Risk & Protection

Actively Managed Certificates (AMCs) offer structural flexibility and discretionary portfolio management, but like all investment products, they involve risks. Understanding these risks - and the mechanisms used to address them - is essential before investing in or structuring an AMC.

This page provides an objective overview of the key risk categories associated with Actively Managed Certificates and explains how certain AMC structures address specific risks. Where relevant, iMaps Exchange Traded Instruments (ETIs) are referenced as a practical example of how risk considerations are implemented within an exchange-listed AMC framework.

Overview of Risk Categories in Actively Managed Certificates

The risks associated with Actively Managed Certificates can be grouped into several core categories:

• Market risk

• Strategy and management risk

• Issuer credit risk

• Liquidity risk

• Operational and structural risk

Not all risks can be eliminated. However, some risks can be mitigated or managed through structural design, governance, and market infrastructure.

Market Risk

Market risk refers to the risk of losses resulting from adverse movements in the underlying assets of the reference portfolio.

Because AMCs track the performance of an actively managed portfolio, their value fluctuates in line with market conditions affecting the assets held. Market risk cannot be removed through structural design and remains inherent to all market-linked investment products.

The level of market risk depends on factors such as:

• asset classes used

• portfolio concentration

• leverage and derivatives usage

• prevailing market conditions

Strategy and Investment Management Risk

Actively Managed Certificates rely on discretionary portfolio decisions made by an appointed investment manager.

Strategy risk arises when:

• investment decisions do not perform as expected

• market conditions change rapidly

• assumptions underlying the strategy prove incorrect

Unlike passive products, AMCs do not follow a predefined index. Performance therefore depends directly on the investment manager’s decisions and execution.

This risk is intrinsic to active management and cannot be eliminated, only assessed and accepted by investors.

Issuer Credit Risk

Most Actively Managed Certificates are issued as debt securities. As a result, investors are exposed to issuer credit risk - the risk that the issuer is unable to meet its obligations.

In non-collateralised structures, investors may become unsecured creditors of the issuer in the event of issuer default, regardless of the performance of the underlying portfolio.

Issuer risk is therefore a central consideration when evaluating AMC structures.

Collateralisation as a Risk Mitigation Mechanism

Some AMC structures address issuer credit risk through collateralisation mechanisms.

In a collateralised setup, the assets held in the reference portfolio are pledged to an independent security trustee for the benefit of certificate investors. This arrangement aims to separate portfolio assets from the issuer’s balance sheet and mitigate issuer credit exposure.

The effectiveness of collateralisation depends on:

• the legal structure

• the scope of pledged assets

• the trustee arrangement

• applicable jurisdiction and insolvency law

Collateralisation does not eliminate market or strategy risk and does not guarantee full capital protection.

Example: Collateralisation in iMaps ETIs

In the iMaps ETI structure, the underlying assets of the reference portfolio are held in a dedicated segregated portfolio and pledged to a security trustee.

This setup is designed to mitigate issuer credit risk by aligning investor claims with the assets of the segregated portfolio rather than the general balance sheet of the issuer. The precise rights and protections are defined in the product documentation and security agreements.

This example illustrates how issuer risk considerations can be addressed structurally within an exchange-listed AMC framework, without altering the active management characteristics of the product.

Liquidity Risk

Liquidity risk refers to the risk that investors may be unable to buy or sell AMC units at desired prices or volumes.

Although AMCs are exchange-listed, liquidity depends on:

• market conditions

• the presence of liquidity providers or market makers

• investor demand

In stressed market environments, bid-ask spreads may widen and trading volumes may decline. Exchange listing improves accessibility but does not guarantee continuous liquidity under all conditions.

Operational and Structural Risk

Operational and structural risks relate to the processes and infrastructure supporting the AMC.

These may include:

• operational failures at brokers or custodians

• settlement or clearing disruptions

• valuation and pricing processes

• legal and documentation risks

Such risks are typically addressed through institutional infrastructure, audited processes, and established market participants, but they cannot be fully eliminated.

Risks That Cannot Be Eliminated

It is important to distinguish between risks that can be mitigated and risks that remain inherent.

The following risks cannot be eliminated in Actively Managed Certificates:

• market risk

• strategy and management risk

• adverse market liquidity conditions

Structural mechanisms may reduce certain exposures, but AMCs remain market-linked investment products.

Risk Transparency and Investor Responsibility

Actively Managed Certificates are issued under detailed product documentation, including base prospectuses and final terms. These documents describe the structure, risks, and legal framework of the product.

Investors are responsible for:

• understanding the product structure

• reviewing applicable documentation

• assessing whether the risk profile aligns with their investment objectives

Risk mitigation mechanisms do not replace the need for informed investment decisions.

Conclusion

Actively Managed Certificates combine active portfolio management with an exchange-listed structure, offering flexibility and accessibility while introducing specific risk considerations.

Understanding market risk, strategy risk, issuer credit risk, liquidity risk, and operational factors is essential when evaluating AMCs. While certain risks - such as issuer credit risk - can be addressed through structural mechanisms like collateralisation, other risks remain inherent to active, market-linked investment strategies.

The iMaps reference case demonstrates how risk considerations can be incorporated into an exchange-listed AMC structure within an institutional framework. It serves as one practical example of how risk and protection mechanisms are implemented in practice.