Delivering bespoke solutions

PWM: How are asset allocation models changing for private clients? Michael Krinner: Even more important than models are the assumptions behind them. As an investment manager, you need to discuss risk and return estimates with clients to make expectations clear. These, combined with clients’ specific needs, allow you to deliver bespoke solutions, similar to the ones offered to institutional clients. PWM: Is there a move to offer a bigger selection of standardised portfolios or to tailor allocations specifically to individual clients? MK: Basically it is both. Clients expect that our solutions are globally diversified multi asset class solutions that cover all the important themes. In this respect, the demand for standardised solutions is still strong. On the other hand, client demand for specific needs is rising, which is the reason for a rising demand for core-satellite solutions. PWM: Until recently, private banks were suggesting a very high hedge fund component in default allocations. Is this still the case, or has it changed? MK: Credit Suisse does still support the view, that alternative investments make sense and add long-term value in private client portfolios. Last year’s events are a cause to re-think the structure of the alternative investment part in the portfolio and further expand the risk management. But they are no cause to question the viability and sense of alternative investments. PWM: Do increasing allocations to cash and fixed income mean fees are lower for portfolio managers and that you need to get used to much lower margins? MK: Credit Suisse offers various fee models for discretionary mandates and of course we differentiate between fixed income-related and equity-related investment profiles. However, if our active asset allocation approach results in a higher tactical fixed income quota in any given profile, the underlying fees do not change. However, generally speaking, the current trend of private clients towards ‘safe havens’ such as cash and fixed income profiles will result in lower fees and lower margins for asset managers. PWM: Which are currently the key products being demanded by private clients? MK: Cash- and fixed income-related solutions as well as indexed solutions and gold-related investments. PWM: Following recent problems, will there be lower allocations to structured products? MK: Clients are looking for simple, easy-to-understand investment solutions. Credit Suisse offers cash-related structured products where we experience continued strong demand. For more complex products, the demand is less strong. It is not a question of structured products in general, but a question of comprehensibility of the product. PWM: Are ETFs taking off as a means of quickly allocating to asset classes for private clients? MK: The demand for ETFs is very strong now as clients look for easy-to-understand solutions and many active fund managers have underperformed in 2008. Credit Suisse developed ETF-based investment solutions for our private clients. We have significantly expanded our ETF offering and will continue to do so in 2009. PWM: Do you feel the efficient portfolio theory models and traditional economic risk models have been discredited by recent events? MK: Events in the current crisis have shown plainly the limits of portfolio and risk models. However, we believed and still believe that, if not used mechanically, models help to discuss risk and return characteristics of portfolios. Obviously the risk part has been undervalued in the past and discussions, internally and with clients, will focus more on risk characteristics going forward. PWM: When salesmen from other investment banks come calling, are you happy to share your asset allocation models with them, so that they can find the best products to fit into these? MK: Credit Suisse is participating in initiatives such as the quarterly NZZ (Neue Zürcher Zeitung) asset allocation poll, where major Swiss banks are publishing their asset allocation. Furthermore, our asset allocation is published in various Credit Suisse publications, so it is always publicly known. – such as home equity bias or investment bias towards a theme like ‘sustainability’ – Thus, it is not a question of structured products in general, but a question of comprehensibility of the structured product. PWM: How are you tackling the increasing need for so-called risk-budgeting? MK:Credit Suisse has a discretionary mandate offering, which also covers solutions with risk budgeting. Clients can choose from different solutions for different needs. The demand for risk budgeting is rising but as it is more difficult to understand it is primarily well informed and sophisticated clients, that are asking for such solutions. Hence, the demand for risk budgeted solutions is most strong among UHNWI and institutional clients. The core question is how to implement such solutions. Within ‘Premium’ mandates for our UHNWI clientele, we offer tailor-made core-satellite solutions. Specific client needs can be covered through additional advisory products such as investment funds or certificates.