Investment providers are launching a raft of non-traditional products in a bid to provide clients with immediate access to markets, while limiting their risk. The launches tie in with research conducted earlier this year by PWM, which showed a huge appetite for structured products among Europe’s largest distributors.

The shape of the Spanish investment industry is about to change with the introduction of new regulations that will allow more flexibility for fund managers and distributors.

Strategists at Allfunds Bank, Spain’s largest fund distribution platform, believe the new regulations affecting investment funds could potentially lead to a huge expansion of the the universe of products they will be able to work with.

While Spain’s regulators have prioritised the promotion of the domestic fund management industry, the flexibility allowed by the new framework and the introduction of new investment products such as hedge funds may benefit some of the international houses already operating in the country.

It’s hedge fund season in Spain as the new regulatory framework is expected to open up new opportunities for the development of this asset class and the alternative investment sector as a whole. Over the last year, and since the first draft of the regulations was seen by the industry, the main focus of discussions has been on how the hedge fund industry was going to be regulated.

The SFr5.6bn (?3.6bn) acquisition by bank Julius Baer of UBS’s wealth management subsidiaries Ehinger & Armand von Ernst, Ferrier Lullin & Cie, Banca di Lugano and GAM Holding has been heralded as the most significant private banking deal since UBS and SBC joined forces in 1998. Potentially, it signals a shifting of gears in the market – more so than the Lombard Odier Darier Hentsche deal of three years back.

A freshening up of Invesco’s European capacity in equities, bonds and

alternatives is being promised by Jean Baptise de Franssu, while initial

successes in retail banking have been difficult to maintain. Yuri Bender reports

SocGen has set the standard for structured products that many have attempted to emulate, often through poaching key staff. Global head of equity derivatives, Bernard Desforges, shrugs off competitive threats and unveils plans for his latest creation to Yuri Bender

The type of underlying assets created by SocGen’s bankers has changed significantly during the last two years, and new asset classes are constantly being added. “There are some common specifics in European countries,” says Mr Desforges. “One major trend is multi-asset class products, using oil and other underlying assets. Products based on a basket of underlying assets are a good way to buy diversification.

Private clients are realising that the absolute return strategies employed in the wake of market crashes are

inadequate for the long-term and so are looking towards a realistic benchmark augmented by asset allocation strategies employing a suitable amount of risk, writes Yuri Bender

Simone Cimino, chairman of Natexis Cape, the Milan-based private equity investment affiliate of French institution Natexis Banques Populaires, is seeing an increased appetite from wealthy investors for private equity stakes.

As sub-advisory begins to take off in Europe, PWM heralds five individuals who have been instrumental in pushing the business to the wider market from the outset and highlights the challenges they face. Yuri Bender reports

David Curtis, head of sub-advisory management for UK and Northern Europe at Goldman Sachs Asset Management, views the UK sub-advisory market as currently very immature. However, he believes that the market has a lot of potential and is deciding where to deploy resources. He talks to Elizabeth Cripps

High yield bonds in the US remain at tight margins, which is why investors are looking at emerging market debt to offset that risk, writes Simon Hildrey

As European private banks look for information and peace of mind over hedge fund valuations, new opportunities have opened for fund service providers if they can provide a solution, writes Alison Ebbage

The extension of hedge funds to a wider audience is creating nascent local markets in Europe each with their own set of regulations. The challenge for fund administrators is to assist local managers in shaping the development of each market.

These regulatory environments, while more restrictive than offshore domiciles, are likely to be good business sources for hedge fund administrators. Requirements for clear reporting of what a fund actually invest in will surely play well to administrators used to taking on such value added tasks.

Alan Dundon, head of product development at BNP Paribas Securities Services explains that these local markets cannot be compared to those serviced by cross-border funds from Dublin or Luxembourg. “The locally domiciled vehicle does provide an alternative to investors hesitant in investing offshore and attaching importance to local regulation and tax laws,” he says.

The development of each local market is also at varying stages. In Germany for example, new regulations were introduced as part of the Investment Act of 2004. A big part of the overall act was levelling the playing field for domestic and foreign long-only funds but the German regulators decided to widen the scope of products included in order to remain a competitive jurisdiction. Further regulation is expected soon. In particular, the market requires some clarification over the role of the prime broker as opposed to the depo bank and the inability for funds of hedge funds to leverage.

Overall take-up has been slow, with BNP Paribas citing only ?1bn under management at the end of 2004 and an expected ?2bn by the end of this year. These figures are well below initial expectations and until now, only 10 hedge funds have been launched, according to the firm.

In France, hedge funds were introduced in August 2003 and in July this year, the market received a boost with the introduction of a new decree by the AMF (the French regulator) which clarified the use of assets held as collateral by the prime broker. The French regulator currently has around 50 ARIA funds with almost 20 fund managers being approved for the sale of ARIAEL funds. Italy has had local hedge funds for five years and Spain is currently bringing in regulations.

But the real question is whether local markets will be able to attract the right mix of people to support eventual demand.

Franklin Templeton’s Mark Mobius has nearly 20 years’ experience in emerging markets and is exploiting the recent boom. He is currently particularly optimistic on the BRIC countries, he tells Elisa Trovato

“The balanced portfolio remained biased toward equity this month. Yet, some amendments have been made both on the fixed income and equity sides. First, we added an emerging debt holding, on the back of its resilience to the many US interest rates hikes so far. On the equity side, we took hefty profits on the mining holdings and totally reinvested them in some existing holdings. Lastly, we have reduced our holdings in a pan European equity fund whose manager has just left; while we did not take all the money off the table, we have chosen a conservative stance and cut our holding by half.”

“The bull run continues, favouring countries with the best growth rates (Asia) or the best recovery prospects (Japan and Europe). Japan came top but you had to be in large caps to make the most of it. Our asset allocation worked well for us, both in terms of overweighting equities in general and Asia, Japan and Europe specifically. Star performers were JOHCM Continental European and New Star GIF Asian Opportunities, and Credit Suisse Target Return. ”

“The recent rally in global equities may signal that exuberance is reviving. Valuations may not look expensive but the tactical risks have increased. We would prefer to buy dips than fall into the trap of becoming more optimistic the higher the market rises. The more watchful tone in central banks’ statements is a reminder that investors may have become complacent about inflation. We remain cautious of bonds, where real and nominal yields give little reward for abandoning a deposit account.”

“As stock markets in general, and especially emerging market equities, have showed a very strong performance in recent months, we reduced our exposure to equities by slightly scaling down the Magna Global Emerging Markets fund and took profits by selling the whole Magna Eastern European fund. We increased our stake in hedge funds by adding the First State Global Resources Long/Short Equity Fund and adding a further bond fund, which invests in European investment grade bonds.”

“The main strategic allocation theme remains the attractiveness of equity markets against other traditional asset classes, especially fixed income. We therefore have a low exposure to fixed income and rather prefer to invest in a multi-strategy fund of hedge funds, which potentially give the same long-term returns for a much lower volatility. The current market has a buoyant liquidity and low real interest rates. Strong equity markets performance has to be carefully monitored since a correction is possible due to underlying risks.”

“We continue to further reduce our equity exposure to US managers and increase our allocation to Europe, UK, Asia and emerging markets. We made some changes to our UK equity portfolio where we added Standard Life UK Equity High Income, managed by Karen Robertson, who runs a fairly concentrated income portfolio based on a combination of quantitative screening and fundamental analyses. We expect this allocation to add value in the portfolio in the coming period.

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.

The outlook is bullish for the energy sector, while gold is performing strongly. Are commodities now a viable alternative? Elisa Trovato asks the questions