Global opportunities are opening up for institutions serving high net worth individuals, in everything from emerging markets to foreign exchange to real estate. Jules Stewart traces the success of Barclays Capital’s investor solutions team.
Private banking today is a more challenging business than ever before, and most large financial institutions are allocating a significant portion of their resources to serving the needs of private banks.
Private banks are going through an evolutionary process, from being distributors of products or pure discretionary managers to becoming allocators of assets. Private bankers need to provide their clients with access to the best products linked to a wide variety of asset classes, as they are faced with an increasingly demanding client base who often have multiple relationships and cherry pick products. The challenge for private banks today is to ensure their product offerings are leading edge in order to capture the greatest possible share of wallet. To achieve this, private banks typically select three to five key partners and look to develop working relationships that enable them to provide innovative structures and reliable expertise in an increasingly competitive marketplace.
Typically, private banks select three to five partners and look to develop working relationships that give them access to a broad range of products, innovative structures and reliable expertise.
Dynamic sector
“In the past, this might have been considered a less dynamic and innovative segment of banking activity, but in recent years, private banking has become an increasingly dynamic business,” says Pierre Bes, head of European private banking coverage for investor solutions at Barclays Capital. “We have built a team of experts dedicated to wealth managers because we believe this is an important market, with huge potential for growth.”
As Mr Bes points out, today there are more than eight million people in the world with investible assets of more than $1m. About 80,000 of these high net worth (HNW) individuals have investible assets of more than $30m. Obviously, this has to be considered an important target market for any global financial institution.
Barclays Capital set up its investor solutions team in 2003 to provide structured products and solutions to private banks, wealth managers and other third-party distributors. It has dedicated teams that focus on the needs of private banking clients in Asia, North America and Europe. “The operation is global and we speak directly to asset and fund managers to offer them solutions for their own use or for their clients,” explains Mr Bes.
The team offers a global portfolio approach where clients can access all asset classes and hybrids from one source. “We have the ability to be objective in the way we see the client’s business and the way we advise the client to choose and understand different strategies,” says Mr Bes. “One global trend in this business is the willingness of private banking clients to extend their allocation into new asset classes.”
Growing interest
Asset classes that have seen growing interest from private banks and their HNW clients include foreign exchange-linked structures. Historically, some clients considered foreign exchange for hedging purposes only and did not view it as a proper asset class like equities and commodities. Increasingly, clients now look to determine whether investing in foreign exchange-linked structures would provide a better diversification of risks with an enhanced risk-return profile thanks to the lower correlation of these assets as compared to their existing portfolio.
Another example would be the increased interest in commodities in recent years, on the back of the dynamic expansion of China and other Asian economies.
In 2003 and 2004, Barclays Capital led the way in offering structures linked to this fast-growing asset class. Thanks to structured products, investors were able to participate in the strong performance of some of these markets and to adjust their risk-return profile, with products offering a good level of safety and liquidity. The firm recently issued products on assets such as electricity, natural gas and soft commodities.
A specific approach
More and more private investors are looking to have a specific approach towards real estate investments. “Private banking clients may have a strong view on these markets but they might not necessarily have the ability to access them without proper products and adequate strategies,” says Mr Bes.
“For example, as private banks tend to have a more global approach to investor portfolios, they realise that property investment represents a significant part of private client assets. Non-listed real estate funds have increased their assets from €50bn to more than €300bn in the past decade alone. Barclays Capital recently launched structures yielding stable absolute returns from real estate investments on a medium- to long-term perspective. These innovative structures are based on real estate funds, and offer an innovative asset allocation approach and a good level of liquidity for clients.”
Investing in emerging markets is another trend identified by the Barclays Capital Investor Solutions teams across the world. It is often difficult for a private client to get access in these markets, hence the interest in having structured notes and products designed to offer diversification and to provide investors with attractive returns and a good level of liquidity.
Another growing area of interest is providing enhanced cash investment alternatives. Private banking clients are sitting on large amounts of safe assets, such as monetary and bond investments. Barclays Capital looks to provide them with alternative investments offering both a high level of security and enhanced return potential.
“We provide structures that are partly invested in fixed income instruments with a tactical asset allocation model to provide some alpha on a given asset class, such as hedge funds, emerging markets or other areas. These structures are managed dynamically and optimised in order to offer at least the same returns as a bond investment, and in addition to that to provide some alpha exposure.”
Innovation is crucial
Barclays Capital considers innovation to be one of the keys to continued success in this business. The firm has invested in its technology offering – leveraging its award-winning BARX platform to offer online bookbuilding across all asset classes and trading for equity structured notes and access to secondary market prices for structured products issued by Barclays Capital, trade ideas and research. The platform has been created as a single point of reference for clients who advise and distribute structured products to the investment community.
Barclays Capital’s approach has enabled its private bank clients to offer its HNW clients’ expertise and solutions in many different asset classes, instead of focusing only on traditional financial assets such as equities and bonds. Thanks to this partnership approach with an innovative global house like Barclays Capital, private banks and wealth managers are taking a fresh look at the business.
By Jules Stewart on behalf of Barclays Capital.
