The wealth of high-net-worth individuals (HNWIs), people with net financial assets of at least $1m (?792,000), has surged to $3,330bn in 2005, which represents an 8.5 percent increase compared to 2004, according to the 10th edition of the world wealth report by Merrill Lynch and Capgemini.

Dr. Jens Ehrhardt Group (DJE), one of the largest and independent investment managers in Germany, is looking to replicate the successful sub-advisory business model that it has implemented in continental Europe in the UK. The company, with over ?6bn of assets under management, gets the majority of its business from managing segregated mandates for other financial institutions, including Deutsche Bank’s asset management arm DWS and Frankfurt Trust in Germany or private bank UEB in Switzerland.

Merrill Lynch and BlackRock have begun to put in place the senior management team for the private client group of their integrated Merrill Lynch Investment Managers (MLIM)/BlackRock investment business. The interim steering committee has announced that Frank Porcelli, currently chief investment officer for MLIM in the Americas, will be head of the private client group. He will work closely with Anne Ackerley, who will become chief operating officer of the private client group. She is currently head of the private client group at Blackrock.

Banca d’Italia has given Italian managers the much hoped for opportunity to innovate their product range, by quickly absorbing the new Ucits III directive, which allows for a broader range of investment instruments to be used in funds.

Group Capitalia, one of the largest banking groups in Italy, relies principally on FinecoBank, its open-architecture online platform, to offer a multi-brand product range to its clients, writes Elisa Trovato. In addition to banking products and online trading, the direct bank managing ?11.5bn offers its affluent and upper affluent customers a selection of over 1,000 funds from 30 fund houses.

The addition of 14 new Ucits III compliant funds for the fixed income market by GSAM has highlighted the firm’s intention to exploit exciting new opportunities, says its head of business Ted Sotir. Yuri Bender reports

With a humility not generally credited to Goldman Sachs – at least one continental bank is reluctant to go into deeper partnership with GSAM, because its representatives always claim to have the “perfect products” in every asset class – Mr Sotir admits that fixed income and quantitative equity products are currently being distributed because they are performing well.

Many managers are convinced that the latest equities slump is merely a short-term blip, emerging markets have fallen from grace while prospects for the US remain pessimistic. Elizabeth Cripps reports

Product reviews do not necessarily mean closing down obsolete ranges. In fact, current trends are seeing many more new products being launched than shelved. Elisa Trovato examines the latest schools of thought among forward-thinking product manufacturers

The rise of quantitative managers
Since the late-1990s, there has been substantial growth in the amount of assets managed by quantitative managers and using quantitative investment strategies in the institutional fund management arena. In the last several years this rapid growth has continued, as client demand has bifurcated between higher octane high alpha products and lower tracking error index plus products.

Fund buying professionals are clearly looking for well-managed quantitative equity funds to put at the core of their client portfolios. Such funds enable fund buyers to reliably put in place what they hope are consistent asset class returns, often outperforming index tracking products, to construct successful portfolios and investment products.

Customers of Italy’s major savings institutions in recent years have favoured low added-value products such as bond or money market funds. But a recent trend to absolute returns and a cautious embrace of external funds has led to a newfound optimism, reports Elisa Trovato

Daniele Fano, head of economic research at Pioneer Investments, tracks how Italian investors have become increasingly savvy, opting for flexible bonds that extract value from any source, independently from the benchmark but against a target return

A nose-dive in Italian equity performance has seen many savers place their money in fixed income vehicles. However, the introduction of ‘fondi flessibili’ may offer them an alternative that could make up for past losses, writes Furio Pietribiasi, general manager responsible for product development and manager selection at Mediolanum

Despite recent volatility, market players are holding out for further price rises in a wide range of commodities, writes Simon Hildrey

“In May, our balanced portfolio suffered from several bets such as gold, commodities and Asian Equities, as well as Growth style, which all performed poorly over the month.

In the context of a potential liquidity crisis, European convergence equities have also fallen, underperforming Western indices. Our bets taken for diversification purposes on bonds have clearly detracted, as emerging market and corporate spreads widened sharply over the period.

This month we have, however, slightly increased our exposure to gold, commodities and high yield as they all recently appear to be oversold and supported by strong fundamentals.”

“In reaction to the dramatic rise in volatility in equity and fixed income markets, we have reduced market risk considerably in both fields. Equities are now at 32 per cent, bonds at 36 per cent. We have built up 22 per cent cash in order to be able to act when markets find their bottom. Once we see that, we will make use of any opportunities that arise and reinvest our liquidity. European Reits were eliminated altogether. We took our profits there. We have made some style changes in the bond portion, reducing overall maturity and credit risk.”

“An ugly month for markets means relative returns are all we can console ourselves with and our Asian selection was top quartile and funds in the bond arena did better. We have decided that as a single fund to represent Japan, Atlantis may not be appropriate in the short term. This fund goes and in comes JPMF Tokyo Alpha Plus managed by Osezawa-san with the flexibility to go highly liquid when deemed appropriate. Otherwise our current portfolio and weightings remain the same.”

“In the third quarter of last year we started to slowly reduce our allocation to US equities. We are now increasing our holding to North America – while still remaining heavily underweight versus the MSCI World Index – as a measure to reduce risk. We believe this can provide some protection from any continued reduction in global risk appetite.

We simultaneously slightly reduced our allocation to Japan, Asia and emerging markets.”

“For the first time in quite a long time, the equity weighting of the balanced portfolio has been reduced to less than 50 per cent (44 per cent), by closing the holdings in Japan and Russian stocks. The proceeds have been mainly kept safe in money markets. The sell-off, which began in the second week of May, left no place to hide but cash. Going forward, we will look to put aside some more money in order to end the summer in a relatively safe investment profile.”

“The previous month, we took some profits on our equity exposure, as we thought the markets were getting too optimistic. However, valuations are reasonable and offer a protection against a severe downturn. We still have a positive view for equities, but it was necessary to adjust to rising risk factors. We continue to benefit from low exposure to fixed income and from our exposure to a fund of hedge fund, which has been a good alternative in this rising interest rates environment.”

“Our portfolio is fairly balanced between bond and equity. In the euro area the investment in the mid-long maturity government bonds is becoming interesting again. The disappointing performance of the equity markets in the last weeks, together with a sharp rise in volatility, led us towards a more conservative portfolio. Consequently our preferences go towards defensive funds or funds with a value approach, although some aggressive themes still remain in the portfolio with a reduced weight.”

“Equities finally succumbed to rising oil prices and interest rates, prompting profit-taking in markets which had become complacent. Inflation risk appears modest rather than extreme. If true, interest rates are unlikely to rise significantly further, allowing economic growth to continue at comfortable levels. Equity valuations and merger activity remain supportive but further consolidation is likely. There is no obvious catalyst in the economic data or consensus forecasts to warrant major changes in the asset allocation.”

“The rise in inflation expectations since the start of the year has been joined by a spike in the core Consumer Price Index and a weaker dollar. This has pushed investors to reduce exposure to high beta sectors like materials and energy. We view this as a healthy correction, as opposed to the end of the bull market and therefore will not make any changes to the portfolio until volatility settles.”

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

Six industry heads meet in Luxembourg to discuss the challenges facing private banks and fund management groups in the optech arena, including third-party fund processing and the need for a paperless solution