Executives drawn together from some of Europe’s top banking and asset

management institutions agree that in the ‘internal versus external’

battle, it is the client who must come out the winner.

Opinions from the inside

Sub-advisory roundtable, April 2004,

Frankfurt-am-Main, Germany. Participants:

• Heinrich Adami, Managing Director, Pictet Investment Company

• Moz Afzal, Chief Investment Officer, EFG Private Bank

• Josef Altmann, Managing Director, BNP Paribas Deutschland

• James Bevan, Chief Investment Officer, Abbey National

• Hansjoerg Borutta, Managing Director, Investment Solutions, UBS

• Paul Burik, Managing Director, Commerzbank Asset Management Group

• Michael Klimek, Managing Director, Germany, Goldman Sachs Asset Management

Panel Moderator: Yuri Bender, Editor-in-chief, Professional Wealth Management

The process of outsourcing asset management starts with defining the

correct sub-advisory model to follow. Alex Fletcher explains to Paula Garrido how this is done.

Methodology

Our sub-advisory survey was initiated by e-mail questionnaire. Telephone interviews were then conducted by

PWM’s researchers with major retail and private banks,

insurance companies and fund houses at a senior

management level.

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

Many European banks remain reluctant to publicly acknowledge the increasing role played by external sub-advisers, but attitudes are slowly changing.

Record profits for domestic players as foreign subsidiaries fall behind

Private banks’ solutions must be fairly priced, says Scorpio

Japan gaining allure for European fund groups

European fund groups are focusing on Japan, according to trends data from Morningstar.

Continent’s largest equity fund pulls in e1.5bn from January to March 2004 while research shows six out of 10 bestsellers invested in bonds

For an industry that talks a big game about being a relationship business, it seems that few wealth management institutions do much about fostering a deep understanding of their clients. Wealth management firms often fail to engage with their financial needs and objectives, but worse still, many question if they are considered relevant to their wealth management provider. For most, their customer experience revolves singularly around product exposure, when what they seek is service.

Rodney Williams assesses the volatile fortunes of the global fund industry in 2003, a year that ended with Europe boasting a net addition of 86 funds

BNP Paribas private banking chief François Debiesse tells Paula Garrido of his plan to differentiate the French giant from peers with advice-driven services.

If there is such a thing as a “third way” in private banking, it is the route pursued by François Debiesse, Paris-based chief executive officer of BNP Paribas Private Bank.

With around e100bn under management, the private banking division of the BNP Paribas group is aiming to fill the gap between the Swiss and American private banking schools.

Are hedge funds just a portfolio sweetener or an asset class to be toasted for many years to come? Elizabeth Cripps investigates the asset allocation trends of the top six private banks handling the wealth of Europe’s high net worth individuals

Market growth in 2004 set to top last year’s record-setting levels of issuance.

In 2003, the high yield market had a record amount of new issuance as 515 deals priced for a total of $141.1bn (e117bn) in proceeds, according to Merrill Lynch index data. The previous record of new issuance was in 1998, which experienced a sum of $140.9bn.

However, issuance in 2004 through March 31 is on pace to break last year’s record as $46.3bn of new issuance has priced in the first quarter. According to Moody’s Investors Service, the high yield market has grown in size from $452.1bn in 1998 to approximately $695.2bn at the end of March 2004, representing nearly 54 per cent growth. Incidentally, high yield bonds as a percentage of outstanding corporate bonds represented 17.8 per cent on March 31, 2004, according to Moody’s.

A ‘rollercoaster’ time, maybe, but faith in high dividend yielding stocks remains strong since 2003.

The year 2003 was a turbulent one for investors in European equities. The Iraq war, and concerns about geopolitical risks, weighed heavily on the markets in the first few months of the year. Between the beginning of 2003 and 12 March, the MSCI Europe index lost nearly 20 per cent of its value. It then proceeded to recoup most of those losses in the following two months, and ended the year up nearly 16 per cent. A bit of a roller-coaster ride!

As was the case with 2001 and 2002, the divergence in performance between the best and worst performing stocks was large. However, in 2003 it was the high beta end of the market that performed the best.

High yield bonds tend to conjure up images of the boom and bust 1980s, but the fundamentals for this demonised asset class are currently positive.

The junk bond – also referred to as high yield or speculative grade – market has undergone dramatic swings in investor perception from the early 1980s under Michael Milken, the junk bond market pioneer, to the telecom bubble in 2001 and finally to the large inflows of investments seen in 2003.

During these swings, investor thoughts have ranged from thinking junk bonds offered no risk to believing they were created by the devil. This wide divergence in perceptions reflects a misunderstanding of high yield by a majority of both professional and individual investors.

Asset allocators must examine how closely a fund is able to replicate its index before choosing ETFs, writes Simon Hildrey

“We are slowly taking profits on the equity part of the portfolio that has produced decent returns over the last few months. Thus, we sold our holdings in mining stocks and emerging Asia. On the other hand, we added to our investment in healthcare and added a tech fund on a medium/short-term horizon. On the fixed income side, we have reduced our duration and started building a negative duration position. Going forward, our bias will be to go on taking profits on the equity side.”

“After last month’s comments we were pleased to have remained overweight in Japan, where the best returns were to be had in April. This overweight remains part of our strategy, as does the under-weighting towards bonds.
With generally positive asset allocation and fund selection results at the end of this quarter, we choose to retain the same portfolios.”

“For some time, we have been arguing that bond markets have looked overpriced and this has now proved to be the case. If we see any more weakness we are likely to become buyers of fixed interest stocks. However, for the moment we maintain our stance and have no changes to make to the portfolio.”

“It has been difficult for equity markets in recent weeks, especially emerging markets equities, which have been consolidating from their latest highs. But as we are still optimistic about Asian and Eastern European markets, we remain overweight in these regions. Our broad diversification in bonds paid off and so we see no need to make any changes in our portfolio."

“We reduced our exposure to emerging markets, which are sensitive to interest rate levels.
We also trimmed down our small-cap stance since we believe the environment will become more favourable to large caps. We kept underweight on the fixed income side, while staying overweight on high yield bonds, which offers some protection against rising government yields. The money resulting from the reduction in the equity stance is invested in a tilted money market fund.”

“We decided to move out of high yield bonds. Credit spreads came in during the whole of 2003 and we felt that the risk/reward of these instruments had deteriorated relative to government quality paper. We therefore removed Pimco High Yield from the model portfolio and increased our position in Thames River Global Bond, the government bond portfolio with an absolute return focus, which has recently been added to the model portfolio”

Cheap mid-cap stocks

Power Combination: pan-European equities