What it is
A tracker note is a note whose value follows a portfolio of assets actually held by the issuing compartment. When the portfolio is run on a discretionary basis by a manager, the product is what the market usually calls an actively managed certificate or AMC.
There is no synthetic exposure and no index. The compartment buys and holds the real assets, and the note represents a share of them, net of costs. Its value on any valuation date is the net asset value of the portfolio divided by the notes outstanding.
The five parties
The portfolio manager
Takes the investment decisions within the investment guidelines agreed at the outset, and instructs the broker.
The issuer and its compartment
Issues the notes and holds the assets. The compartment is segregated by law from every other compartment of the issuer.
Custodian and broker
Hold the assets and execute the trades, on an account in the name of the issuer acting for the compartment.
Calculation agent
Values the portfolio on each valuation date and publishes the net asset value per note.
Paying agent
Settles subscriptions and redemptions through the clearing system, so the note behaves like any other security.
From set-up to redemption
Set-up
The investment guidelines are agreed, the compartment is opened, and the final terms and the ISIN are issued.
Subscription
Investors pay in full and receive notes. The proceeds reach the compartment’s account.
Management
The manager trades within the guidelines. Income stays in the portfolio unless the final terms provide for distributions.
Valuation
On each valuation date the calculation agent sets the NAV per note. New subscriptions and redemptions take place at that price.
Exit
At maturity, or on early redemption, the portfolio is sold and the notes redeem at their net asset value.
What the manager controls, and what it does not
The manager decides what the portfolio holds, within the investment guidelines attached to the final terms: eligible instruments, concentration limits, use of derivatives, currency and cash. Staying within them is the manager’s responsibility.
The manager does not hold the assets and has no access to them. The account is in the name of the issuer, acting for the compartment; the manager can instruct trades but cannot withdraw cash or transfer securities out. That separation is what lets a bank book the note as an ordinary security rather than as a claim on the manager.
The final terms also set out what happens if the manager stops: the issuer can appoint a replacement on notice to noteholders, or sell the portfolio and redeem the notes at their net asset value.
Why the compartment matters
The notes are limited recourse obligations of their compartment. They are backed by the portfolio of that compartment and by nothing else, and no other compartment of the issuer has any claim on it. Under the Luxembourg Securitisation Law this segregation is statutory, not contractual; the mechanics are explained in compartment segregation explained .
For the investor, this means the risk is the strategy and the assets in the portfolio, not the other business of the issuer or of the manager.
When it makes sense, and when it does not
A tracker note fits a manager whose clients hold their assets at banks and want the strategy as a single line in their portfolio, a manager who wants a track record on a vehicle with its own ISIN, or an adviser who runs the same strategy across many accounts and wants one instrument instead of many.
It fits less well when the investors want to hold the underlying securities directly, or when the strategy needs a regulated fund wrapper for the investors it targets. The trade-offs are set out in securitised note or fund .
Frequently asked questions
Is a tracker note the same as an actively managed certificate (AMC)?
Economically, yes: both track a portfolio that a manager runs over time, and both are held as a single security. AMC is the market name, which comes from the Swiss market. Under a Luxembourg note programme the same product is issued as a tracker note, whose redemption amount follows the value of the assets held by its compartment.
Does the portfolio manager hold the investors’ money?
No. The assets sit in an account opened in the name of the issuer, acting for the compartment, with a custodian and an executing broker. The manager gives trading instructions within the agreed investment guidelines; it cannot withdraw cash or move assets out of the account.
What happens if the portfolio manager stops?
The final terms set out what counts as a portfolio manager event, such as the end of the management agreement or the loss of the manager’s licence. The issuer can then appoint a replacement on notice to noteholders, or redeem the notes at their net asset value after selling the portfolio.
Who can invest in a tracker note?
Tracker notes issued by Capital-Hill Securities are reserved for professional investors within the meaning of MiFID II and eligible counterparties. They are not offered to retail investors.
Packaging a strategy as a note?
Tell us the strategy, the target size and who the investors are. We come back with an indicative structure.
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