Tarek Khlat, co-founder and ceo at Crossbridge Capital, answers SCI's questions

Q: How and when did Crossbridge Capital become involved in the structured credit market?
A: We launched 15 months ago, with the idea of creating an independent advisory firm. Historically, the team was at Credit Suisse, but we wanted to step away from having the approach of a single institution in order to get a broader view of client portfolios.

Clients typically limit allocation to one institution and so we couldn't objectively provide advice on their whole portfolio. We wanted to be able to be truly objective and not conflicted in terms of the advice we provide.

Another aspect of our service that clients find useful is the opportunity to network. Our clients have similar backgrounds and naturally want to meet other people with similar backgrounds, so we're happy to bring clients together when appropriate.

Q: Which market constituent is your main client base?
A: Our clients are ultra high net-worth investors and are typically extremely sophisticated.

Q: Do you focus on a broad range of asset classes or only one?
A: We provide clients with access to different asset classes by structuring tailored investment products. They suggest an underlying they'd like exposure to and we then create a customised product accordingly - essentially we tailor the mechanism based on the desired risk profile.

We use all underlyings, but have recently arranged CLNs linked to sovereign issues, first-to-default baskets on sovereigns and single name financials. The process involves going out to the Street, naming the parameters and then sourcing the best price. Liquidity, bid/ask spread and service all count in choosing a provider - we're looking for the best overall execution.

What is important when investing in structured products is that the client understands what they're buying. When such investments are properly structured, they are an efficient way of achieving a good risk-adjusted return.

When we first launched clients weren't interested in buying new product for a while; it was more about restructuring their existing portfolios rather than taking on new risk. But there certainly seems to be growing opportunities in bonds, credit, commodities and FX now.

Q: How do you differentiate yourself from your competitors?
A: Traditional wealth managers don't typically offer the broad ranges of financial services we offer at Crossbridge. We find our clients value our advice as much about their personal wealth as they do their operating and corporate assets.

I think what's unique about our model is that it combines wealth and merchant banking advisory in one boutique; most other firms only provide one of these services. It means we can be more flexible and offer a broader range of services.

Q: Which challenges/opportunities does the current environment bring to your business and how do you intend to manage them?
A: Having launched on 1 September 2008, we've had a trial by fire. It has certainly been challenging: not only in terms of building a new business, but also in terms of the environment. Surviving the turmoil in the financial markets is a huge achievement and has given us the strength to continue building and investing in the company.

In a way, our timing was perfect because clients had an even stronger desire to get advice from an unbiased organisation - i.e. one that didn't want to sell them something (we don't have a fund, for example). We were able to provide asset allocation advice, as well as risk analysis based on the reality of what they own - both in terms of their personal and corporate assets.

We've had a good year: the business model has been shown to work. We began with seven people and expanded to 16. We currently have around 100 clients and US$2bn assets under management.

We're well capitalised, which has been important in this environment. Julius Baer is a 10% equity holder and having such a name behind us is helpful from a future growth perspective too.

Going forward, we intend to diversify our client base in terms of geographical spread. At the moment, the majority of clients are based in the Middle East. But we'd like to build investment banking franchises in India, central Europe, Russia and Latin America. Wealth is being created at a faster pace in these emerging regions.

Q: What major developments do you need/expect from the market in the future?
A: The market is likely to go back to being driven by fundamentals rather than sentiment. The VIX, for example, has dropped from its historic highs of 80 to 20 - indicating that people believe the worst is behind them.

In terms of what happens next, the market needs much more economic data around whether it will be a 'V' or 'W' shaped recovery. At this stage, there are still too many unknowns.

CS