use of structured products in wealth management

Use of structured

products in wealth

management

April 2008Tomas Hochmeister

EQUITY DERIVATIVES HOUSE OF THE YEAR

2This material is provided for information purposes only There is no assurance that a transaction will be entered into on any indicative terms

Agenda

Why Structured Products?

Innovation dedicated to investor needs

Alternative to Equity Investments

Alternative to Global Asset Allocation Investment

Widen your horizons: Core Satellite

Niche Investments

Alpha Generator


Why Structured Products ?

Structured Products have witnessed a huge increase in the past few years.

Investors have exhibited enhanced appetite for these investment solutions because of a variety of reasons

Enhancement of risk/return profile

Capital Protection has proved to be a very attractive feature

Possibility to benefit from innovative payoffs

Opportunity to be linked to multiple asset classes

Benefit from the performance of traditional and non-traditional asset classes

No currency risk ( CZK Quanto)

Insurance linked guarantees have also seen a huge demand


0

20

40

6080

100

120

140

160

Europe Asia North America

2004

2005

2006

Structured Products a fast growing activity

A business led by the European market

The most innovative

Structured products Retail market volume 2004/2006

Source: Structured retail products

EU

R B

illio

n

+52%

39% +26%


Structured Products: created for a range of clients

Investment with total safety

Pattern recognition for Target Clients

Lifestyle : Simple and Safe

Risk Tolerance: Low

Current Portfolio: Bond Oriented and Less Diversified

Typical Age group: 50 +

Behavior Traits: Highly concerned about risks

Investment with the optimal balance


Lifestyle : Balanced

Risk Tolerance: Medium and Normal

Current Portfolio: Equities & Bonds (or deposits)

Typical Age group: 25 - 60

Behavior Traits: Willing to go the extra mile with added risk appetite

Investment with a maximum leverage


Lifestyle : Adventurous

Risk Tolerance: Extremely High

Current Portfolio: Equity Options Bias

Typical Age group: 25-60

Behavior Traits: Enjoy taking risks for the additional upside potential

Conservative Profile Medium Profile Dynamic Profile

“Best Size Fits all” Solution Solution for “Gambling can be fun”“Play Safe” Solution

100% Capital Guarantee

Partial Capital Guarantee

No Capital Guarantee


Source: Bloomberg

From the distributor standpoint

A true and concrete tool to fight against the behavioural bias of small investors

"Odd Lot Theory" Illustration CAC 40

2 200

3 000

3 800

4 600

5 400

6 200

7 000

In In

dex

poin

ts

45,2

5,9

0

10

20

30

40

50

1998 1999 2000 2001 2002 2003 2004 2005

In €

bill

ions

Encouragement for Innovation Case Study on Principal Protected Notes

Net inflows in equity funds in France


Enhancement of risk/return profileCase Study on Principal Protected Notes

From the investor standpoint

Value added as compared to balanced funds

Improvement of the efficient frontier

Exp

ec

ted

10

-ye

ar

ga

in

Source : Edhec Risk and Asset Management Research Centre. July 2005

With Principal Protected SP

Without Principal Protected SP

70%

90%

110%

130%

150%

170%

190%

-20,0% -10,0% 0,0% 10,0% 20,0% 30,0% 40,0% 50,0%

Cvar(95%)

100% in SP

100% in Bond

100% in Equities

A

B

Portfolio A B

Equity 50% 10%

Bonds 50% 10%

SP 0% 80%


Agenda






Niche Investments

Alpha Generator


“… If any one owe a debt

for a loan, and a storm

prostrates the grain, , ……

……. in that year he needs

not give his creditor any

grain, ……….. pays no

rent for this year…”

Hammurabi Code

1800 B.C.

Hammurabi was the 6th king of Babylonia. He unified his kingdom creating a unique religion, language and law: The Hammurabi Code

One of the first derivatives in history:

When did it begin? Much earlier than what you guessed


Case study: Market context at the end of the 90’s

1998 LTCM & Emerging markets crisis:

Equity Market volatility is higher and higher

Risk aversion is high, interest rates are low or not high enough to match liabilities requirements

Investors can hardly afford a principal protection and an exposure on the increase

Client needs: Principal protected investments linked to Equities but not relying on bullish markets to generate performance

Answer: Creation of "promises" products / Mountain range


1998: the Everest Concept

Payoff at maturity:

200% + 100% of the performance of the worst performing stock positive or negative

If after 10 years, the worst performing stock of the portfolio displays a flat performance, the investor’s principal is doubled

Equivalent to an annual return of +7.18%

As of October 1, 1998 10-Y swap rate was at 5.00%


Innovation in SP answered a Client need

What was possible at this stage:

Bet on the increase or the decrease of equity markets

What became achievable with this new range of Structured Products:

