Multi asset trading may be the way forward, but watch out for the $700 million withdrawals!

Vast withdrawals are uncommon within large scale trading entities, but this one saw a withdrawal from Credit Suisse of $700 million. Here are the caveats

It has become clear over the last few years that the retail FX and CFD trading environment must make significant moves toward an all encompassing multi asset product range, if not only to diversify the options available away from pure spot FX toward other less leveraged products such as stocks, shares, equities, funds and listed derivatives, but also to elevate the type of client that a broker can attract to a higher level.

This all makes perfect sense, and there has been a lot of dialog about it in the retail platform and liquidity sector recently, along with significant efforts to connect all kinds of market accessibility to retail platforms.

Heading in the direction of wealth management firms is overall a good direction, however just as the products and traders are of a higher caliber than many of those accustomed to standard MT4 spot FX, so are the potential pitfalls.

Learning how to manage them is critical, as today’s example shows.

In this particular case, a massive exit has occurred surrounding Softbank’s injection of $500 million into some of Credit Suisse $7.5 billion range of funds, which in turn invested in assets chosen by the Softbank-backed lender Greensill Capital.

Some of the investments made by the fund were in notes backed by loans Greensill made to other companies backed by Softbank’s Vision Fund.

Even Softbank, a Japanese leviathan, is not large enough to fend off the aftermath of a bad deal, the Vision Fund recently having helped drag Softbank to a record annual loss.

Four of the 10 largest investments in Credit Suisse’s main supply-chain finance fund were Vision Fund companies at the end of March, the Financial Times reported last month, accounting for 15 per cent of its $5.2bn assets.

In a memo to the funds’ investors yesterday, the Swiss bank said it would change investment guidelines for its supply chain finance funds, and added that it had terminated an agreement with an investor in April for three of its four supply chain funds which exclusively sourced all of their notes through Greensill.

“This separate agreement has recently been terminated and the investor has redeemed its investment in full,” the bank said in the letter, seen by Reuters.

The withdrawal from Credit Suisse by Softbank amounts to $700 million, according to sources close to the matter,

following the Swiss bank’s internal review into the Japanese conglomerate’s role, according to people familiar with the matter.

The Credit Suisse probe began last month after bank executives learned SoftBank played several roles in funds that invest in assets sourced from Greensill Capital, a UK-based finance firm. As well as investing in one of the funds, SoftBank also holds a stake in Greensill. The fund in which SoftBank invested also provided financing to several other companies that SoftBank has invested in.

SoftBank had injected money into the largest of the funds in late April, people familiar with the matter said. At the time, other investors were withdrawing cash as the coronavirus lockdown sent markets into a spiral.

SoftBank redeemed the money last week, one of the people said. SoftBank’s withdrawal caused the fund it invested in to shrink by around 12% since 30 June to just under $5 billion.

In aggregate, the four funds that were under review manage about $7 billion and are sold to pension funds, corporate treasurers and wealthy families as safe, short-term investments. Greensill’s business involves paying companies’ suppliers faster than normal, but at a discount to the invoiced amount. The corporate clients, known as obligors, agree to pay back Greensill later. Those promises are packed up into securities and sold to investors of the Credit Suisse funds.

Large funds, especially those trading corporate treasury or pension funds, are usually solid. However in cases such as this, where a large withdrawal occurs due to poor trading performance, huge fall out is inevitable.

In the FX world, we have seen this before, around 7 years ago, when FX Concepts, the world’s largest and longest established FX trading house folded after 32 years in business due to withdrawals by workers pension scheme administrators who had been investing the retirement funds for many years with the firm.

In this case, FX Concepts’ best traders had been leaving the company and taking up well paid Wall Street positions, leaving less experienced traders to take charge of the large accounts, and being risk averse public sector pension funds, they withdrew at the first sign of any stagnation or small loss, leaving the firm bankrupt.

SO yes, Multi Asset is the way forward, but mind how you go and do your research well.

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