Equity Derivatives House: Societe Generale

IFR Awards 2023
5 min read
Christopher Whittall

Bouncing back

Seesawing share prices and rising bond yields made 2023 a challenging year for equity investors – and the trading desks that service them. For reaffirming its position as a top franchise through expanding in the US and bolstering its institutional footprint, Societe Generale is IFR’s Equity Derivatives House of the Year.

Societe Generale has long been famed for its prowess in equity derivatives. So it was all the more shocking when stock markets tanked in early 2020 and SG was one of several firms to suffer heavy losses in its structured derivatives books. Amid the inevitable soul-searching which followed, some even questioned the bank’s commitment to the business after it announced plans to slash back risk.

They needn’t have worried. Fast forward three and a half years and SG has not just revamped its equities business, including forming a partnership in cash equities and research with asset management giant AllianceBernstein, but its prowess in derivatives has also helped drive a resurgence in equities trading more broadly, with revenues at the end of the third quarter growing by 30% from pre-2020 levels.

To get there, SG has diversified its equity derivatives activities significantly, increasing its reach with institutional clients across different regions to reduce its reliance on retail structured products. The rewards from those investments were on full display in the first three quarters of 2023, when the bank maintained stable equity derivatives revenues despite lower market trading volumes that hampered many competitors.

“We lost our soul between 2015 and 2020 and we became a broker of structured products, pricing super competitive payoffs … and focusing on market share [instead of focusing on] who are the strategic clients for the franchise,” said Yann Garnier, head of global markets sales and research.

“Since 2020 we have operated a major shift in our business model focusing on what made our reputation back in the day – ie, a refocus on bringing innovative, value-adding investment solutions and advisory services and differentiating content powered by research.”

Life time

The ground SG has gained in the Americas typifies the evolution of its business. The bank has made considerable headway with US life insurers in the fixed-indexed annuities market, having now secured 21 mandates since entering this space in 2017.

Three of those came in 2023, helping SG grow its annuity solutions assets by 44% in 2023 to US$10.1bn, up from US$2.5bn in 2020. That involved investing in trading infrastructure and legal teams, as well as deal structuring capabilities, to get these long and complex transactions over the line.

“The heritage and culture of SG is one of innovation … but also, to do this [in scale] and to win this many mandates, it does require a good amount of technology and industrialisation,” said Mike Clark, head of quantitative investment solutions, Americas.

Quantity and quality

The strides SG continues to make in quantitative investment strategies has allowed the bank to make further inroads with institutional clients, including pension funds, hedge funds and asset managers. Guillaume Arnaud, global head of QIS, said SG has been rebalancing its business in recent years so that it is more or less equally weighted between defensive and risk-on strategies. That paid off in 2023 when client demand for both increased, helping SG grow its institutional QIS assets under management by close to 25%.

One standout performer is the bank’s SGI Step strategy, which generates returns for investors by systematically selling put options, protecting against a sharp downturn in the S&P 500 and the Nasdaq. An impressive live track record has helped notional traded on the indices more than double this year to over US$3bn across the globe.

“Most of the client interest actually came after Covid when people saw in real life how that strategy actually behaved,” said Arnaud.

SG remains a major force in retail structured products despite its focus on other businesses lately. The equity autocallable business has been stable in 2023, but the big growth area has come in fixed-income products as higher interest rates have attracted more investors to this space. SG was able to leverage its equity distribution expertise to expand its rate-linked structured products business by more than 40% in 2023, which came on the back of sharp growth the previous year.

“Historically, we’ve been excellent on equity…. [and] we’ve maintained very high volumes,” said Frederic Despagne, European head of cross-asset solutions sales and EQD flow derivatives. “What’s very new this year is that we’ve managed to … close to create a rates distribution franchise.”

And the bank isn’t resting on its laurels. Garnier highlights ongoing investments in equity and quantitative research, prime brokerage and cash equities – as well as the hiring of a team in Japan to focus on the opportunities there.

“Our commitment remains intact. We have enlarged our team in the US and Asia to further improve our capacity to engage with large and sophisticated institutional investors,” said Garnier.

“The effort is to diversify the nature of the [equity] revenues [by growing] other activities ... not by reducing the revenues of equity derivatives.”

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