Bet on the non decrease of equity markets with principal protection


Agenda






Niche Investments

Alpha Generator


An alternative to equity investments

Structured products enable to manage what asset managers dream of achieving:

1. To get the BEST ENTRY point

Example: Strike min mechanism

2. …and the BEST EXIT point

Example: Launch of emerald concept on 2002, first structured

product to offer a lock in mechanism and a high level of participation rate

Call on Max: Emerald innovation at a glance A 6-Year Fund Linked to a basket of 12 international stocks 100 % capital guarantee The maximum performance of the basket

Every 6 months, the value of the basket is observed. At maturity, the redemption value of the product is based on the best valuation of the basket reached on any of the 12 observation dates

Secure the gain

At each observation date, the price of the best performing stock since inception is locked-in, its performance is secured until maturity


Agenda






Niche Investments

Alpha Generator


Getting the BEST PERFORMING ALLOCATION

Efficient Allocator

3 underlying profiles,

At maturity investor is exposed to the best performing profile, and the principal is protected

Payoff:

100% of Initial Principal + 100% of the BEST PROFILE’s Performance

– The performance is calculated as the average of the performances recorded every six-months since inception, negative performances being deemed nil

Asset Class Index CONSERVATIVE BALANCED DYNAMIC

EQUITY S&P 500 10% 20% 70%

REAL ESTATE DJ Real Estate 20% 30% 15%

GOVT. BONDS Lehman Aggregate 70% 50% 15%

PROFILES


Agenda






Niche Investments

Alpha Generator


The Asset Management Industry is changing rapidly

The asset management sphere has evolved towards a core satellite structure with a strong growth of the ETF and Hedge Fund industries

Source: SG Marketing

Global Mutual Fund Industry

$ 10,000 bn

ETF Industry$500 bn

ETF Industry$500 bn

Hedge Fund

Industry$1,800

bn

Hedge Fund

Industry$1,800

bn

+30% annualized growth since 2000

+20% annualized growth since 2000


ETFs and Structured Products indexation still focus on mainstream indices

Traditional indices have well-known limitations

No niche markets in terms of regions

No niche sectors

Underlyings: Demand for Alternative & Innovative Indexation


DJ EuroStoxx 50, CAC, DAX, FSTE

(~ €35bn)

NIKKEI, TOPIX, HSI, ASX(~ €30bn)

S&P 500(~ €85bn)

Europe

USA Asia

DJ EuroStoxx 50, CAC, DAX, FSTE

(~ €35bn)

NIKKEI, TOPIX, HSI, ASX(~ €30bn)

S&P 500(~ €85bn)

Europe

USA Asia


Demand for alternative way to generate performance

Play global long term growth themes which are not represented in main stream indices

Example: SGI Thematic indices: SG in collaboration with Dow Jones Indexes and asset management specialists such as SAM Group (Sustainable Asset Management) has created the following indices:

Exotic Equity betas: new types of underlying for SP


Core: β-research indices overview


Index Theme Advisor Calculator

SOLEX Solar energy SAM Dow Jones

TIMBEX Wood Dow Jones

URAX Uranium Dow Jones

WOWAX Water SAM Dow Jones

ERIX Renewable energy SAM Stoxx

BIOX Bio energy SAM Dow Jones

WAEX Alternative energy SAM Dow Jones

PRIVEX Private Equity Dow Jones

Dow Jones

Dow Jones

Dow Jones

SGI Global WasteManagement

Waste Management S&PSG

SGI Alternative beta Hedge funds beta

S&PSGI Bond Bonds SG

SGI Global security Security SG

SGI Global wealth Wealth

SGI Global human resources

Human resources

S&P

SG S&P

SG S&P

SGI Global Senior Senior SG S&P

S&PSG

Index Theme Advisor Calculator

SOLEX Solar energy SAM Dow Jones

TIMBEX Wood Dow Jones

URAX Uranium Dow Jones

WOWAX Water SAM Dow Jones

ERIX Renewable energy SAM Stoxx

BIOX Bio energy SAM Dow Jones

WAEX Alternative energy SAM Dow Jones

PRIVEX Private Equity Dow Jones

Dow Jones

Dow Jones

Dow Jones

SGI Global WasteManagement

Waste Management S&PSG

SGI Alternative beta Hedge funds beta

S&PSGI Bond Bonds SG

SGI Global security Security SG

SGI Global wealth Wealth

SGI Global human resources

Human resources

S&P

SG S&P

SG S&P

SGI Global Senior Senior SG S&P

S&PSG


SGI Global Environment

What is the environment sector?

Investing in environment means investing in companies involved in clean water, alternative energy and waste management. Energy and clean water savings through recycling as well as the production of heat and power in incinerators provide attractive approaches to mitigate energy and water challenges. Vice versa, rising energy prices and water scarcity will drive demand for recycled material and thus provide further impetus to the development of this sector.

