Guiding clients through these troubled times
Events in Japan and North Africa are worrying investors, while their managers are more concerned about EU rules
Panicked investors are calling their private banks about equity positions in the wake of heightened unrest in the Mena region and the effects of the Japanese Tsunami, leading to an ongoing nuclear disaster at the Fukushima power plant.
Linked with concerns about global environmental issues and Middle Eastern stability are worries about directions of both troubled developed and overheating emerging markets and their relationship to a spiralling oil price.
Simmering in the background are further uncertainties about interest rates, inflation and currency stability. But for the private banks, despite sensitivities to the plight of Middle Eastern and Japanese citizens, these scenarios create an opportunity for profit and to contact private clients about opportunities for portfolio rebalancing and product ideas.
Some Swiss wealth players such as Vontobel recently increased allocations to emerging market equities. Others, such as German house Sal. Oppenheim, now part of the growing Deutsche republic, are politely asking clients to reduce equity weightings and consider emerging market bonds.
Most private bankers and asset managers are currently in a state of heightened excitement. This is the not the gloom and doom of the 2008 crisis, when some went into hiding and those that lived in the open were apologetic when contacting clients. This is a time when they are more than keen to talk and discuss a variety of themes and concerns. One of them is clearly hedge funds.
Private clients, many burned by Madoff and other alternative investments, are currently switched off by any hedge fund sounding strategy, be it distressed debt, long-short equity or CTA-style managed futures. That said, private banks are maintaining an allocation of 8 per cent upwards to these uncorrelated strategies, and now might just be the right time to invest.
Clients’ reluctance is, however, understandable. Many distributors have been promised all-weather products, but the weather has overcome the product, or perhaps the proofing or the mechanism was not as robust as manufacturers claimed.
The industry has been dispensing platitudes for years about losing the trust of the investor and re-inventing itself to be on the side of the consumer. This grating noise pollution has reached a crescendo recently.
Prompted by the spectre of a consumer-led revolt, investment operators queued up at the recent Alfi funds conference in Luxembourg to talk about “fiduciary responsibility” to clients, while refusing to answer questions about problems with specific funds.
Regulators have responded to this crisis of confidence and shameful behaviour in a zealous fashion. Not only is Europe adapting the most successful of its financial services directives, the famous Ucits regulations on cross border investment funds, launched in 1985 and now preparing for a fifth incarnation, but a host of other regulatory challenges are looming.
These include the Prips rules on retail structured products and the AIFM directive on hedge funds and private equity, at last taking on a workable format. The key sticking points are about liability. Is a bank such as UBS, which acted as custodian for some Madoff-linked funds, liable to investors should those funds later collapse?
Regulation of these areas is a good thing, and the acceptance of Ucits as a quality marker in Asia as well as Europe offers some hope. But the key differentiator must be product quality and selection. And only a good private bank or family office can provide this for the client.
Yuri Bender is Editor-in-chief of PWM
