Archives » 2006 » Issue 40 (May)

Asset management is currently buoyant, but it must be able to both sub-advise and offer quality products in the guided architecture world

Last year was a boom year for the global billionaire community. The new Forbes magazine list of the richest people on earth contains a staggering 793 individual US-dollar billionaires, a 35 per cent jump from last year’s 587 individuals, and 66 per cent higher than the 476 of three years ago. While it is not possible to know whether the additional names are new billionaires, or simply existing ones that have just been discovered, it is clear that there is a now firmly established cadre of global financial elite.

Limited space is still available for PWM readers who wish to attend the fourth in the European Fund Series of afternoon conferences. The event, sponsored by BNP PAM, will focus on initiatives and regulations in the UK distribution market.

Dr David Curtis, head of GSAM’s European Sub-Advisory business, discusses investment solutions

— Matthews: not all insurers have good investment management

Trevor Matthews, chief executive of life and pensions business at Standard Life, was responsible for the firm’s shift from protection to investment products, and believes the potential in private banking will boost sales. Yuri Bender reports

When Trevor Matthews was headhunted to run Standard Life’s loss-making operation in 2004, he did not feel the challenge he faced was insurmountable, after having re-shaped the Manulife insurance company in Canada and Japan.

As competition heats up in the private banking arena, new kids on the block are finding it difficult to lure high-net-worth clients away from the big brands. Christine Senior looks at ways of attracting new customers, including diversification, niche offerings and a good old-fashioned service

The structured product arena has undergone a revolution, doing away with the traditional fixed income portfolio and replacing it with capital protection products that explore slightly more exotic offerings, says Elizabeth Cripps

Laurent Seyer, of Société Générale, assesses the differences between structured products and traditional forms of investment, and how they can complement one another

Across Europe providers have experienced increased demand for innovative new products as investors seek to shelter capital from market downturns, says Rupertus Rothenhäuser of DWS

— Collins: we look for innovative firms

Things are looking up for the lagging US economy, but can the new Federal Rserve chairman balance the needs of the housing market with the economy as a whole? Simon Hildrey reports

“In our portfolio we support the relative positive valuation of equities compared to bonds. This is reflected in an overweight position in emerging markets, which is obtained both through direct exposure (Pictet Global Emerging Market) and indirect exposure (M&G UK recovery, M&G Global Basic and Vontobel Global Equities). No changes to the fund selections or asset allocations this month.”

“Global economic conditions remain firm, with further recovery in Europe and Japan supplementing solid growth in the US. The downside of positive economic news is monetary tightening. Global equities have been strong this year but warning lights are flashing. Investor sentiment shows considerable complacency, as do the substantial levels of takeover activity; profit margins are historically high and productivity gains harder to achieve. Although we are not calling a top for markets, the economic and investment cycles are maturing, and our inclination is to reduce risk in portfolios. We will trim emerging markets in favour of the US.”

“Our balanced portfolio is fairly split between equities and bonds. Although energy, gold and technology are still investment themes in our portfolio, we have introduced some selected defensive themes like water sector and global franchise strategy. On the bond side, the increasing rates scenario suggests total return bond products with flexible investment processes. Good growth perspectives in Asia continue to suggest Asia property as asset class of interest. At the geographical level, preferences go to funds managed in a very active way with an original investment process.”

“There were no major changes over the month, as we believe our recommended portfolio allocation remains well-suited to market conditions. Our 60 per cent equity positioning reflects our positive stance on equities. Ten per cent of our equity exposure is invested in mining and energy stocks, for diversification and return enhancements. We have also benefited from low exposure to fixed income products and increased exposure to convertible bonds.”

“The balanced portfolio has been slightly tilted toward Japan during March. An extra manager, Pictet, has been added in order to invest in an all caps fund, focused on mid to large caps but with a flexibility to invest. The setback Japanese large caps have been going through during the first quarter seems excessive: the situation is constantly improving in Japan, from a macro and a bottom-up perspective. To keep the equity weight roughly unchanged at 57 per cent, part of the US equity investments have been redeemed.”

“We decided to further reduce our position in Liontrust First Income and add to our holding in Karen Robertson’s Standard Life UK Equity High Income fund. Within the alternatives category we added IdB Alchemy NV, run by David Williams. His objective is to achieve positive returns while reducing risk. Exposure to the financial markets will be gained through investment in a diversified and actively managed portfolio of European equities. This addition to the portfolio suits our philosophy that special skills and techniques are required to generate returns and preserve capital.”

“March was a strange month, with good returns from US small caps and Japanese large caps, and poor returns from US large caps and Japanese small caps. Currency played its part, and overall things were quite tricky for investors looking for direction. However, the month ended well for equities, although bonds fared poorly, with funds like Credit Suisse Target Return performing best due to its total return aspect. No changes to the fund selections or asset allocations this month.”

“In light of rising yields, we favour off-benchmark bond investments, such as total return-orientated bond funds. We still believe that equity markets offer attractive opportunities, given the ongoing improvement in corporate earnings. European equities should profit from the economic recovery. We are cautious about US equities, but overweight Japan and the emerging markets, especially Asia. We have added a European Reits fund as well as two hedge funds in order to increase diversification.”

“Our balanced portfolio has benefited from our bets on gold, commodities and Asia, which performed strongly during March. In the context of a mini crash on bonds, our low duration bet and total return investments have protected investors from capital depreciation. This month, we slightly increased exposure to Japanese equities by reducing our stance on high yield bonds, as this asset class appears increasingly expensive. Following the end of the fiscal year, the Japanese market broke strong technical resistances and now appears well-orientated.”

Each month in PWM, nine top European asset allocators reveal how they would spend E100,000 in a fund supermarket for a fairly conservative client with a balanced strategy

— Warne: living in the paper world is just no fun for JPMorgan

As complex investment propositions create an overlap between manufacturer and distributor, how is the relationship with service providers such as JPMorgan impacted? Alison Ebbage reports

— Chaker: we offer tailored infrastructure

The vast growth in third-party distribution in Luxumbourg has led many to question whether there is an adequate infrastructure to support it. Elisa Trovato examines the settlement system providers battling to provide a tech solution

— “The trend to more complex and sophisticated product concepts will push sub-advisory outsourcing” - Lukas Frey, Julius Baer

For many asset managers, the increasing delegation of strategies to third-party specialists is a matter of survival. And, according to the findings of the annual PWM sub-advisory survey, the competition for client satisfaction is feeding the multi-manager approach. Elisa Trovato reports

Yuri Bender directs a discussion focused on the kinds of decisions that shape the sub-advisory process. The eight industry heads reveal the different drivers which have led all of them to the outsourcing solution

As more banks across Europe are now willing to enter into sub-advisory arrangements, a three-way relationship is blossoming that is in the best interest of all: the banks, their sub-advisers, and their clients. Paula Garrido writes on the deeper benefits of outsourcing

Our third annual sub-advisory survey was initiated by e-mail questionnaire, sent to private and retail banks, insurance companies and fund houses.

— “A professional level of advisory service would be very hard to provide if you sold, say, 3000 third-party funds” - Ulf Riese, Handelsbanken

The Swedish asset management group believes that sub-advisory delegation can be a selling point for funds

— “When you delegate to a sub-adviser, the fund gets registered in Spain and settles in one day” - José Manuel Garcia del Sola, Banif

Banif sees a Spanish market torn between hard-to-negotiate outsourcing deals and straight distribution

— “The more we like a company and its portfolio managers, the more we tend to broaden its mandate” - Alessandro Costa, Sanpaolo

While the Italian bank’s board is yet to be convinced of the merits of openness, externalised assets are rising