Wealth ManagementWealth Management Professional Interest ForumProfessional Interest Forum
Tuesday 13th May 2008
Chairman: Christopher Jones-Warner FSI
Wealth Management Professional Interest ForumWealth Management Professional Interest Forum
Ruth Martin
Managing Director,Securities & Investment Institute
SII and the RDR
Affects all three core areas of SII:
• Attaining Competence• Maintaining Competence• Promoting Trust
The RDRThe FSA’s challenges to the industry in the Feedback Statement of 29th April 2008
• To develop a framework for common professional standards
• To propose how the new sales service would work, which will benefit consumers
• To product providers to change their remuneration models for advisers.
The RDRThe FSA’s Feedback Statement of 29th April 2008
Our challenge is to the representatives of the whole (retail) industry, and all other stakeholders, to deliver on this apparent consensus for change (the Edinburgh Declaration) that some have issued.….. We are willing to play our part in facilitating discussions and taking whatever other actions that only we are able to progress, but the involvement and cooperation of all relevant industry parties will be vital if the industry is to avoid more direct intervention from us.
““ ““
The RDRThe FSA’s Aims for Professionalism and Standards• Higher Standards of behaviour• Higher level qualifications• Higher Standards of on-going Competence (CPD)• Better segmentation and labelling of services• Greater collaboration between firms, professional
bodies, trade bodies and consumers
SII Model of Competence Developing the Principled Practitioner
Attain CompetenceAssessed by external
qualification
Promote Trust Demonstrated
through adherence toCode of Conduct
With opportunities for self development
Maintain CompetenceDeveloped by range of CPD
Eventsand adopt
SII on-line CPD scheme.
The RDR Attain Competence• Historical links to London Stock Exchange• Retail sectors covered:
– Private Client Wealth Management– Retail Securities and Derivatives– Discretionary Portfolio Management
• Welcome the raising of standards• History of higher level qualifications
– SII Diploma with strong Wealth Management stream– SII Masters in Wealth Management June 2008 –
focussed career pathways – take up has demonstrated real demand
• Threshold qualifications e.g. Cert IM, Investment and Risk
The RDRMaintain Competence
The CPD Challenge
• What additional CPD might be needed?
• Compulsory CPD for Retail practitioners?
• Strong recommendation to join appropriate professional body
The RDRPromote Trust
• Practice Certificate
• ‘e’ learning ethics module
• Membership and Code of Conduct
The RDR Under the “Edinburgh Declaration” a Potential Professional Standards Board might, be responsible for:
• Better labelling (the “alphabet soup”) • Introduction of higher-level qualifications (with
transitional arrangements)• Making industry-wide Code of Ethics• Setting broad CPD standards • Developing Practice Certificates linked to all
aspects of professionalism (the “Principled Practitioner”)
• Support and active involvement by of regulators, consumers and statutory and trade bodies
• Information sharing and discipline.
Wealth Management Professional Interest ForumWealth Management Professional Interest Forum
Ravi Bulchandani
Head of Alternative Investments, Barclays Wealth
ALTERNATIVE INVESTMENTS
Ravi Bulchandani, Head of Alternative Investments
For Professional Investors Only
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Alternative Investment Opportunities
Hedge FundsLightly regulated investment vehicles with the flexibility to use leverage, short selling and other financial instruments to deliver absolute returns for qualified investors
Private EquityPrivate investments in companies accessing different parts of the capital structure Generally capital appreciation
Real EstateReal Estate investments designed to generate income and/or capital gains Both hard assets and indices
Special OpportunitiesOccasionally some unconventional themes such as climate change, globalisation, food inflation etc or asset classes such as commodities will offer interesting opportunities
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45% Equity45% Bonds10% Alternative
Asset
Alternatives boost a portfolio’s potential
Alternatives can generate alpha,
driven by the fund manager skills
They provide diversification and
may enhance portfolios by
improving returns and lowering risk.
Alternatives exhibit low
correlation to traditional assets allowing them to
profit, and help preserve capital,
in rising and falling markets
Diversification is crucial to managing a portfolio’s low risk and/or higher returns
Expected Return
Risk
45% Equity45% Bonds10% Cash
50% Equity50% Bonds
Efficient Frontier
Source: Barclays Wealth
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Diversification benefits
Source: LIBOR, S&P500, Lehman Aggregate Bond Index, Barclay CTA Index, CSFB/Tremont Hedge Fund Index, Venture Economics (time weighted returns), NCREIF National Property Index. Data to Dec 2007.
