Wealth managers are seeing a shift in attitudes towards alternative investments as clients flock in the same direction. Elisa Trovato reports

Fund managers may have seen the equity market collapse coming, but research shows that many of them anticipate that they will remain on track for 2007. Elizabeth Cripps reports

In an ever-more crowded investment fund market, asset managers are looking for new opportunities in Central and Easterm Europe. Elisa Trovato reports from the latest European Fund Series conference

One of the discussion themes at the recent conference in Vienna on trends in Central and Eastern Europe, organised by PWM in collaboration with BNP Paribas Asset Management, revolved around the decision of where to locate the head office in the region.

Elisa Trovato examines the reasons behind the exponential growth in the mutual fund industry over the last few years within the Central and Eastern European countries

Japan remains an inviting, but daunting, market for private banks. It is the world’s second-largest high-net-worth market with 825,000 US dollar millionaire households and $11,900bn (e9,009bn) in high-net-worth assets to play for.

Germany’s financial advisers are fighting back against bank distributors with a deeper, more holistic offering. DVAG’s Ralf Götz talks to Yuri Bender about products, partnerships and potential future growth

Product manufacturers are no longer content to offer specialist niche products to their clients, who demand multiple strategies. The key word now is ‘diversification’ – to offer combinations or change investment policy to suit large distributors. Yuri Bender reports

Short-term fashion or sound investment?

Private equity is currently under close scrutiny in the media. There are a variety of polarised views being expressed. Observers warn that the current surge of interest in private equity is causing ‘bubble amnesia’ and are cautioning investors to remember the dotcom sector of the late-1990s. They opine that there is a flood of money coming into private equity funds but too few deals to put the money to work (referred to as an ‘overhang’ – alongside lots of other intriguing jargon). From another perspective, trade unions offer sharp critiques of the industry, making allegations of short-termism and profiteering. UK workers are concerned that a move into private ownership means job losses and cuts to benefits. In the face of this controversy should the investor steer well clear?

Wealth managers and investment banks are enjoying a lucrative time for structured products and many are combining divisions to consolidate expertise in the area. Elisa Trovato assesses the landscape in Europe

Arnaud Sarfati, Société Générale Corporate & Investment Banking, financial engineer, head of equity linked structured products, looks at how structured products have solidified their position after the rapid growth of the past few years

Quantitative research strategists at investment banks typically spend their time advising hedge fund clients. Monetising this capability and packaging it for retail and institutional clients has become the latest trend in the structured products market. Bhupinder Singh, head of structured rates Europe and Asia at Deutsche Bank, reports

The slump in emerging markets equities during February has made investors acutely aware of their value within a portfolio. Many groups are keeping faith in future prospects, but do not agree on where the growth will occur. Simon Hildrey reports

“Our balanced portfolio has benefited from several bets such as European and Asian equities and corporate/emerging high yield. The bet on gold taken for diversification purposes has also contributed positively and seems to be quite resilient in the current downturn. Due to the recent sell-off on government bonds we have decided to increase our fixed income exposure by introducing Pam Bonds Euro, a core approach on the eurozone. Recent US durable goods figures make the slowdown appear sharper than forecasted. In a context of overbought equity market and low risk aversion, this has led to a strong correction on global equity market. We have cut part of our Asian exposure through equities and convertibles.”

“Recent events in the world’s stock markets have proven last month's decision to reduce our equity exposure correct. We maintain all our equity positions but have set stop loss limits on all of them, whose size depends on the individual volatility of each position. On the fixed income side, we keep overweighting absolute return strategies due to the uncertain outlook for benchmark government bonds. Our alternative investments should profit from the current environment.”

“Having continued the recent trend initially, February ended with a sharp reversal of the recent risk trade. Overweight equities versus bonds was negative. Higher beta markets and funds suffered the most, though the Findlay Park US Smaller Companies and Thames River Global Emerging Markets funds were far ahead of their peer groups. Our Japanese and fixed income funds rose in value alongside their markets. Looking through recent volatility we remain confident of our bias towards equities, but are considering the individual exposures given the potential increase in volatility ahead.”

“At the end of February, we reduced the portfolio equity exposure adding a new fund: Crédit Agricole AM Volatility Equity which focuses on relative arbitrage trades based on the European Equity Markets’ volatility. We think the market valuations are still in a good shape even if there are some concerns on excess of liquidity that could cause a short-term increase in market volatility.”

“We believe it is essential to compliment equities with alternatives such as hedge funds. We have seen many changes in the hedge fund universe over the past 10 years and are of the opinion that it is now more appropriate to categorise managers as either having a directional bet or not and hence we have merged the long-short fund into the directional/market neutral funds.

On the equity side, we removed the JO Hambro Continental European Fund and invested the proceeds between our existing European managers: Artemis with its momentum bias and the value discipline of the IdB Equity Income Fund.”

“As these words are being written (2 March), major stock markets around the world are experiencing their hardest time since last May 2006. Again, the trigger has mainly been psychological, which does not prevent the sell-off to be rather steep. Provided our balanced portfolio is heavily invested in pretty conservative investment vehicles, it should enjoy some downside protection in tough time. The increased weight of US funds has helped. They provide a tame volatility, compared to Europe. And this is the one and only change in the portfolio: a slight decrease of the US holdings to increase Europe.”

“No major change over the month. As we underlined last month, risks of an equity market correction were rising. The end of February sell-off does not change our view on world economic growth. The global environment is still favourable with low inflation, and fundamentals in the US economy remain positive. Relative to other classes, we prefer equities. After the correction, equity valuations are more attractive, corporate balance sheets still strong and global liquidity buoyant. Our current portfolio positioning maintains a defensive stance towards equities, favouring the US market, which seems to be the most resistant in a worst case scenario.”

“We remain slightly cautious on equities since concerns about a ‘hard landing’ for the global economy have not diminished. On the other side the valuation case for equity continues to be supportive. This more pessimistic stance is reflected through our reduced exposure to specific sectors and themes. We maintain a cautious stance on the bond side with a very diversified portfolio. In the portfolio we included total return bond funds, as well as convertible funds. At the same time we are still invested in bond markets outside the euro area with Invesco Sterling Bond and the Parvest Dynamic ABS fund.”

“Having said that equity markets were vulnerable to profit-taking, volatility returned with a vengeance over the last week. So far, the correction is similar to last May and other episodes in 2004-5 – indiscriminate selling, with similar falls across a range of stocks and markets, unconvincing bounces and renewed falls. However, inflation is now less of a concern so, if growth stalls, Central Banks will be able to ease. Economic data remains consistent with our soft landing scenario. Markets will hang on every release but the explanation for their reaction will lie more in changing risk aversion than changing fundamentals.”

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

As private banks start targeting the mass affluent segment, financial advisers are finding themselves having to prove their productivity against demanding benchmarks. Elisa Trovato reports

A raft of legislation has made it increasingly difficult for wealth managers to handle everything themselves, according to Brown Brothers Harriman’s Andrew Tucker. Alison Ebbage speaks to him on the evolving roles of custodians