Synechron attended the Private Wealth Europe Forum on April 17, 2018 in Paris. The event focused on the latest trends and developments and the exchange of ideas in Private Banking and Wealth Management and was organized by Markets Group. It included renowned participants from over the globe such as BNP Paribas Asset Management, Barclays, Amundi, Carlisle Management, Citi and JP Morgan. The full-day program encompassed a wide variety of topics and consisted of presentations, networking breakouts, roundtables, as well as panel discussions and interviews with industry leaders..
Key-pointers of the day
- For their economic and political outlook, most participants are still bullish; opinion is that market cycles die of excesses, not of length. Remarks: Brexit seems digestible, current US earnings growth >20% with rate hikes with relatively low impact on equity markets. Some anecdotes from (very happy) US participants pointed that the net effect on their income due to Trump income tax decrease is up to +15%, which seems underestimated by markets. However, the consensus was we are in late economic cycle and within the next 12-18 months there will be a downturn in equity markets. In any case, more volatility is expected. For FX most managers are still ultra-long Euro.
- According to Cheyne Capital, as “loss absorbing instruments” are invigorated by Basel III requirements, 95% of the new loans are currently issued as subordinated (pre-crisis this was 30%), this now brings an early red flag for credit risk.
- The Environmental, Social and Governance (ESG) and Socially Responsible Investments (SRI) trend has shifted from institutional investors to Wealth Managers. As of 2016, reporting obligations on how institutional investors integrate ESG factors in their investment policies are set out under Article 173 of France’s law on “Energy Transition for Green Growth”, with an implementing decree setting out the requirements in further detail. Especially the carbon footprint with any investment are subject to this rule. This trickles down to the Private Banking realm, as well. Especially Belgian customers seem sensitive for this theme and BNP Paribas seems to be an early mover here. For example, BNP Paribas has helped ABN AMRO with product development on this theme and BNP Paribas regularly launches new ETFs on high ESG and SRI ratings (in conjunction with MSCI). It is expected that other EU-countries will follow suit in implementing these rules.
- It is estimated that 50% of the Private Equity investors are pension funds, therefore, ESG/SRI is now usually integrated in the Private Equity investment selection process.
Other Trends & Observations:
- For devising investment strategies, factor investing is still gaining ground. This requires quantitative data & analytics for the decision support process.
- 2nd Citizenship is increasingly a theme when servicing (international) High Net Worth Individuals. The reasons for application are threefold: i) Need for physical safety, ii) Wealth protection iii) Accessibility to visa’s/ freedom of mobility. Various jurisdictions offer this service and require an investment in real-estate or pre-approved (government) funds in return. A 2nd Citizenship can be at your disposal as from >$100.000.
- An observation was made that the very 10 banks currently processing most of the worldwide equity sales volume are allegedly the same banks that have been lobbying for the MiFID II rules (from a self-regulatory perspective post crisis), and due to MiFID II implementation, more liquidity is now geared towards them. This is seen as a problem with eventual market turmoil when those 10 banks need to digest all worldwide liquidity.
- In contrast to EU/US, Asia alternative investment mandates are still >90% advisory instead of discretionary.
- Regulators increasingly love the alternative investment space, since these managers are often quantitatively oriented, they are able to report risks on a -day-to-day bases while UCITs rules now limit the credit risk on issuer.