#Investments — 01.09.2020

Asset Management as a Tool for Efficient Wealth Management

Establishing the border between wealth management and asset management is both simple and complex. The two topics are closely interrelated, focusing on how to manage financial assets to deliver the expected return for the asset owner taking into consideration a certain amount of risk.

Family Offices

Asset managers come under various forms. There is little in common between a large pension fund managing hundreds of billions of dollars on behalf of hundreds of thousands of retirees and a small fund specialized in early stage venture capital. However, there is one commonality between the huge pension manager, a venture capital fund manager, a private equity fund manager, or a hedge fund manager: they have an investment mandate set-up in collaboration with their investors and their limited partners, spelling out their investment objectives in terms of type of assets that can be invested in and in terms of risk that can be taken, for a given duration.

Within a large range of services offered – personal banking needs, inheritance planning, ad-hoc financing, philanthropy, advisory, etc -  Wealth Management offers wealthy families or successful entrepreneurs strategies to diversify their assets and ensure they can benefit from the market’s appreciation over time, taking into considerations the market cycles, always with a long term horizon. Families and entrepreneurs tend to aim at preserving their capital while focusing on returns over periods suiting their specific profiles – often long-term -, in order to transmit their wealth to the next generation. In all respects, decisions are being taken with a client-specific objective to avoid concentrated risks and ensure expected returns.

Wealth managers use asset managers to diversify their risks. Part of responsible wealth management is about choosing the right asset managers able to invest successfully the assets they are given. As part of a family’s wealth management, one must diversify the investment risks across private and public assets, and across direct and delegated investment, in order to construct a portfolio able to sustain the worst crisis and deliver returns over time.

The relationship has to be close. Identifying the best asset managers and understanding in detail their investment strategy, investment horizons and tolerance for risk is key in being able to choose how to use each of them as part of a portfolio strategy.

Another key element is also to have access to some of the best performing asset managers, usually quite difficult for all but the largest investors. This is one of the key functions of a private bank: being able to open the doors to these managers that an individual investor would normally not be able to access. For example, BNP Paribas Wealth Management has set up direct relationships with some of the most reputable and best performing private equity fund managers on the planet, allowing our clients to access these funds as well as, highly selectively, to access co-investment from these managers.

In addition to our usual role of helping our clients determine their optimal investment strategy in terms of asset allocation by asset class and execute their direct investments, providing access to exclusive fund managers is one of the benefits we bring to our clients. We want to ensure that wealth management can leverage the best asset managers globally to deliver on our client’s mandate for them and their family.

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