Low correlation to traditional assets, risk reduction and return enhancement
Asset Correlation Cash US Bonds US Large Cap Equities
Managed Futures
Hedge Funds Venture Capital
Real Estate
Cash 1.00
US Bonds 0.20 1.00
US Large Cap Equities
0.13 (0.20) 1.00
Managed Futures 0.06 0.46 (0.24) 1.00
Hedge Funds 0.16 (0.03) 0.58 -0.01 1.00
Venture Capital 0.32 (0.24) 0.52 (0.17) 0.71 1.00
Real Estate 0.22 (0.02) 0.12 0.02 0.08 0.13 1.00
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A growing appetite for Alternatives
• A survey of 790 individuals was conducted between January and September 2007 by the Economist Intelligence Unit on behalf of Barclays Wealth
• The survey compared the assets in which respondents had invested over the past three years with their planned investments over the next three
• 2 trends stand out:
• 1. There is a move away from equities
• 2. Respondents expressed a desire to increase exposure to less traditional assets, such as hedge funds, private equity, structured products & derivatives
Survey suggests a preference to reduce
exposure to market returns towards a
more stable return profile
In which of the following vehicles have you invested in the past 3 years and, and in which of the following do you plan to invest in the next 3 years?
Past 3 years %
Next 3 years %
Individual stocks and shares 64 48 Property 41 35 Personal pension 42 35 Investment trusts 20 19 Bonds 26 20 Private equity/ co-investing 11 15 Hedge Funds 20 21 Commodities (eg, gold) 17 18 Tracker funds 23 20 Derivatives (futures, options, CFDs etc) 10 11 Currency 11 10 Structured products 8 9 Alternative assets (fine wine, antiques, art etc) 12 11 Gilts 9 8 Credit/ leveraging 7 5
Source: Barclays Wealth Insights Volume 3 – Risk, Return and Reward
The only assets in which respondents expect to increase
their investments are private equity, hedge
funds, derivatives, structured products &
commodities
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Hedge funds – gaining from independent performance
Why favour hedge funds? They take both
long and short positions, allowing
them to achieve returns in rising and
falling markets.
What should you consider? A large initial investment. Identifying the right fund requires a rigorous assessment of managers’ skills and
fund performance.
What are the results? Hedge fund
performance, as measured by the
CS/Tremont Hedge Index, exhibits low
correlation with traditional markets, with lower volatility
than equities.
CS/Tremont Hedge Index MSCI WorldLehman Global Bond
Aggregate
Annualized Return 10.92% 6.47% 6.30%
Annualized Volatility 7.48% 13.27% 3.74%
Correlation with CSTremont 1 0.51 0.15
Annual Returns
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
CS/ Tremont Hedge Index MSCI World Lehman Global Bond Aggregate
Performance of CS/Tremont Hedge Index and Lehman Global Bond Index during MSCI World from 1/1994 to 2/2008
Past performance is not an indicator to future returns. Source: Pertrac, Bloomberg.
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Private Equity profits from active management
Why favour private equity?
To gain access to specialist investment
strategies not available in the listed market
What should you consider? Long term investment horizon –
fund commitments can extend to over 10 years
What are the results?Private Equity has historically shown strong long term
performance
US Private Equity Performance vs. US Equities
12.413
10.6
6.6
14.5
5.36.4
10.6
4.2
0
2
4
6
8
10
12
14
16
Three years Five years Ten years
% p
a
Total Private Equity NASDAQ S&P 500
Past performance is not an indicator to future returns. Source: Thomson Reuters US Private Equity Performance Index
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Commodities promote diversification
Why favour commodities?
Commodities offer excellent downside
protection, with little to no correlation to
market conditions
What should you consider?
Cost of storage – this may be reduced if
exposure is gained with other investment
productsLack of any income
streams, compared to dividends or coupons
What are the results?An increase in the
portfolio’s risk-adjusted return (see example,
right)
Diversification Benefits with Commodities
S&P 500 GSCI Portfolio
Annualised Return 10.2% 10.4% 10.3%
Standard Deviation 14.3% 20.5% 12%
Sharpe Ratio 0.41 0.35 0.47
Correlation -0.02
• Using data from Jan 1995 to March 2008, adding 30% commodities (Goldman Sachs Commodity Index, or GSCI) to a pure equity portfolio (S&P 500):
• Lead to reduction in volatility
• Improve the portfolio’s risk-adjusted return (Sharpe Ratio)
Source: Barclays, Pertrac Past performance is not an indicator to future returns.
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5 Year Returns
0
50
100
150
200
250
300
350
400
Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08
EPRA/ NAREIT UK Index EPRA/ NAREIT Global Index FTSE 100 Index
Managing risk through Real EstateWhy favour real
estate?Distributing property
investment geographically can
improve risk-adjusted portfolio returns.
What should you consider?
The choice between direct or indirect real-
estate investments depends on your
liquidity needs, volatility tolerance and
return objectives
What are the results?Investing directly in real estate provides
diversification benefits. Correlation between UK RE and FTSE 100
0.27 for this time period
Source: Barclays Wealth and Bloomberg. The chart shows performance of the indices over the period since Jan 2003-Mar2008 with the indices rebased to 100. Past performance is not an indicator to future returns.
Cumulative performance (in GBP)
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• Limited liquidity - Due to the nature of their investments, alternatives tend to offer less favourable liquidity terms than traditional asset classes.
