Objective Provide lower risk investors with access to a secure multi-asset investment strategy, backed by a highly rated credit institution

Whether we are heading into another downturn, and an end to this historic bull market, or continuing on the current positive market trajectory, BCP capital secure products offer an attractive, efficient, understandable and cost efficient method for investors to generate performance while limiting the risk of losing their money.

This article was written by Adrian Missen, Senior Investment Specialist, BCP Asset Management.

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 As with all investments, it is important to remember that values can fall as well as rise