Employment tribunal hears the bank’s European private client division suffered losses of $47m in 2002, and how its Spanish operation became a cause for concern

Arguments rage over the level of separation between manufacturing and distribution for investment products. Paula Garrido reports from Luxembourg

As interest in the development of the European family office sector continues to grow, there are a number of signs that in the US the multi-family office (MFO) model is starting to challenge mainstream private banks for market share. Yet who is following whom? Recent studies analysing the business model of the MFOs in the US have given detailed grounds for comparison of the two business models for the first time in terms of strategic focus, growth plans and charging structures. Interestingly, this analysis shows considerable overlap between the two.

Last month Family Office Manage-ment (FOM) published the first detail-ed analysis of the size of the US MFO market in Bloomberg’s Wealth Man-ager Magazine. It showed that assets under management increased 17 per cent to $169bn (e138bn) in 2003. The number of families served by the MFOs grew by 9 per cent to 5996. This compares to the 14.4 per cent increase in assets under management recorded by Scorpio Partnership for the global private banking industry in 2003.

Of the 64 firms surveyed for the FOM study, 77 per cent were registered investment advisers, 20 per cent were banks and trust companies and the remainder were accountancy and law firms and other closely-held businesses. As well as offering a broad range of family office services, the MFOs surveyed had to have a minimum account size of $4m for multi-generational client relationships and to derive at least 25 per cent of their revenue from these relationships.

Top three challenges

The strategic analysis of the MFO business model shows considerable parallels with the mainstream US private banking market. For example, MFOs were asked to identify and rank the top three challenges that they face today. By a clear margin, the three greatest worries were how to recruit, develop and retain professional staff, followed by how to manage growth and build awareness of the MFO’s business model. (See Chart 1.)

Global CIO Alan Brown is a central figure in SSgA’s crusade to reach private clients through the back door. Yuri Bender explains how

SSgA did have a quick stab at the European fund distribution market, but this was scaled down in 2003, when a Brussels-based initiative known as European Investment Fund Solutions was shelved, due to the moribund state of the mutual funds industry at the time.

Christian Wrede, CEO of Axa IM in Germany, tells Yuri Bender about the inherent problems of guided architecture, property funds and selling to insurance clients who see the French firm as a rival product manufacturer

Technology is a top concern for Europe’s private banks, and, as Paula Garrido explains, the software developers are working hard to come up with solutions for each situation so that the wealth managers can concentrate on their clients and let the back office take care of itself

In addition to fund selection in the front office, performance monitoring, risk control and relationship management, technology is playing a crucial role in the consolidation and settlement of all investment transactions. The wealth management sector has long been focusing on the need for further automation of these back-office tasks.

The manner in which investment managers go about running their portfolios affects everything from risk to return, as investors should be aware

Indices are such a simple concept, but investors appreciate the accuracy of a benchmark that represents the many changing variables in the hedge fund environment

Active, passive, or enhanced indexing? Each investor has his own preference, but a pragmatic analysis leads to conclusions that sometimes go against the consensus

A thorough knowledge of the company being valued is essential for this investment philosophy to work

Returns are still good, despite concern over fast expansion of the asset class

Bernard Aybran, head of manager selection, LCF Rothschild
Based in: Paris, France

“We will keep our equity weight at 60 per cent of the portfolio, unchanged over the last few months. Nothing much is different, except we kept increasing our energy stock holdings, lately adding a third fund on this theme: Fortis Europe Energy. The energy sector should go on profiting from reasonable valuations, sustained prospects for the oil price and, for many companies, comfortable dividend yields. For the rest of the equity portfolio, the distribution of important dividends remains a major theme.”

Robert Burdett, director for multi-manager and fund of funds, Credit Suisse Asset Management
Based in: London, UK

“Our equity holdings could have caused the portfolio to suffer in August as most markets fell, but overweighting Asia and the emer­ging markets more than addressed the balance, as these high beta markets unusually bucked the trend. The port­folio was helped by strong performance from the excell­ent Schroder ISF Euro Alpha fund which we added to last month. So we remain happy with our equity position.”

David Bulteel, head of international portfolio management, Carr Sheppards Crosthwaite
Based in: London, UK

“The outlook for US employment remains unclear and may deter the Federal Reserve from raising rates again before the presidential election. US second quarter results were very satisfactory although the outlook statements were less bullish than expected. Valuations of equity markets have improved this year due to robust earnings growth. If world growth remains on track and the oil price continues to weaken, or at least stabilises, equities offer good long term value.”

Michael Richter, head of asset management team, Epicon Investment
Based in: Vienna, Austria

“The uncertainty about the situation in Iraq on the one hand, and of Yukos on the other, put pressure on global equity markets and spurred bond prices as well as inflation. According to our increased inflation expectation, we realised profits in the Invesco GT Global Corporate Bond Fund and invested this money in the Invesco GT Euroland Bond Fund, which is a fund investing in European inflation linked bonds.”

Pierre Bonart, head of multi-management, Louvre Gestion
Based in: Paris, France

“Corporate spreads are tight. However, good corporate funda­mentals should continue to favour corporate bonds versus treasuries. Our scenario of the main equity indices evolving within a tight trading range has been validated. This market may last and one should therefore be careful in investing on a trend which in our view may only occur in the fourth quarter of this year. However, according to valuation levels, equity markets have a real, although modest, appreciation potential until year-end.”

Marjolijn Breeuwer, manager selection team, Insinger de Beaufort
Based in: Amsterdam, The Netherlands

“We have made several changes to the absolute return portion of our recommended portfolio. Consistent with our strategy to focus on a more concentrated portfolio we have actively been redeeming a number of (predominantly long/short and arbitrage) managers within the IdB MM Zeus fund. We plan to make more changes on the long only side in the coming period. Our strategic asset allocation of long only equity, fixed income and absolute return managers has remained intact.”

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.

Better days are just about due, if, as John Godden writes, drawdown history can once again repeat itself

Two investment approaches are pitted against each other: one is based on a discretionary style requiring market opinion, and the second is more systematic