#8 Simon Vickers - The Five Questions Every AMC Investor Should Ask

Speaker A: The Vesta Securitization Podcast with Stefan Wagner Unlocking Investment Innovation Vesta's End to End platform enables securitization providers and investment managers to streamline the lifecycle of dynamic investment solutions, ensuring better results for their clients and their operations.

Speaker B: Hello and welcome. In this series we explore the cutting edge of investment innovation. I sit down with leading asset managers who use securitization vehicles to execute their unique investment strategy.

Speaker C: The understanding of AMCs is that they are uh, for family offices that are seeking to monetize wine collections, art collections, wine collections and that's it. Whereas they are so much more flexible and so much more adaptable than people are given to believe.

Speaker A: The information in this presentation is for informational purposes only and does not constitute an offer, solicitation or recommendation to buy or sell any financial products. It is not intended as investment, legal, tax or accounting advice. Always seek the advice of your financial advisor or other qualified professional regarding your investments.

Speaker B: My guest today is Simon Vickers, CEO of Swiss amc. I'm excited to welcome Simon. As Swiss AMC sits at the intersection of democratizing of the actively managed certificates wrapper and the creation, infrastructure and distribution of these products. Swiss AMC's runs a full stack combining securitization and distribution across a broad range of assets. Private equity, commercial and residential property, trade, finance and even collectible art. That breath alone is worth an hour of conversation. I also want to explore the client journey who comes to Swiss amc, what problems they aim to solve and how the market is evolving in regulation, distribution and minimum ticket sizes. Simon, welcome to the show.

Speaker C: Good morning. Good morning. Thank you for the time.

Speaker B: Thank you for taking the time. Simon, can you start by telling us a little bit about your background and how you became the CEO of Swiss amc?

Speaker C: Yeah, um, my parents didn't like me so I did the uh, traditional um, British boarding school but then spread the wings um, and ended up on the west coast of America. A business school that took me on to the go go guys of the early 1990s. Drexel Burnham LA Bear. Um, they were the original junk bond, high yield security gods, uh, and featured in a film called the Big Short. So essentially I learned how not to do it um, at, at a very early age. Moved from, from Drexel to Morgan Stanley in San Francisco, then came back to the UK um family office, um, where we did a number of listing for a variety of different products, um, ranging geographically from Tasmania, uh to Blackpool in the UK and from tailings operations to um, bespoke sports cars. So that essentially led me to I suppose, seeing the light, um, with my co director, uh, Dale Greenland, you even

Speaker B: put the name AMC into the name of your company. So there must have been some specifically factors that attracted you to the AMC wrapper and securitization in that case,

Speaker C: yeah, we've done 60 or 70, um, listed bonds, we've done, um, a number of loan notes. Uh, but for us, it was about, from the investor's point of view, being able to satisfy five questions that we always ask from the investor's perspective. In the vernacular, where does the money go? Does it go to Dodgy Dave, the property developer who's your best friend until branch? Does it go to? How is that money protected? Does it go to Dodgy Dave's trustee, who also happens to be his uncle? So where does the investor's money go and how is it protected? In the case of an amc, that's a debt instrument, how is the coupon, how are the funds for the coupon generated? Are you operating a Ponzi scheme? And once the company does start to generate some funds, what protections in place to make sure that the investee doesn't decide that he'd like a new Ferrari on a Friday afternoon? So the first four questions, where does the investor's money go? How is it protected, how is the coupon generated and how's the coupon protected? The fifth question is the one where very often they fall down and that's what's the exit strategy? Is there a credible route to return the maturity? We build AMCs to address those five issues.

Speaker B: You sort of, in a sense touched on my, a little bit on my next question, because, you know, there's very different iterations of the amc and one needs to do the right due diligence. But you are sort of doing, and I think that's unique, you're doing both securitization and distribution. Most people are either I'm the pure product provider or I'm the pure investment manager who might want to raise the money. How would you succinctly describe your value proposition?

Speaker C: We're back to front is the main simple way of describing it. So we have a number of, um, fundraisers that we work with, indeed family officers. And what will approach us with a view to saying we would like to be involved, for example, in the igaming space, in the I gambling space, can you create a product for us? We will fund it, um, rather than us creating the product, then going to look for the funding. So we work very, very closely, um, with the investee companies initially, um, and also with the funders and we act as a link between the two.

Speaker B: I see. And you mentioned is other investors, typically family office, high net worth individuals or also discretionary fund managers, private banks. Where does it sit? So normally.

Speaker C: Absolutely. We're broadly agnostic. Um, with the exception of retail investors. We don't get anywhere near retail clients. We're predominantly. These are private placements for high net worth sophisticated investors. Um, the majority are family offices and ultra high net worth with, in conjunction, um, with their wealth managers.

