By lowering the minimum initial investment requirement, the hedge fund industry could expand considerably, reports Elisa Trovato

Investors are seeking security in established markets but a number of emerging markets should fare relatively well, reports Elisa Trovato, although caution is required when choosing where to allocate assets

The wealth management industry could learn a great deal about brand

management and scalability from the British artist, writes Graham Harvey

Yuri Bender talks to Jamie McLeod, CEO of Skandia Investment Group about the difficulties in achieving the right balance in the multi-manager world and his aim to achieve greater portability for funds

Despite having to deal with the immediate problems caused by the financial crisis, investors must understand the importance of keeping an eye on the long-term situation and taking advantage of the opportunities that arise, writes Elisa Trovato

The events of the past several months have been unsettling for investors. With mounting concerns about a global recession and a near shutdown of the capital markets, the FTSE 100 has delivered its worst YTD return since 1931. The market has been characterised by fear, panic and forced selling, as mutual funds and levered hedge funds face record redemptions. For those that remain in equities, the top objective has been safety, as cash-rich companies have outperformed those with arguably better growth prospects.

Investors burned by the collapse of Lehman Brothers are shying away from exotic structures and looking for less complicated products and greater transparency. But they also know that the highly volatile markets mean that there are big opportunities to be found, writes Nat Mankelow

In these turbulent markets, investors and financial advisers are demanding more information on their investments. With the spotlight turned on structured market-linked investment products that are sold to retail investors, Lauren Ash, Global Head of Structured Products Marketing at Citi, addresses some key questions about how these investments work

Investors in European money market funds are becoming evermore

sophisticated and are now taking a keen interest in how the funds are run, writes Ceri Jone

Fully integrating environmental, social and governance factors into investment processes is key for private clients who want to apply their values across their portfolios – not just invest in “SRI themes”. That means ESG investing needs to be a core process for private banks, too, writes Martin Steward

“In November we added some risk exposure to our conservative

portfolios. Markets continue to be very volatile, but interventions by Central Banks are starting to have an impact on money markets and spreads. We think this will slowly help markets stabilise, starting from financial and corporate debt. We increased our corporate holdings buying the Schroder Euro Corporate Bond Fund, and we reduced exposure to government bonds and absolute return funds.

We also slightly increased our equity holdings buying energy funds and global big caps.”

“October witnessed an acceleration of the current financial crisis, especially in Europe, where some governments initially reacted with stand-alone uncoordinated efforts to contain the crisis. EU governments finally launched concerted programmes to support the banking sector, which eventually led markets to cool down. The Euro government bonds market rallied, given the high inflows of capital that fled equity markets into their supposedly “safe haven”. In this market environment our portfolio maintained its bond and cash exposure in order to minimize losses.”

“Last month’s sale out of the Leveraged Loans proved to be very timely as the sector was hit from a wave of redemptions for Icelandic institutions. While this forced selling has presented an opportunity in the sector, it is not the only area to be hit by investors deleveraging. This month saw the Japanese market falling to a 26 year low and we believe this offers investors an interesting opportunity to access both well run companies but conservatively managed banks. With this in mind we have used some of the portfolios cash to increase our Japan weight via new holding SocGen Japan Core Alpha which is ideally positioned to benefit in any recovery”

“During November, we only made two changes to our portfolio. First, we made a partial hedge in the US-Equity fund. We hedged 25 per cent US-Dollar in Euro. In our second transaction, we sold the BlackRock Euro Markets and bought the Franklin Mutual European fund because of the more defensive character of this fund.”

“During the last month we made some changes to our portfolio. We replaced the Dexia Euro Bond fund with the Parvest Euro Government Bond fund and the Henderson Japanese Equities fund with the Pictet Japan Index fund. Given the bad financial markets conditions, which resulted in very high volatility and poor performances of active managers, we chose to reduce the tracking error of the portfolio by adding an indexed fund (for the Japanese market) and a pure government bond fund (in Euro zone) instead of an aggregate corporate/govies fund.”

“Significant deleveraging continued in October, led by emerging markets and commodities. As a result, returns on our portfolio were mostly negative, as we were penalised by European and Asian equity market falls. Euro fixed income investments, as well as volatility, supported our performance. Uniglobal Minimum Variance was particularly resilient to volatile falling markets. We trimmed our position in European Convertibles which faced a strong sell-off and cut our gold exposure. We also took profits on volatility after it reached 80 per cent on the VIX (SP500 implied volatility). These sales enabled us to finance entry into the BNP Insticash Fund EUR.”

“Absolute return funds have generally come under heavy pressure during the October market turmoil. Strong redemption flows and worsening liquidity conditions might impact the liquidity profile of these funds. To reduce the specific risk of the portfolio, we have redeemed our position in the Julius Baer Bond Absolute Return Fund. We have reinvested the proceeds in the Sinopia AF 300 Euro. We have also initiated a position in the DWS Invest Convertibles LC fund. Convertible bond valuations are at historically low levels, providing an attractive way of gaining exposure to equity markets”

“Capital preservation is key in the current market, where volatility is a euphemism for losing money. If you fail to preserve capital, the eventual recovery is irrelevant as you will have simply lost too much. Convertibles disappointed but this asset class now appears to offer good value with some issues trading below the straight bond. Odey did particularly well in Europe and our fixed income managers managed to make some money. Schroder Tokyo also performed relatively well. We have a defensive positioning and are in no rush to change.”

“Quantitative strategies have been struggling of late. Many biggest specialists within this area have lagged their traditional peers, often for the very first time in years. Still, our balanced portfolio remains reasonably invested in quants, with two holdings, one on Japan (which comes as an ETF) and one on Europe equity. Both share a common characteristic: they are quite straightforward and do not rely on sophisticated algorithms. Another highlight of our fund selection is that our only emerging equity vehicle is such a conservative portfolio that its performance has recently been much more in line with OECD markets than emerging ones.”

“Our initial portfolio reflects a somewhat cautious outlook for financial markets. Although equity markets are deeply oversold and offer selectively compelling value, the downtrends are not yet broken. A capitulation move or a promising base building process would increase our risk appetite for equities. The continued deleveraging process of distressed market participants drove credit spreads into uncharted territory. We believe that current prices reflect very negative fundamentals and therefore attractive upside

potential. Our asset allocation is: fixed income 46 per cent, equity 34 per cent, alternative asset classes 20 per cent.”

“None of the funds in the portfolio made any progress during the month of October, in Euro terms. It was a month of exceptional volatility but the unwinding of the yen carry trade helped Polar Capital Japan and Atlantis Japan to the top of the leader board. Dexion Absolute IT, a London listed, multi-strategy, fund of hedge funds suffered from severe discount widening as market volatility created havoc in the hedge fund arena.”

“October saw exceptional moves in almost all asset classes. Much has been written, and we have little to add bar highlighting a good relative month for fund selection. Notable amongst relative performers were new addition Morant Wright Japan and recently increased government debt fund Thames River Global Bond. We used volatile conditions to nip and tuck the portfolio, trimming the UK via Rensburg, taking a little out of each European fund, adding Neptune US Opportunities. We remain cautious strategically, tactically we need to be aware.”

Each month in PWM, 12 top European asset allocators reveal how they would spend €100,000 in a fund supermarket for a fairly conservative client with a balanced strategy

The European fund industry remains highly fragmented and complex but several initiatives are underway that should manage to improve cross-border processing, writes Rekha Menon