Financial Services

Mitigating market risk for Universal-Investment

Managing complex asset allocation changes on behalf of a German regulated capital management company for their underlying pension fund client.

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Sector Financial Services
Sub-sector Portfolio Solutions
Location Germany

Opportunity

Universal-Investment is the largest independent fund service platform in German-speaking Europe, and is aiming to become the leading European fund service platform for all asset classes.

Its transition project was complex in both its trading and operational outlook, with the global equity transition undertaken in a KVG structure that required simultaneous trading in seven different custody accounts. The in-scope assets amounted to €2.6bn, requiring €7.9bn of equity, FX and futures trading to complete the project during the heightened market volatility of the COVID-19 pandemic.

Additionally, the project was to be staged across five separate implementation dates. Detailed analysis of the portfolios was required to find the right path for trading and funding, and to identify risks while keeping implementation and opportunity costs low.

Approach

Our strategy used exchange traded futures to mitigate market risk while executing nearly 7,300 global equity trades and managing associated FX exposure. We also identified cash flow gaps for margin requirements and settlement cycle differences.

Identifying these early in the planning allowed the client the source additional funds to use during the implementation. Operationally, trades were processed across seven custody accounts with cash flows monitored for each and balances transferred accordingly to meet settlement.

Dual swifts and reporting were provided to Universal-Investment for each of the accounts daily, and we worked closely with the client’s overlay manager to ensure a seamless hedging strategy was implemented during the transition. Trading lasted four weeks and all stakeholders were pleased with the transition outcome from both an operational and a cost perspective.

Outcome

"Out of our pool of transition management partners Macquarie was able to win this challenging mandate through a sophisticated trading strategy and competitive fees. The implementation was carried out in a professional and targeted manner, with comprehensive and transparent reporting throughout, and resulting in a very good result for the client."

Thomas Casper
Head of Portfolio Management Services, Universal-Investment-Luxembourg S.A., Frankfurt branch

Planning

Detailed, achievable timeline and identification of key risks 

Cost

Costs identified and realised in line with the estimate

Risk mitigation

Futures utilised to manage exposures and control opportunity cost

Operational efficiency

High volume trade execution, settlement, and segment cash management

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Macquarie Capital (Europe) Limited is regulated in the United Kingdom by the Financial Conduct Authority and the financial products and/or services referred to in this information may not be eligible for sale in all jurisdictions, including within the EEA.