Speaker B: M. I mean you touched already on your five main questions. If I'm not mistaken, you use for different business cases, you use different issuers, location, jurisdictions and everything else. Maybe you can share a little bit how your due diligence process works and how do you pick the best one?

Speaker C: Again, it's about the fundraising because you can create the, it's all very well creating the, creating the vessel, but that vessel needs to be filled. So for example, if we're looking to the, if we're looking west, um, and we're looking to for example the Caribbean and we've done a number of hotel um, and resort developments there, we'll use the Cayman, um, if we're looking to do this quickly because we have some great relationships set up, um, we'll run to Guernsey. Uh, uh, if an investee or indeed an investor, um, is looking for a more robust mechanism, um, we will work via Luxembourg. But I think much of this is predicated very much in a perception. I think, um, in the UK there is still that perception that the Cayman, um, has been infiltrated by Tom Cruise and his merry friends from the late 1980s. Whereas the Americans have an entirely different perspective. Most hedge funds are domiciled there, um, similarly with Luxembourg, it enjoys a status, um, that sees it as the, as the gold standard. I personally don't see huge amounts of differences other than the due diligence process is more complex, um, between Luxembourg, between creating a Luxembourg, uh, amc, um, and one that's coming out of Jonesy.

Speaker B: I m mean is there sort of a primary criteria?

Speaker C: Um, very often that's governed by speed to market. Um, there is very often a need to move quite quickly. That's uh, an element that we like about the AMCs. We can pretty much go from being mandated, um, to having an AMC Live. And our definition of having an AMC live is that the ISA number is up and ready. Uh, and the piece that normally takes the longest for us is opening the custodian bank account. And the custodian bank account is in

Speaker B: place to take the funds yeah, that is always fun. Um, if I'm not mistaken, you have decided only to work at the moment with off balance sheet issuers, not to work with on balance sheet. Is there a reason for that one or what's the rationale?

Speaker C: Um, it's simply that as far as the uh, investee company is concerned, it makes more sense for them to have this sitting off balance sheet for us. Uh, we like that because for the investor, um, the risk sits around what the security happens to be. Um, and that security is readily defined within the PCC structure.

Speaker B: And it also, it has the beauty of the ring fenced and the credit risk is not that one of the bank which is. Yeah, you don't get a brand name but you get a ring fence structure. Exactly. Therefore, um, for an investor, um, if an investor wants to invest in an amc, obviously he needs to like the investment strategy. But is there also questions he should ask regarding the structure itself? I mean if it's in Guernsey or Jersey, is that has it impact on his tax side? I mean is it liquidity? You mentioned already with, when we, when

Speaker C: we're setting up, we have a strategy manager that sits in place on all our AMCs. We have a regulated strategy manager. What that means, in essence is that when funds hit the custodian accounts they are dispersed on the instruction of the regulated strategy manager. He instructs funds to be moved in accordance with the investment strategy that's laid out in the term sheet. So that's uh, slightly getting away from your question as to, as to withholding tax, et cetera. Um, but I do think that's an important point and a big difference actually. Um, going back to the earlier question between why we're so wedded to AMCs over and above, um, loan notes and loan notes and funds. While um, they are often seen that's AMCs as lighter touch, the introduction of the regulated strategy manager really means that money can't go sideways or if it does, um, and that sideways is obviously a euphemism if money goes sideways, um, that's on the strategy manager because he has oversight on how that money has been deployed. And it's obviously then for the investor um, to be able to chase up on the investment strategy manager and say why was that money spent in Annabelle's on Saturday night?

Speaker B: I mean I, I definitely see this also what we see that more and more of the AMCs that we, we see are either with a strategy manager, a regulated one, or go the other way of being fully rule, uh, based sort of index where there's an independent index calculation agent involved in it. Definitely. Um, my personal experience and I have invested, uh, also in amcs is that some banks sort of make it deliberately difficult for their clients to purchase an AMC that they have independently selected. Um, it's either whether or they don't understand the product, unfamiliar with specific issue, or simply do not wish to lose the assets, obviously under management. From your experience, which type of custodians or banking partner tend to be more open and constructive when clients want to invest in AMCs, and there's always a. Is there practical advice you can give?

Speaker C: That's a very good question. Obviously, um, the banks do have a responsibility towards their customers and to make sure, um, that they haven't been taken advantage of. There are a number of very sad cases, but they are in the retail space. That's not where we hunt. That's not where we hunt at all. Um, and I do think that sometimes there's crossover that takes place here, um, between those two pools of capital. It's not actually something that we've been greatly affected by. And I think that's by virtue of the fact that we do work so closely with, for example, um, the family offices. They will have already gone through their credit committee, their investment committee, their treasury committee. So they have funds ready to go and they have a relationship with their banks already in place. Um, so we rarely deal with individuals.

