Société Générale: Equity Derivatives House of the Year

Instant classic, a few well chosen quotes for the benefit of future generations:

With one of the largest exotics books on the Street, one would imagine that Société Générale (SCGLY.PK) Corporate and Investment Banking would be licking its wounds and coping with hundreds of millions of euros in losses. There was some impact, but the losses have been relatively minor and entirely manageable, says Christophe Mianne, SG CIB’s head of market activities, covering equity, derivatives, fixed income, currency and commodities in Paris.

“We managed the existing book very well because we decided some time before the crisis to be long volatility and be less sensitive to correlation, so the losses were minimal. We suffered on our statistical arbitrage trading activity, but that was just for one month, and minimal compared to some hedge funds or other banks. Overall, our trading activities will be approximately flat compared to last year, which is a good performance,” remarks Mianne.

“We always quoted to clients and we were always present. For me, it was more important to be there for clients rather than worry about any mark-to-market losses on a few trading positions. Our reputational franchise is worth far more than any loss during one month,” adds Mianne.

We are French, we don’t speculate around here, except when we do…

The bank also set itself apart by opening one of its proprietary fund of hedge funds to external investors in January this year. Called Turquoise, the fund was up 14.5% as of the end of November. “We decided to open up one of the hedge funds within our equity derivatives group and sell it directly through Lyxor,” says Laurent Seyer, Paris-based chief executive of Lyxor, the asset management arm of SG CIB. “We are now contemplating opening up a couple of other funds managed by the Turquoise team that will be focused and more concentrated on a thematic investment line, although it is not decided yet.” The fund had raised $2 billion in its first five months, causing the bank to announce a soft close by the end of May. By the end of October, Turquoise had $2.4 billion in assets under management.

However, arguably the most groundbreaking shift this year is the move into active management of structured product portfolios. Called CrossRoads, the new initiative aims to combine structured products and exotic option trading know-how with active management, with the aim of winning mandates from large institutional investors. By doing so, SG CIB is competing directly with traditional asset managers - but Arnaud Sarfati, head of equity-linked structured products at SG CIB in Paris, believes the firm has a real advantage.

Here comes the punch line:

“It will be the best year ever, both in terms of asset gathering and performances,” says Seyer. “We are aware that the environment is uncertain and there is a lot of volatility, and we don’t pretend some of the hedge funds on our platform won’t be hit - some were. But, on average, annual performances remain at a peak and we have been extremely pleased with the resilience of returns this year.“

From Risk Magazine:
Equity Derivatives House of the Year - Société Générale
In our defence