Index Description

SGI Global Environment aims to reflect the environmental sector. The global index comprises 30 stocks of companies which have their biggest share of revenues in either or several of the following investment clusters: clean water, alternative energy and waste management.

Index components are selected and weighted according to their free float market capitalisation and market liquidity.

0

200

400

600

800

1000

1200

Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

SGI Global Environment


Satellite: generating α

α-research range: designed to outperform a reference index

Systematic or discretionary strategies (hedge fund like) that aim at creating an alpha over a specified benchmark index

Indexation to funds of hedge funds


Satellite: Access to the universe of funds of hedge funds Total Return Strategies:

Alternative investments have traditionally been the province of professional investors

This asset class has enjoyed exceptionally strong returns since 1990 with remarkable consistency Indexation to funds of hedge funds

Lower market directionality of this asset class, plus its capacity to capture diverse trends across all asset classes, and to benefit from arbitrage opportunities

0

50

100

150

200

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300

350

400

450

Dec-93 Dec-95 Dec-97 Dec-99 Dec-01 Dec-03 Dec-05 Dec-07

MSCI World

MSCI Hedge Fund Composite Index


Conclusion

Equity linked Structured Products are not trendy investments but long lasting financial tools

Their ability to provide added value encourages new developments & innovation

Their flexibility allows to address almost all client needs


And what is Adequity?

First structured products brand fully dedicated to European wealth managers since 2001

Offering a complete range of investment solutions and related services dedicated to wealth managers

Every month, at least one product launch embedding the latest techniques of structured management

Benefits from the renowned expertise of GEDS in terms of market opportunities and investment solutions


Thank you for your attention!


Important Information

The contents of this document are given for purely indicative purposes and have no contractual value. Prior to any investment in the product, you should make your own appraisal of the risks from a legal, tax and accounting perspective, without relying exclusively on the information with which you were provided, by consulting, if you deem it necessary, your own advisors in these matters or any other professional advisors. Subject to compliance with legal and regulatory requirements, Société Générale may not be held responsible for the financial or other consequences that may arise from the investment in this product.

This product may be subject to restrictions with regard to certain persons or in certain countries under national regulations applicable to said persons or in said countries. It is your responsibility to ensure that you are authorised to invest in this product. This document does not constitute an offer for sale of securities in the United States. The securities can be neither offered nor transferred in the United States of America without being registered or being exempted from registration under the US Securities Act 1933, as amended.

The documents relating to this product will provide for methods of adjustment or substitution in order to take into account the consequences on this product of extraordinary events which may affect one or several of the underlying instruments on which it is based or, as the case may be, the early termination of this product.

Moreover the investor should be aware that the capital protection feature requires for the Issuer, the Guarantor and/or their affiliates, to enter into hedging transactions which have a cost and which may affect the market price, liquidity or value of the Notes, especially when comparing them to the market price, liquidity and value of the underlyings of the Note. The Issuer and the Guarantor assume no responsibility whatsoever for such consequences and their impact on the investment

WHEN SIMULATED PERFORMANCE OR PAST PERFORMANCE ARE DISPLAYED, THE FIGURES RELATING THERETO REFER TO PAST PERIODS AND ARE NOT A RELIABLE INDICATOR OF FUTURE RESULTS. When future performance is displayed, the figures relating to future performance are a forecast which is not a reliable indicator of future results. Furthermore, where past performance or simulated past performance rely on figures denominated in a currency other than that of your country of residence, the return may increase or decrease as a result of currency fluctuations. Finally, when simulated performance or performance (whether past or future) are displayed, the potential return may also be reduced by the effect of commissions, fees or other charges.

For the products benefiting from a guarantee of Société Générale or of any other entity of Société Générale group (hereinafter referred to as the «Guarantor»), the due and punctual payment by the principal debtor of the obligation of any sums due in respect of these products is guaranteed by the Guarantor according to the terms set forth in the deed of guarantee. In this case, the investor bears in the end a credit risk on the Guarantor.

The attention of investors is drawn to the fact that, by the maturity date, the price of certain products can be subject to volatility due to the evolution of market parameters and more precisely the price of the underlying and the interest rates. For certain products, except when Société Générale undertakes to assure a secondary market, there is no liquid market on which these products can be easily traded, and this may have a material adverse effect on the price at which these products might be sold.

The information presented in this document is based on market data at a given moment and may change from time to time. Back testing permits the calculation of returns that the product would have had if it had been launched in the past, presented according to the maturity date. It allows an understanding of how the product would have performed at different market stages over previous years.

This document is confidential and may not be communicated to a third party (with the exception of your external advisors on the condition that they themselves respect the confidentiality) without prior written consent from Société Générale.

The accuracy, completeness or relevance of the information provided is not guaranteed although it has been drawn from sources believed to be reliable.

use of structured products in wealth management

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