Sir Mark Weinberg, president of St James’s Place and one of the most experienced senior management figures in UK financial services, will deliver the keynote address at the fourth in the European Fund Series of afternoon conferences, at the London Stock Exchange on 4 May.

In an increasingly complicated and crowded fund market, European distributors may welcome alpha league tables developed by EDHEC business school and EuroPerformance, a fund rating agency.

Size may not count for everything, but it certainly does in the world of wealth management. Year-end results for 2005 indicate that Switzerland’s top two banks, UBS and Credit Suisse, are in a superpower private banking bracket that is miles larger than anything else on the planet apart from Merrill Lynch.

Germany’s asset management industry faces substantial challenges. The industry is operating in a rough environment characterised by lowering risk-appetite of corporate customers, rising competition in the provision of retail funds, stagnation in the volume of institutional funds, increasing complexity of tax and legal requirements, more control and regulation, rising perception of risk, escalating costs and increasing pressure for transparency and service-orientation.

Rudolf Siebel, managing director of the BVI, the association representing Germany’s mutual fund providers, presented a positive picture for the fund management industry. But he laid down a pre-condition that the regulatory framework can be strengthened and developed rapidly enough. He also asked whether the proliferation of innovative products, also pointed out by Sal. Oppenheim’s Dr Hengster, might dilute the industry and distract investors.

The discussion around trends in fund distribution held at the European Fund Series conference in Frankfurt suggested that there are still fundamental questions on where the industry is heading. Clearly, Germany is no longer a laggard or “closed architecture fortress”, but a mature guided architecture market. The challenges today are further development as well as adopting the right strategies and institutional structures to meet increasingly complex client needs.

In a lively panel debate on Germany’s hedge fund industry, Dr Dirk Söhnholz, managing director of Feri Institutional Advisors, gave three main reasons for hedge funds’ disappointing performance since they were allowed by the German regulator in 2004: “lower than expected returns based on unrealistic initial expectations, [BaFin Chief Jochen] Sanio’s black holes statement on hedge funds, and very restrictive interpretation of regulation by industry actors themselves.”

Pierre Mathé, chief executive of Société Générale’s private banking division, holds court over claims of rivalry, while building the bank’s name abroad and applying an open architecture mindset to the advice process. Yuri Bender reports

With banks coming under pressure to offer more choice to clients, many are questioning the rationale of having both manufacturing and distribution networks. However, if in-house performance is good and greater resources are available, perhaps it pays to keep it close to home. Yuri Bender reports

Against a background of expected consolidations, French providers are continuing to innovate within their product ranges, particularly through multi-manager funds which have provided a back door into open-architecture. Yuri Bender reports

Despite being generally ignored throughout the 1990s – as equities and bonds performed in line with investors expectations – the death of active asset allocation has been greatly exaggerated, say Natexis Asset Management’s Roland Lescure and Christophe Morel

With the current low interest-rate environment and with equities performance making investors rather cautious the absolute returns style is proving its worth as fund inflows are booming

Nicolas Boitout, fund manager-currency specialist at Crédit Agricole Asset Management in London, speaks about predicting exchange rate fluctuations, building a diversified portfolio and current market conditions

Emmanuel Bourdeix, head of convertible bonds and derivatives at Crédit Agricole Asset Management in Paris, speaks about the effect of volatility on equity markets and how to seize opportunities for investors

Although private banks keep an eye on the technology needed to administer and analyse portfolios, they have been slow to implement systems to support clients and customer service. Alison Ebbage looks at ways dedicated systems can meet this need

At the end of March, the introduction a new order-routing infrastructure for local funds will make France the most advanced market in Europe for fund processing. Paula Garrido reports

Simon Hildrey assesses industry opinion on whether emerging markets are likely to maintain their strong peformance of the last three years

Portfolio challenges

It has long been recognised that investing in commodities can offer several benefits to a portfolio, including negative correlation to stocks and bonds and historically higher index returns. However, due to past legislation, such investments were only available to institutional investors. With the advent of Ucits III this has now changed and a more widespread investor base is able to consider the benefits of investing in commodities.