Speaker B: You're lucky. When I tried to do it by purchase via my German bank, there was a massive upheaval. And then, uh, just used my Swisscoat account, who exactly knew what an AMC was and called the paying agent and it was immediately traded. The term actively Managed certificate or AMC is actually, it's a branding term. It's not really. There's no legal definition, like with, uh, what you could say, uh, etf, which has certain regulatory requiresment. And so the. Often the term is even ambiguous, you know, is the active referring to the discretionary management of the underlying, the liquidity of the assets, or the investor's ability to trade in and out? Have you observed any of this confusion in the market? How do you ensure the clients understand the specific meaning of active in any given amc?

Speaker C: Uh, that's. That's a good question. And it's one that, it's one that we, we're often asked, um, we're also asked, is an AMC a regulated product? Um, and the answer to that, of course, is no. But each component part is regulated and that's an element that we show, um, when we're establishing an amc, uh, we always go to the point of creating a schematic, uh, with each one of the counterparties, how they are related and also with reference to each component, um, being regulated, whether that be the trustee, whether it be the custodian bank, the paying agent, the regulated strategy manager. All of these are regulated function as of course is the distribution elements.

Speaker B: Let's go a little bit maybe in sort of the elephant in the room, the regulations about AMCs. What will you say is the biggest criticism or regulatory criticism or concern around AMCs?

Speaker C: I would have to say distribution, um, comes at the top of the list. Um, when a term sheet, uh, is produced, uh, by the issuer, the list of who can and can't, um, engage uh, in an amc, uh, it will be easier just to say who can't rather than who can't because that listing is pretty extensive. Um, so I'm going to, I'm going to say distribution, um, and again we could probably talk about this for at least an hour.

Speaker B: Yeah, uh, let's not do that. I mean we don't want to put everybody asleep. Lawyers and compliance officer frequently ask why AMCs are not classified as a fund or fall under AIFM. Um, how do you explain this distinction? And how do you, do you, and do you believe it will remain valid over time?

Speaker C: Well, I actually see that distinction, um, is born of the, with due respect, which always means no respect, um, it's born of the EU's love of regulation, um, and that's spawned, um, AIFMDs, and they're a more complex proposition that's designed for institutional markets, um, Whereas we have AMCs that are more suited for private debt markets. Um, and I think that's really sort of where the distinction lies. Um, lawyers and compliance officers do often ask why an AMC isn't classified as a, as a fund, um, and is therefore not subject to IFMD or similar. Um, and yeah, uh, circular, uh, it's born of the EU's love of regulation.

Speaker B: Do you expect any more, anticipate any more regulatory attention to this treatment and probably changes to that?

Speaker C: I don't think there's any doubt that's inevitable. I, uh, think one of the major uh, components that's going to be, um, brought in here, um, is that of securitization. I think it's inevitable that with digitization, um, of issuance, AI driven management, um, with the scalability, so the risk of mismanagement becomes so much more apparent. Um, for that reason, I think the regulator will be looking to take a much, much stronger hand and it will

Speaker B: Be you know, transparency and then responsibility with responsibility, uh, enforcement and sense the product has grown. You have issued a lot of product. But are there still sort of misconceptions, other misconceptions you run into when you trying to bring this product to market?

Speaker C: The understanding um, of AMCs is that they are for family offices that are seeking to monetize wine collections, art collections, wine collections, um, and that's it. They're for uh, family offices to custody collectible assets. Whereas as we all know it's so much broader, so much wider um, than that today. So I think that's probably the primary misconception, um, that they are so much more flexible and so much more adaptable than people are given to believe.

Speaker B: Yeah, I mean the flexibility is unheard of. The funny thing I find often is that people trying to define their own new brand name. I think I've come across 16 different names for which basically is an AMC, fractional bonds, other things. Everybody wants to have their own name. Which doesn't help explaining to the market what this thing can do by giving it different names. But yeah, that's my, my gripe basically. Um, of all your products sort of that you're having on your platform, uh, is there, is there one that is your favorite or that's your standout Right now

Speaker C: I don't think it will be fair to say that there was a particular product because we do have a number that are currently live and for that reason I would upset those that aren't highlighted. But I'm going to do it anyway. Um, we are heavily involved with a company called Saladin Pharmaceuticals. Celadin Pharmaceuticals is in the pharma space and it's bringing for it's one of the ah, few licensed growers of cannabis for uh, medicinal purposes in the uk. Um, they've spent a huge sum of money and we're talking 40, 50 million pounds to be able to go through the testing and to create the operation that they have. The test results are phenomenal, um, for helping women with endometriosis. So for that reason um, I would champion them um, above the others, uh, on the basis of the asset class in which they're driving.

