ISS-Mag: Tell us about DeriveXperts briefly.
Francis Cornut: With 15 years’ experience of trading equity derivatives in the UK and France, in 2003 I identified the need in the market for a valuation service. I decided to create my own company with the goal of introducing a service focused on sharing financial expertise in total transparency and independence. I launched DeriveXperts in Paris with the vision of better valuation and control of complex products and to create a valuation system that will help institutional players operate at the same level.
ISS-Mag: How is the company seen today?
FC: DeriveXperts is now recognised as a European specialist providing financial instruments valuations, operating in Paris and London. DeriveXperts has a unique approach at building long-term relationships with prestigious clients, having a worldwide coverage.
ISS-Mag: What services do you provide?
FC: DeriveXperts has two services:
– A consensus service on derivative instrument prices for investment banks
– An independent financial instruments valuations service for buy-side sector. Investors using over-the-counter derivative products have traditionally relied upon the counterparty to those products, but regulators today increasingly demand that they be valued differently. DeriveXperts has the know-how and the infrastructure to provide valuations. Therefore, if you are an investor with a portfolio of difficult-to-value products, we can provide accurate valuations.
ISS-Mag: Which prompts the question of whether investors should be investing in products they do not understand and cannot value.
FC: Equities and bonds are easy to value but that does not necessarily mean they are safe. One of the reasons I started the company was to enable investors to buy products that they would otherwise not buy, or buy, but never be properly aware of the true levels of risk (and reward) that they represented. It can be misleading to say that investors shouldn’t invest in complex instruments because of a lack of intuitive understanding. By being overcautious, they risk missing out on incremental investment returns.
Our valuation service acts as a risk indicator. In the process of valuing and analysing, we demonstrate the risk inherent in the products This helps clients develop their own business and further enabling them to enter into transactions that were previously deemed off-limits.
ISS-Mag: How have your services evolved?
FC: Regulation is usually the ignition. Our services do not deliver an immediately obvious financial return but regulation heightens awareness of them. Risk management is like a doctor who you don’t visit when you are healthy, but once we start working with clients they see the true value of our services. The financial market has endured different changes over the past seven years since the onset of the global financial crisis, and regulations (such as EMIR, AIFM, and IFRS13) have come into force, placing pressure on how market players carry out valuations. They are aiming for transparency in the way assets are valued and correct valuation processes. This is in line with what we offer at DeriveXperts – not only do we provide valuations, we also give qualitative analysis and can explain to clients why there might be a discrepancy between the counterparty’s valuation and our own.
ISS-Mag: Who are your clients?
FC: Private banks, fund administrators, insurance companies, asset managers, investment banks. Industry leaders choose our service because we are familiar with the current market challenges and because we deliver accuracy and quality in our valuations, customised solutions for each participant, outstanding support, transparency in our methodology and competitive fees. We continue to work closely with standard setters in order to contribute to improving transparency and levels of trust and to define what the best practice is to drive financial stability.
ISS-Mag: What do the months ahead hold for your company in terms of corporate strategy and products?
FC: We specialise in valuing products quickly, accurately and efficiently, that other companies might struggle with. Looking ahead, our aim is to expand our London office in 2015 and examine ways in which we can develop our valuation service and methodology still further to best meet our industry’s needs.
ISS-Mag: What makes DeriveXperts different?
FC: We are a specialist provider with our focus being only on delivering financial valuations. This provides us with a substantial know-how gained through years of experience to deliver valuations on complex products and being able to explain the methodology behind the process.
Valuation is recognised in the industry as a complex process that not many can deliver. The ones that do deliver, are mainly data providers who are not specialised in this area. As we are independent and valuation is our only focus we have an integrated infrastructure, we closely follow the course of the industry and I have a motivated and well united team which can tailor the service to best meet the requirements of each of our clients. We offer innovative solutions allowing our clients to conform to regulations such as EMIR, AIFM and IFRS13.
ISS-Mag: How would you summarise the principal challenges facing your industry?
FC: One key issue in the industry is the tension between the demand of regulators to increase transparency and the commercial determination of data providers to diversify their income streams. As a result, transparency is becoming expensive.
Consequently, the challenge is to be efficient and make sure the cost due to these regulations remain minimal to the investors. Our role is to offer cost efficient solutions to ensure transparency is not too expensive otherwise people will stop investing.