Private Equity: Private banks have overcome their post-crisis aversion to private equity and hedge funds and are ploughing client money back into alternative assets in search of higher returns, according to a new study.
Client portfolios across some of the UK’s largest wealth management firms now have 17 per cent on average in so-called alternatives – hedge funds, private equity, commodities and real estate – up from 7 per cent at the end of 2009, according to a study by Scorpio Partnership, the wealth management consultants.
Wealth managers are taking on more risk in search of higher returns as equity markets look increasingly volatile, fixed-income returns fade and rates on cash remain low.
“It’s the endless quest for something that is not correlated with traditional equity markets,” said Rob Burgeman, a director at Brewin Dolphin, the wealth manager.
The amount of client portfolios held in cash has fallen from 11 per cent to 4 per cent since the end of 2009, while fixed-income holdings also decreased slightly from 33 to 30 per cent.
Wealth managers have been taking a fresh look at how they assess risk in the wake of the financial crisis. Client portfolios are far more likely to undergo stress-testing for unexpected scenarios than before the downturn, when managers still relied on historical performance and volatility when making decisions.
Many have updated their asset allocation models as a result. Before last year, Barclays Wealth, the private banking arm of Barclays, had no exposure to alternatives at all in its model portfolios. Read More
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