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An interesting article on the ET site:
Given the turmoil in the markets, global wealth managers are advising high net-worth clients (HNIs) to have at least 50% of their assets in cash, or cash-type, instruments, including short-term debt instruments. They are also advising HNIs to invest in select long short hedge funds and other structured products to take advantage of the volatile markets.
Says Societe Generale Private Banking, MD, global market manager, Indian subcontinent, Balakrishnan Kunnambath, “We are asking clients to have 50-55% of their investments in cash-type instruments (short-term debt and liquid investments) as against 30-35% last year. We are underweight on both equity and bonds.”
“We have advised clients to reduce their exposure to equity as we feel that the markets will be difficult for another six-to-nine months. In bonds, we have shortened the time period because of inflation and interest rates. Even on debt funds, we are advising clients to invest only on short-term funds,” Mr Kunnambath adds. The word on the street is caution, and the HNI clients have been advised not to over-leverage themselves in the market. Says Mr Kunnambath, “It’s important to have purchasing power.”
According to Raj Parmar, global head, South Asian diaspora, HSBC Private Bank, “A lot of investors have seen an erosion in their assets, thanks to the market meltdown and the subprime effect. Hence, many clients are very conservative about where they park their money.”
Private banking refers to the elite service, where banks advise clients on a personal basis as against the mass-marketed retail banking. Normally, the minimum net worth of clients to avail of such services globally is $5 million. According to Euromoney, the assets under management of global private banking is at $7.6 trillion — the combined GDP of France, Germany and the UK. HNI clients are also major investors in hedge funds.
However, due to the recent volatility, many of the hedge funds are badly affected. In fact, many are reporting negative returns.
Adds Mr Kunnambath, “Investments into hedge funds continues, but only on a selective basis. We are advising clients to go in for long short funds. There has been a considerable slowdown in investments into LBO, M&A and arbitrage funds.” Banks like Soc Gen have been advising clients to invest around 20-25% of the portfolio in hedge funds.
Incidentally, with both developed and emerging markets slipping, investors are looking to invest in emerging markets than in Western markets. Private banking managers are also advising their clients to invest in commodity markets. Soc Gen is still bullish on commodities.
Says Mr Parmar, “The commodities market is overheated now. Gold has been very stable. It has a natural hedge and is becoming the flavour of the season. Gold has never shown historic returns like the equity market nor will it show inflated returns in future. It has been earning a consistent return of 9-10% and will continue to offer the same in coming years.”