• Limited transparency – Lack of information, potentially leading to style drift.
• Limited regulation – Alternatives may not be subject to similar rigorous scrutiny as traditional assets regulation.
• Key man risk - Alternative Investments performance may be contingent on a lead portfolio manager.
• Business & operational risk – Smaller firms may not have adequate infrastructure.
• Leverage risk – Managers use varying degrees of leverage, fat tail risk may increase as leverage increases.
• Access & capacity – Alternatives may require high minimum investments and a close relationship to gain access.
• Pricing – Alternatives may be difficult to value and the frequency of valuation may vary.
Alternative Investments – The Risks
Source: Barclays Wealth
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Disclaimer
This document has been issued and approved by Barclays Bank PLC. Although information in this document has been obtained from sources believed to be reliable, we do not represent or warrant its accuracy, and such information may be incomplete or condensed. This document does not constitute a prospectus, offer, invitation or solicitation to buy or sell securities and is not intended to provide the sole basis for any evaluation of the securities or any other instrument, which may be discussed in it. All estimates and opinions included in this document constitute our judgement as of the date of the document and may be subject to change without notice. This document is not a personal recommendation and you should consider whether you can rely upon any opinion or statement contained in this document without seeking further advice tailored for your own circumstances. This document is confidential and is intended solely for the addressee(s). If you are not an addressee, or have received this document in error, please notify the sender immediately, delete it from your system and do not copy, disclose or otherwise act upon any part of this e-mail or its attachments. It may not be reproduced or disclosed (in whole or in part) to any other person without our prior written permission. Law or regulation in certain countries may restrict the manner of distribution of this document and persons who come into possession of this document are required to inform themselves of and observe such restrictions. We or our affiliates may have acted upon or have made use of material in this document prior to its publication. You should seek advice concerning any impact this investment may have on your personal tax position from your own tax adviser.
Barclays Wealth is the wealth management division of Barclays and operates through Barclays Bank PLC and its subsidiaries. Barclays Bank PLC is registered in England and authorised and regulated by the Financial Services Authority. Registered number is 1026167 and its registered office is 1 Churchill Place, London E14 5HP.
D00000
Wealth Management Professional Interest ForumWealth Management Professional Interest Forum
Robert Brown
Chief Executive,Pan Asset
Perspective - Analysis
Using Exchange Traded Funds to Add Alternative Assets to Private Client
Portfolios
SII Wealth Management Forum 13th May 2008
Global investors across all major asset classes
Index tracking investment funds that are listed on the stock market. First launched in 1993, as at Dec 2007 there were some1,200 ETFs listed globally with $800bn of assets. Leading providers in Europe include Barclays (iShares), Soc Gen (Lyxor) and Deutsche Bank (db-X Trackers).
Diversification - one trade gives you diverse exposure to the chosen asset class and many previously inaccessible asset classes become investible
No Active Manager Risk - you do not run the active manager risk of underperforming badly
Assured Liquidity – can be traded throughout the dealing day
Convenience - normal settlement, custody and dividend payments
Transparency - you know exactly what your investment exposure is
Low Costs - tight bid/offer spreads, no front end or back end fees, low annual fees and no Stamp Duty on secondary market purchases
Perspective - Analysis
29 Pan-Asset Capital Management Limited is authorised and regulated by the Financial Services Authority
What Are Exchange Traded Funds and What Are Their Advantages?
Perspective - Analysis
30 Pan-Asset Capital Management Limited is authorised and regulated by the Financial Services Authority
The Exchange Traded Fund Universe
Equities Bonds ListedProperty(REITs)
ListedCommodities(Physical/ Futures)
Other Listed Alternative Investments
Cash
Single Countries Government UK Property Diversified Commodities
Private Equity Money Market Indices
Global/Regional Inflation-Linked Global Property Agriculture Global Water Currency Strategies
Sectors Corporate US Property Energy Global Timber & Forestry
Style Indices – Yield, Growth, Value, Market Cap, Quant
Credit Spreads European Property
Industrial Metals Global Clean Energy
Short/Inverse Far East Property
Livestock InfrastructureKey:
Option Strategies Precious Metals Emerging Markets Infrastructure
Core
Shariah Leveraged/Inverse Satellite
This document is provided for information and discussion purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any security or any other investment or product. This document is intended for authorised recipients only and must be held strictly confidential. This document may not be reproduced or distributed in any format without the express written approval of Pan-Asset Capital Management Limited. The value of investments and the income from them can go down as well as up and you may not recover the amount of your original investment. Past performance is not necessarily a good indication of likely future performance.
Vestry HouseLaurence Pountney HillLondon EC4R 0EH
Tel 020 7398 5840Fax 020 7398 [email protected]
www.pan-asset.co.uk
Pan-Asset Capital Management Limited is authorised and regulated by the Financial Services Authority
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Global investors across all major asset classes