European family offices are turning into a valuable new channel of distribution for asset management companies providing multi-manager investment solutions.

Munich-based Allianz Global Investors (AGI), one of Europe’s giant cross-border fund houses, with ?942bn of assets under management globally, has highlighted third-party distribution as a key growth area, with a tranche of new products expected from the launchpad.

The new depolarisation regulations are dramatically changing the face of the UK fund management landscape. In a market where insurance companies have traditionally been the dominant product manufacturers, and independent financial advisers the principal distribution channel, UK banks have now the opportunity to increase their distribution market share and acquire new customers by offering third-party products on a best of breed basis.

Sub-advisory delegation and third-party fund distribution are the only ways forward in the UK wealth management business. Richard Saunders, chief executive of the Investment Management Association (IMA), was mentioned at the conference as commenting on the net retail sales of funds of funds, which reached an all time record in the first quarter of 2006. “Within two years, funds of funds will represent at least half of all fund sales. Big companies that distribute their own products and do not outsource or go open architecture are going to die in this wealth management business,” he said.

Wraps or platforms are becoming increasingly popular in the UK market. Investors have become more aware of the benefits of diversification offered by these distribution and asset allocation systems, which employ different fund managers and select a variety of funds. These new investment mechanisms also satisfy investors’ needs to consolidate all their investments in one place.

When it re-branded in January, Credit Suisse told the world it would be “thinking new perspectives”. It was hard to see much that was new in the bank’s move last month to merge its subsidiary private banks into a single autonomous entity.

Yuri Bender talks to head of products for Deutsche’s branch banking network Dominic Blum about the decision to sell other providers’ funds through its retail outlets in Germany and across Europe

The lead in product and group selection always follows the views of Klaus Martini, CIO of Deutsche Bank’s Private Wealth Management business line. “Klaus and his teams bring in themes with investment strengths, but our responsibility is to translate this economic, sectoral, sometimes very abstract view into solutions,” says Dominic Blum, head of products for Deutshce Bank’s private and business clients branch banking division.

As a private bank, retail bank or wealth manager, you have trained, coached and perfected your client advisers, who have built up strong relationships with their clients. What’s left to worry about? In short, the risk of losing not only those advisers, but the clients with them.

The client-facing investment advisers are often the staff who can make or break a deal, so it is essential to equip them with the tools to sell a product. Investment knowledge is easily taught, but can they really be trained in ‘soft’, or people skills? Elizabeth Cripps reports

Fixed Income as an Alpha generator

Having been burned by a downturn in equity markets, by 2003 investors were looking for a method of diversifying their portfolios. Since then, the rise in interest in alternative asset classes has seen these products move towards the mainstream end of the market, writes Elisa Trovato

Emerging market local currency debt offers investors access to local markets, but with several crucial differences to hard currency debt – local currency debt is less volatile and can provide investors with the upside from real currency appreciation, write Rob Drijkoningen, Martijn Oosterwoud, Bart van der Made

Once the preserve of the wealthy investor, hedge funds have come a long way since they began as unregulated offshore funds. Now retail investors can access the real returns available from these investments explains David Stuff, head of UK retail structured products at Barclays Capital

As investors flock to exchange traded funds, providers are offering ever-more sophisticated products. However, market sectors are currently losing out to geographical locations, writes Simon Hildrey

“We reduced our exposure to M&G; Global Basic, M&G; UK Recovery and UOB Kinetics and introduced DWS Alpha Rent Global, a flexible fund with a bias for bond exposure. These changes were made after a week in London meeting portfolio managers and senior management. From this, we got the idea that the market will be more cautious in over-valuating energy and basic materials and, therefore, we decided to reduce our exposure to those sectors.”

“Equity markets’ continued strength in the face of high oil prices and rising interest rates owes much to a robust corporate profits performance helped by the availability of cheap finance. Equities remain attractive relative to bonds, but less so than four months ago. A period of consolidation is possible after such a broadly based rise. Concern also remains whether a smooth rebalancing of global growth can be achieved, which allows a slowdown in US consumer spending to be compensated by faster growth elsewhere.”

“On the bond side, our preference goes towards funds with total return approach.

Current levels of interest rates make investment in euro bond interesting again. The convertible asset class looks very interesting. As in previous months, the equity part of the portfolio consists mainly of funds with original and consistent investment process.

A few themes find some space in our allocation. Among these we still find a sound momentum in energy and gold and still some opportunities in technology.”

“We get more cautious and think the market gets too optimistic. However, valuations are reasonable and offer a protection against a severe downturn. We still have a positive view for equities in both absolute and relative terms, but it is time to adjust to rising risk factors. Ten per cent of our equity exposure is invested in mining and energy stocks. We continue to benefit from our low exposure to fixed income products and from our exposure to a fund of hedge fund.”

“The last bit of US equity in the portfolio at the end of March has been sold during April, so that at present the equity portfolio consists of 30 per cent Europe, 10 per cent natural resources, 8 per cent Japan and 5 per cent emerging markets. This adds up to 53 per cent of the total asset. In fixed income, we switched among Crédit Agricole’s range: CAAM Dynarbitrage International is allowed to have an overall negative duration, which may prove quite useful in the type of situations the fixed income markets are in.”

“We made a few changes to our fixed income portfolio, where we added Advent Global Convertible Securities Strategy. This portfolio is managed by Advent’s specialist team, led by CIO Tracy Maitland. Each of the portfolio managers within this specialist convertibles house has many years of experience and exceptionally good track records. Convertible bonds have been through a turbulent shake out and now offer more attractive risk-return qualities. By adding this to our fixed income portfolio we will be well-positioned in the current investment environment, where it is still difficult to achieve attractive returns.”

Another peculiar month in April with risk rewarded in the emerging markets, but not in other high beta areas such as Japan small-cap and technology shares, which benefited those with a balanced portfolio.

Bonds also suffered, except for target return funds where we have an allocation.

Within their peer groups our selections generally performed well and no changes have been made this month to asset allocation or fund selection.”

“We have slightly reduced our fixed income exposure in favour of European real estate. Within the bond structure we have further reduced government exposure and upped our allocation to Fortis L Fund Credit Spread Emerging, a fund that very cleverly plays credit spreads, making us more immune to major bond indices’ movements. The equity and hedge fund side has remained unchanged, as we still see good opportunities in both fields. In the short term we are bullish on growth style equity funds in all major world regions.”

“Our balanced portfolio has again benefited from our bets on gold, commodities and Asia (via holdings on convertibles bonds and equities), which performed strongly in April.

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

Despite being designed to smooth cross-border fund sales and distribution some open interpretation of Ucits III rules has left funds with a headache in the notification procedure for different jurisdictions, writes Elisa Trovato