Cash management products

In a context of low interest rates, economic agents must rethink their cash management strategies. Structured products are a good alternative to traditionally used investments, such as money market funds. They offer investors broader perspectives by combining liquidity and defensive solutions.

👨‍💼 Risk management

Every investor has their own perception of the risk they are willing to take. For structured products, risk can stem from several factors:

• Guaranteed capital vs. protected capital
• Short term vs. long term
• Return vs. risk

Each decision-maker adapts their risk based on their needs and constraints, upcoming deadlines, and business model. While all share the same goal — growing their cash reserves while keeping them accessible if needed — they do not have the same risk tolerance.

🔍 What’s the difference from wealth management?

As with wealth management, cash management products are eligible for various contracts. They can be held in securities accounts as well as in capitalization contracts — the equivalent of life insurance contracts for legal entities. Participation products are more prevalent than in wealth management, but they can also take the form of yield products.

While wealth management typically seeks high returns, cash management products focus more on outperforming traditional investments—such as savings accounts and term deposits—while ensuring the invested capital is protected. Some actors even statutorily require the full guarantee of the invested capital. If not required, capital protection levels are usually very high for these products.

Finally, the distributor’s fees are often lower than in wealth management. This is because the amounts involved are generally higher. This compensation primarily takes the form of fees or performance commissions.

💶 Different markets

Unlike traditional wealth management, which mainly relies on underlying assets such as stocks, cash management products can be based on underlying assets such as credit, interest rates, currencies, or commodities, depending on the investor's profile and the type of entity making the investment.

🤔 A few examples

Functioning: the capital is protected as long as the underlying asset does not drop by more than 15% in a single day. If the drop exceeds 15%, the capital is impacted by 10% for every additional 1% drop, implying a leverage of x10.

Variants: Protection can range between -10% and -25% in a single day, and the leverage can vary between x5 and x20.

Rationale:

• Reduces sensitivity to the entry point;
• Very stable Net Asset Value (NAV);
• Historically very attractive following a major crisis, as rare events often occur at spaced intervals. Only one drop exceeding 10% was observed (in March 2021), and it did not surpass 15%.

Functioning: The investor benefits from 100% of the positive performance of the underlying fund, with a 90% guarantee at maturity — thus the maximum risk is controlled.

Variants: The underlying asset can be a Fixed Income fund or a low-volatility fund, or a volatility control mechanism (Vol Target) can be added.

Rationale: When the fund is already in the portfolio or about to be subscribed to, in a long-term horizon, the allocation can be split between direct investment and structured products.

Functioning: The currency pair includes a base currency and an alternative currency. At maturity, if the alternative currency has not depreciated, the repayment is made in the base currency. Otherwise, repayment is made in the alternative currency.

Variants: This product can be created with a large number of currencies.

Rationale:

• Tactical flexibility for cash management due to short maturity;
• Attractive yield when the exchange rate moves laterally;
• Interesting in case of exposure in both currencies or for diversification.