Spot new assets for private client success

In a world of disappointing hedge fund returns, the secret of successfully investing assets on behalf of private clients lies in identifying new assets, uncorrelated to bonds and equities. These classes, which can be traded long or short, can then become underlying investments for a new generation of structured products. This was the message from Guillaume Subias, head of Swiss structured product sales at BNP Paribas in his address to PWM’s private banking summit, held in Geneva in November. The French bank was one of the event’s sponsors, along with UK-based investment bank Barclays Capital. Both are keen to penetrate private banks, as a key target for capital market-led investment strategies using derivatives. “We are looking for real investment strategies, based on fundamentals, market belief, rather than an investment banker giving you the most exotic pay-off and asking clients to buy it,” said Mr Subias. “We need to look at new philosophies, ways to look at investment, not products.” He added that commodities, in which many private clients were advised to invest last year, was one example of such a new class. Another example is passive hedge funds, represented in a merger/arbitrage index sponsored by BNP Paribas and quoted on Euronext, which is up 80 per cent since 2000. “This is very liquid, and can be packaged into a Luxembourg Sicav fund or a certificate. It is transparent and has a low cost, as you don’t need to pay managers,” Mr Subias told the conference, attended by 130 Continental European private bankers, family offices and wealth managers. He also talked about exploring investment in “hidden” assets. For equities, these could include dividends, volatility and repo rates; for bonds, credit spreads, liquidity and funding levels may qualify. “Hidden assets can be arbitraged and they will become a new asset class,” said Mr Subias. This theme was also pursued by Martin Engeler, head of Swiss private banking coverage for Barclays Capital. Location of “hidden” or “implicit” assets could lead to the creation of a new style of product, where trades are conducted relative to securities in an underlying basket, rather than trading the basket itself, said Mr Engeler. “We can now trade assets which it was impossible to achieve access to previously,” he said.

YB