“Going into March, the balanced portfolio keeps favoring stocks over fixed income; with interest rates hikes being announced by central banks, our bond managers are rather short on duration, or may even profit from interest rates increases. The equity part stands at 57 per cent of the portfolio, globally diversified with still a forte on Europe, whose listed companies keep growing their revenues at an impressive pace and still trade on pretty cheap levels. Our positive stance toward natural resources and commodity-linked stocks is still sizable. Investments in Chinese and Russian markets have been initiated, adding on to 5 per cent of the overall portfolio.”

“UK and European markets assisted the portfolio this month, offset by the adverse volatility in Japanese smaller companies, in particular. Certain types of bond funds did well, epitomised in our selections by the absolute thinking Credit Suisse Target Return Fund – something we expect to continue as US Treasury yield starts to rise and the ECB raises rates. Notwithstanding Japan, these moves suited our asset allocation, and we retain the current weights into March. In particular, we have confidence in the continued good performance of the two JO Hambros funds in the UK and Europe.”

“Equity markets' continued resilience in the face of high oil prices and rising interest rates owes much to robust corporate profits performance, as well as a substantial level of merger activity, helped by the availability of cheap finance. A period of consolidation is possible after such a broadly based rise. If economies continue to cope well with high energy costs, equities remain attractively priced relative to bonds.

“The longer-term test will be whether a rebalancing of global growth, which allows a slowdown in US consumer spending to be compensated by faster growth in other regions, can be achieved.”

“We reduced the number of holdings by selling the AmEx European Small & Mid Cap Fund and, instead of the Janus Risk Managed Core Fund and the Pioneer US Mid Cap Value Euro Fund, we picked the OP American Equities Fund. Furthermore, we replaced the Spaengler CashTrust with the ESPA Euro Cash and the Dexia Inflation Linked Bond Fund with the Aberdeen Sov. High Yield Bond Fund due to poor performance.”

“Our recommended portfolio allocation still appears to be well suited for current market conditions. Our 60 per cent equity positioning reflects our positive view for equities in both absolute and relative terms. Some 10 per cent of our equity exposure is invested in mining and energy stocks, for both diversification and return enhancements. Although a world of low and stable inflation implies no major moves in the Treasury this year, we continue to advocate a prudent view because of the poor risk overall risk ratio of this asset class.”

“It is common for investors to get overconfident and believe they have a higher risk tolerance than they really have following extended gains in the markets. We have experienced a substantial bull market over the past three years and it is important not to lose sight of the fact that equity markets can also lose money over extended periods. We rebalance our portfolios back to their strategic asset allocation on a monthly basis and this discipline ensures that we will not become over-exposed to a rising equity market. For our equity exposure, we continue to prefer managers who do not slavishly follow an index.”

“Following the recent global equity rally, we implement a cautious stance in the portfolio by reducing the equity portion and introducing a flexible allocation fund. We still favour a growth equity style, which appears attractive today if compared with the overbought value theme. Our optimistic view on cyclical sectors and the South Korean economic growth led us to implement a strategic bet on Asia through equities and convertibles.”

“Our portfolio is a combination of different portfolio managers [PMs] who think and act differently. Furthermore, some have been introduced because of their low volatility features, such as the Beacon, and others for their performance capabilities, such as M&G.; The driver in both cases is our knowledge of the PM and the fund house. The more we like a company and its porfolio managers the more we tend to broaden its mandate.”

“Our balanced portfolio is lightly overweight in equities versus bonds. Leaving a neutral asset allocation, we found very interesting themes around the world, with sectors that did very well in 2005, and we believe they will continue to do well in 2006. With unchanged conditions of some commodities markets, we maintain our energy and gold & mines sector exposures. As a new theme for 2006, we suggest investing in the technology sector worldwide. Good growth perspectives in Asia suggest Asian property exposure.”

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