Managing wealth through careful selection of asset managers
The world of asset managers is very large and diverse. There is little in common between a pension fund aiming at a long-term, high single digit return across economic cycles through multiple asset classes and a quantitative long-short hedge fund focusing on short term positions in listed equities. Each asset manager deploys its own strategy, time horizon and target return while determining the acceptable risk that may be undertaken.
These investment strategies and related parameters can be very complex and require significant expertise to understand, with diligence in the detail. While the strategy of a long-only public equity fund can be relatively easy to understand, its underlying risk exposure and related returns can be much more complex to assess. With the same logic, a private equity fund focused on a specific sub-segment at a specific maturity profile of investee companies can be also very complex to understand. And a macro hedge fund betting on the relative evolution of currencies has, again, very different characteristics.
An asset owner, typically a wealth management client, like an entrepreneur, a senior executive or a family, aims at establishing an investment strategy suiting its own preferences in terms of the same parameters. Investments goals of an asset owner can also be widely diverse. Furthermore, an asset owner can decide to invest through asset managers, or directly.
The main difference between investing directly and through an asset manager relates to portfolio risk mitigation. While a direct investment can have a stronger upside if the underlying asset selected performs well, the related risk is also higher. Conversely, investing via an asset manager provides the downside protection of a portfolio strategy.
The universe of potentially available investment opportunities – and investment strategies - is very large and complex. Furthermore, some of the best investment opportunities – the best investment funds or mandates for example – can be de facto unavailable for all but the largest investors.
An effective wealth management strategy focuses on creating a mapping between these two complex worlds, leveraging the available universe of assets and asset manager taking into considerations the need of the asset owner.
In that context, in order for a private banker to help establish the right investment strategy, a close and transparent relationship helps him understand the specific circumstances of a client, including time horizon, balance between long-term investments and short-term needs, willingness to allocate resources to passion projects, preservation of assets and/or transmission to the next generation.
Based on this deep understanding of the client’s situation and objectives, a private banker can then propose an investment strategy customized and designed specifically to address these needs and preferences. The expertise of a private bank is also very helpful in the context of due diligence performed on asset managers, from past performance to intrinsic risk of the investment strategy, to personal incentives for the asset managers’ owners and traders.
This critical expert work is a core step of a careful selection of possible investments to ensure an understanding of the possible risks and opportunities of an investment in and of itself and more globally, an investment strategy. Furthermore, some private banks can leverage their institutional relationships across products with some of the best asset managers to secure access to these managers’ funds either directly or through feeder funds.
For our clients, deploying a personalized and structured strategy for their wealth is a complex endeavor with profound consequences. Through a close relationship with our private bankers and the sheer depth of expertise of the BNP Paribas Wealth Management network, our clients benefit from the best advice in the selection of possibilities for their investments, in full alignment with their own preferences and objectives.