Providing guidance in extraordinary times
While profits at the Julius Baer group have been falling – down by almost half in the first six months of 2009 to SFr219m (E143m) – they have fallen less than the army of analysts following the Swiss banking sector expected. The bank, Switzerland’s second largest after UBS and Credit Suisse, recently separated its wealth and asset management franchises, now to be listed individually on the Swiss exchange. The figures who have attracted most coverage are Boris Collardi, the young and charismatic private banking boss and protégé of recently deceased veteran chief Alex Widmer; and the enigmatic leader of the funds house, David Solo. But the bank’s recently appointed chief investment officer, Indian-born Dr V Anantha-Nageswaran (known as Dr Van to his colleagues and clients), is taking an increasingly important role in providing asset allocation guidance for the funds which are flowing out of some rivals into Julius Baer’s coffers. His experience working for Julius Baer in Singapore, as well as the bank’s two main rivals in Zurich, and running a hedge fund in between, should stand him in good stead for the challenge ahead.
PWM: How is the new investment climate affecting your asset allocations and are your rival banks correct in saying that private clients are faced with the best opportunities in a generation? Dr Van: There is a range of outcomes in the situation we have today, combining a credit and housing boom and bust, which is spreading across a few countries. Our job is to decide which outcomes are more likely. This is an intellectual challenge the like of which we have not faced in our careers and lives. This is not a standard inventory recession, so there is far less certainty. The government policy response is just beginning to unfold, with social and geopolitical consequences yet to be played out. This means investors have not yet missed the opportunity. The opportunity of a lifetime may emerge in the next couple of years or three, but I am not sure that it has already come in October 2008 or March 2009. Nothing has been missed so far. PWM: With increased correlations between most asset classes, are there any opportunities in equity investing to which clients should be alerted? Dr Van: So far it has been the case that the rising tide has lifted all boards and the ebbing tide has drowned them. If there is to be a decoupling of asset classes, we need to decide what will be decoupled from what and which strategies to adopt. I do believe there is a much better chance now for Asian decoupling than in the past. Asian bank and household balance sheets are healthy, therefore there is the potential for strong domestic demand in Indonesia, Thailand and India. Other countries like China have to do a lot more to become drivers of domestic growth. If the risks in the developed world are economic, risks in the emerging world are political, with the danger of conflicts and elections sabotaging potential. We are underweight in equities in general, and in March advised clients it was a good time to add beta and go into emerging market equity, which has since rallied quite strongly. Even if there is potential for decoupling and prices are already reflecting the good news, it is time to sell. If they don’t it is time to buy. What used to take place in two years or longer has happened in several months in emerging markets. But we will be dictated to by what the prices say rather than by our views. PWM: How important are bonds in the current climate for private investors? Dr Van: Government bonds are not going to be yielding much for a while, but we could go through a phase where investors begin to actively fret about inflationary consequences of government spending. Bonds have been traditionally attractive for conservative investors not wanting to take risk. In the current climate, bonds with a higher yield, such as those issued by emerging economies, are more important in a portfolio than traditional high grade or government bonds. PWM: Are Swiss banks’ skills in asset allocation and investment management becoming even more important, now that the traditional advantage of banking secrecy has been wiped out? Dr Van: Conceptually, if one of the unique selling points of a business is weakened, other legs have to step up to the plate. Investment advice and performance have always mattered, but now they will acquire a much higher level of importance than before.
