Re: Investment Structures
Jeffrey,
Hope all is well.
Further to your meeting, HESheikh Hamad asked me to send you a summary of the 2 investment structures.
EQUITY PUT OPTIONSI
• Put option on the worst performing stock in a basket
- One year structure
• Coupon guaranteed irrespective of performance of the stocks in the basket.
• Put option strike at 70% of reference/spot
• Payoff if required in stock at 70% strike
• We identified 3 baskets based on stocks we are comfortable to own in a downside scenario at a 30% discount.
• Basket 1; BHP Billiton, Bank of America, Shell, BNP Paribas
• Basket2; Credit Suisse, General Motors, BASF, General Electric
• Basket 3; Barclays, Adidas, Siemens, Santander
• The coupon on the above baskets ranges between 8.5 — 9.5% without any leverage.
• Obviously you can select any stock of your preference in the basket. Stocks with higher volatility and less correlation will generate a higher coupon for the basket.
FIXED INCOME;
• We identified 20 investment grade names to place in a portfolio
• Given the uncertainty in the energy, commodity and bank sectors we selected some of these names to maximize returns
- 5 year structure
• Exposure through 5 year CDS
• Based on leverage we are able to generate double digit returns.
• The risk to the return is margin calls on the leverage if the value of the portfolio declines due to spreads widening.
• Principal risk is based on default in any of the credits in the portfolio which is limited to 5% per name.
I hope the above is useful. Please let me know if you have any questions.
Best
Shahzad.
As requested;
• List of Fixed Income Names
| # Bucket | Reference Entity | Type | Weight | 5y CDS Spread | Moody's | S&P | Fitch |
|---|---|---|---|---|---|---|---|
| 1 Sovereign | Portuguese Republic | Senior | 5.00% | 275 | Bal | BB+ | BB+ |
| 2 | Federation of Malaysia | Senior | 5.00% | 146 | A3 | A- | A- |
| 3 Autos | General Motors Co | Senior | 5.00% | 210 | BBB- | BBB- | |
| 4 | Volkswagen AG | Senior | 5.00% | 162 | A3 | BBB+ | BBB+ |
| 5 Commodity Producer | Petroleos Mexicanos | Senior | 5.00% | 350 | Baa3 | BBB+ | BBB+ |
| 16 | Rio Tinto Ltd | Senior | 5.00% | 175 | Baal | A- | A- |
| 7 | BHP Billiton Ltd | Senior | 5.00% | 158 | A3 | A | A+ |
| 18 | ConocoPhillips | Senior | 5.00% | 170 | Baa2 | A | A- |
| 19 | Repsol SA | Senior | 5.00% | 265 | Baa2 | BBB- | BBB |
| 10 Consumer Staples | Tesco PLC | Senior | 5.00% | 265 | BB+ | BB+ | |
| EU Financials 11 (sub) | Banco Bilbao Vizcaya Argentaria SA | Subordinated | 5.00% | 265 | Baa3 | BBB+ | |
| 12 | Banco Santander SA | Subordinated | 5.00% | 265 | Baa2 | BBB+ | |
| 13 | Standard Chartered Bank | Subordinated | 5.00% | 275 | A3 | A | |
| 14 | Assicurazioni Generali SpA | Subordinated | 5.00% | 240 | Baa3 | BBB+ | |
| 15 | Societe Generale SA | Subordinated | 5.00% | 185 | Baa3 | A- | |
| 16 | Royal Bank of Scotland Plc | Subordinated | 5.00% | 255 | Ba2 | BBB | |
| 17 | BNP Paribas SA | Subordinated | 5.00% | 160 | Baa2 | A | |
| 18 | Credit Suisse Group AG | Subordinated | 5.00% | 178 | Baa3 | A- | |
| 19 | Barclays Bank Plc | Subordinated | 5.00% | 250 | Baa3 | A- | |
| 20 | HSBC Bank Plc | Subordinated | 5.00% | 200 | A2 | A+ |
• Deutsche is good on fixed income. BNP on equities
• Still waiting for the proposal on the first loss idea. My gut feeling is that they will take most of the return away. Will let you know.
• We have made some selected direct investments in the new economy names; tech, bio etc. Not really investing in tech funds.
in your fixed income basket, which stocks did you choose. ? 2. which banks have you found , or person at bank that you think provides the best execution and flexibility. . 3. Sk Hamad said that one of the banks might take the first two stock loss? 4 Do you currently invest in Tech ? or tech funds? med tech, bio tech, cyber etc.?