Sophisticated clients demand alternatives
De Juniac: money being kept onshore
As wealthy investors become increasingly savvy with their money, managers are under pressure to allocate to alternatives, often putting as much as 20 per cent in hedge funds or real estate, writes Elizabeth Cripps
Wealth managers have to adjust to increasingly investment-savvy clients, who demand enhanced performance along with security, and are more and more interested in alternative investments.
According to Boston Consulting Group’s (BCG) report, Global Wealth 2005, clients are increasingly combining conventional asset classes with alternatives, mostly hedge funds, private equity and real estate, but also structured products.
Wealthy individuals are putting upwards of 5 per cent into alternatives, said Christian de Juniac, senior vice president and director at BCG, and this can be expected to grow.
“If you talk to people today who are in the business of advising clients then they would say that a portfolio ought to have 20 per cent in alternatives,” he explained, although he added that was on the assumption that hedge funds would continue to outperform the market. He predicted that allocations would double from their current level within the next five years.
According to Mr de Juniac, the equity portion of a portfolio is likely to stay “pretty steady” at its current level of around 37 per cent, with no return to the levels of 2000, despite the gains of 2003 to 2004.
Global wealth growth overall is back on track after the losses earlier in the new millennium, the report found. In 2004 the global wealth market grew 9.4 per cent to $85,300bn (?70,200bn). In Europe, it increased from $26,200bn to $29,400bn.
BCG predicted annual growth in global assets under management of roughly 4 per cent, from now until 2009, but said the dynamics of the growth would change. China, India and Russia are the most attractive growth markets.
European offshore wealth is expected to decrease slowly, along with international transparency and cross-border taxation of investment income.
“There has been a newfound stringency on offshore accounts and holdings,” said Mr de Juniac, “in part because of 9/11 and because of governments’ feeling the pinch in terms of tax revenue.”
He added that: “In a period of stability and with income taxes relatively lower than they used to be, people are not seeing the same need to put their money offshore, and most of the money is being created onshore, so much more is being kept onshore”.
This, Mr de Juniac said, was in addition to fiscal legislation such as that in Italy, which brought back “something like $50bn” onshore. “On the one hand you can say this is only 8 per cent of the Italian offshore market, but on the other, it is $50bn.”
There are, he added, two major conclusions for those houses aspiring to tap the global wealth management arena to bear in mind. Firstly, “the US is still by far the largest market, and also one of the most profitable, so any bank with global ambitions has to be active in the States”.
Secondly, “the areas of growth are Asia, outside Japan, Latin America, the Middle East and Eastern Europe, so the institutions with exposure to those markets will be those that are growing”.
De Juniac: money being kept onshore