Speaker B: I mean Swiss AMC really does a lot of interesting thematic based AMCs I would call them, um, and that otherwise nobody you would not be able to invest in. Uh, you know it's tool access. And I think that probably also drives you why you have to use the SPVs. Because the on balance sheet issues probably can't hold all these assets on their balance sheet um, try to look into the future. What do you anticipate going forward will happen in the AMC market securitization landscape?

Speaker C: I think as far as securitization goes, I think they will become increasingly mainstream, um, as they are seen as more robust than a loan note, um, and more flexible than a fund, um, their adaptability, particularly within the cln, and that's collateralized loan note rather than um, convertible loan notes. Um, I think there is going to be huge growth in that. But then that also does lead to making very, very sure um, that we have the right security trustees in place to be able to oversee um, the assets that are, that are held within the pcc. That's going to be a central tenet of making sure the market does grow properly.

Speaker B: I mean you touched on your career, you know, where you came from. Drexel Moon. Um, lots has changed. More and more information is hitting us every day. You know, data, uh, and information. Maybe sort of on a personal note, how do you structure your own information diet? You know, in other words, what conversation sources or data do you prioritize sort of to stay informed? What's happening in your industry?

Speaker C: I think there is, there is a massive amount of noise. There is uh, increasing pressure to uh, react very quickly and there is a huge degree um, of short term, uh, how do I personally do it? I have uh, a tight network, um, of people that um, I know and trust. Many of those are now um, what the insurance industry calls chronologically advantaged. But that doesn't mean that they're any less agile. It merely means that they made an awful lot more mistakes than I have and learned from them. So I rely very, very heavily on uh, my own personal network. While it's important to have access to Bloomberg, etc. You could honestly, you could spend your entire life watching news feeds. Um, I think it's the ability to be able to separate um, the important from the noise, um, and uh, that really comes back I suppose to a classical education of being able to look at a sentence and say there's the subject, there's the verb and there's the object.

Speaker B: Basically using your personal network to pre filter all the data out there.

Speaker C: Absolutely.

Speaker B: What is your favorite finance book and why?

Speaker C: That's a good question. I think probably Barbarians at the Gate would probably be uh, an interesting and interesting read. Um, because it simply identifies the ridiculous levels, um, to which we went to in the uh, late 1980s, um, the greed, the avarice, uh, the hubris. Ultimately uh, that is a good read. And uh, while it's not an easy read. Um, it does identify the issues that might just be brought to bear um, over the next few years. The old cliche, those that don't learn from history and all that good stuff.

Speaker B: Yeah it seems to repeat itself quite often. Um, is there any questions? Actually I've been asking you loads of questions. Any question you would like to ask

Speaker C: me I would be very interested to know from investment banking to shop Jock what was that journey?

Speaker B: I um, think the, the journey was interesting for me because the investment bank world changed dramatically of obviously after 2008. So I, what I always liked about um the investment banking historically was okay you were on a decent salary but you could participate in the upside if you had good ideas. So I always said you were longer call option to an industry where you were basically shorter put you collect your premium but if you at any point in time made a mistake your career was at risk. And so when that changed I needed to find a different way where that was reversed again. And that's why I ended up basically in, in a fintech um, where you know if this gotta work I can participate in the upside and my, my knowledge and ideas are appreciated and not seen as a threat or potential risk. Um, and, and so for me it was what always interested me about investment banking was gone. So I needed to find basically a different place and I was even, I think I remember this at Bankers Trust when I did my original interview I uh argued that investment banking actually Karl Marx would have loved investment banking. Yeah because the criticism of thus capital is that the only the capital person provides the capital gets all the return not the employees. During my time investment banking that was slightly different. We got significant bonuses before the people who hold the shares in investment bank got paid.

Speaker C: Absolutely. That's, that's a. I have no follow up to that. It does come back though to barbarians at the gate, doesn't it? Classic. There we go. Classic example. I'm sure, I'm sure you've, I'm sure

Speaker B: you've read it, I'm sure you've read it Simon. Thank you, thank you very much for taking the time. Um, if anybody wants to get in contact with you, what's the best way?

Speaker C: I'd be delighted to hear from them. Um, I'm at SV, that's Sierra Victor at swiss- AMC.com Perfect.

Speaker B: Thank you Simon.

Speaker C: What a pleasure. Thank you Stefan.

Speaker A: The Vesta Securitization podcast with Stefan Wagner Unlocking investment innovation Vesta's end to end platform platform enables securitization providers and investment managers to streamline the life cycle of dynamic investment solutions, ensuring better results for their clients and their operations. The information in this presentation is for informational purposes only and does not constitute an offer, solicitation or recommendation to buy or sell any financial products. It is not intended as investment, legal, tax, or accounting advice. Always seek the advice of your financial advisor or other qualified professional regarding your investments.