Global Partnership’s Summer Office Club is a gathering of a number of family office delegates to hear presentations from a handful of product providers. The event is not merely about listening to presentations but involves a high degree of interaction and debate – with delegates commenting, in private, on the merits of the investment strategy they have been shown.
At the 14 June event at the Oriental Club in London we had 45 delegates participating and speakers from five different asset management groups as well as a guest speaker, Jason Drew, Chairman of AgriProtein, a leader in the creation of a new global industry, nutrient recycling.
Among the family office delegate discussions at the event, following each presentation, were:
• the need for a mixture of alternative assets;
• the implications of UK tax changes on the appeal of the asset class;
• how do alternative products fit into an overall client’s portfolio?
• the pros and cons of trusting the investment manager but not finding the solution being presented overly attractive;
• the appeal and volatility of individual equity markets.
CIT Real Estate Partners
Discussing property acquisition and redevelopment in prime London, the group’s Managing Director, William Barroll Brown, discussed the increased interest in this area from overseas investors and family offices. CIT looks to buy land or an existing building in central London and convert or develop it as a residential property. A single project can take three to five years to add value, build and then re-sell, he noted.
Brown pointed out that while property has been under pressure there remains demand for London flats and much of this is coming from overseas. Today some 66% of all transactions involve overseas buyers compared to 25% in 2009, he noted.
Prosperity Capital Management
Russia and the increase in domestic consumption was the focus of Prosperity’s presentation. Associate Directors Martin Charmoy and Johan Strömberg discussed the attractiveness of the region, pointing out that Russia has experienced 5%pa economic growth since 1999. Although many associate the oil and gas industry as a dominant – and potentially volatile – influence on the Russian equity market, there are other market sectors blossoming in Russia, they noted.
Of particular interest is the Russian consumer, which has growing discretionary spending power, features low personal debt and faces a low tax regime. Russia, Prosperity believes, is a major retail market and set to become the largest in Europe. (See page 9 for more)
First State Investments
Infrastructure investments not only tap into a structural growth story and offer an income stream, they can provide inflation protection, First State Investments’ Head of Global Listed Infrastructure Securities, Peter Meany, told delegates. Linked to structural drivers such as urbanisation and globalisation of trade, infrastructure companies grew by 6% per annum during the difficult 2008–2011 period while compared to a 60% fall in earnings for general equities, such companies saw a drop of just 10% in 2008/09. Most infrastructure assets can increase prices with inflation due to concession agreements, regulatory regimes or limited competition. In periods when CPI has exceeded 4%, infrastructure has outperformed by 10%pa, he added.
Meany noted this sector can appear large and due to changing technology, some may perceive it to be cyclical. However, he believes it is possible to tap into the infrastructure theme while removing technology risks. Take mobile phones as an example, he said. “I don’t know if Apple or Samsung will have the best handsets or if BT or Vodafone will have the best networks but I do know all need towers.”
TwentyFour Asset Management
Managing Partner Mark Holman noted varying fixed interest investments have had a rocky time amid the Eurozone crisis but the case for taking long-term credit risk remains compelling. Having restructured, many companies are in strong financial health, although he concedes care is warranted among CCC-rated issues as they remain vulnerable to defaults in the uncertain economic environment. While valuations in corporate bonds look attractive, volatility is also likely to continue to plague markets and as such, Holman believes it is essential to have a medium term investment horizon.
In this environment, TwentyFour has launched what is effectively a bond of bonds, offering the simplicity of holding a single issue but backed by an underlying portfolio containing multiple assets. The product has exposure to investment grade and high yield corporate bonds but also includes asset-backed securities and short-term cash management instruments. The aim of such an investment is to offer investors fixed quarterly income, the return of capital at a defined date and diversification.
Natixis Global Asset Management
Discussing Natixis’ Alpha Simplex Group, Peter Martin, Director of Client Portfolio Management, outlined its backing investment philosophy of Adaptive Markets Hypothesis (AMH). By reconciling efficient market theory with behavioural finance anomalies, the strategy enables a flexible investment approach that can change with market conditions and relationships.
According to Martin, traditional asset allocation assumes things such as risk equalling reward, that the level of market risk is consistent over time and that there is a stable relationship between asset prices. But what if these assumptions do not hold, he questioned. Models experience averages, investors do not, so managing a portfolio specific to volatility targets may be a better way to meet client expectations, he added. Martin went on to discuss why focusing on risk allocation instead of capital allocation may provide for more effective portfolio diversification.
