Ian Slack, director of Bedell Family Office Property and private equity remain relatively specialised asset classes and we see families who understand these assets or who have in-house expertise continuing to invest.
Many of our families are putting 10%-20% of their assets aside for higher-risk deals where they feel that they can use their assets to materially affect the wealth of the family. We are seeing a few of our families enter into club private equity deals with one another especially where they have done business before and recognise their differing skill sets. Generally, however we are seeing that our families want a significant (40%-70%) proportion of their wealth in liquid assets, whether it be bank deposits or quoted securities.
It is notable that there is a growing focus on the fees that are being charged by investment managers – again linked to the lower relative returns being achieved and therefore the greater proportion that fees were taking up. Families are looking much more carefully not just at the annual management charges but at total expenses as a percentage of net assets. There are opportunities in both property and private equity if you know where to look. We are not investment managers but we do get a lot of deals across our desk – good, bad and ugly!
Overall, the sense we are getting from our clients and advisers is that the London property market prices are likely to be flat in 2015 before continuing to rise steadily. There are other property markets around the world though that still look like good value if you know those markets well and have a long enough time horizon to wait for liquidity to fully return to those more secondary markets.
A minority of our clients actively track diversification and the theoretical correlation between their different asset classes. More important to them is that they have sufficient liquidity so that they do not have to sell assets off at fire-sale prices and are able to respond quickly to opportunities as and when market prices fall.
Geoffroy Dedieu, chief executive officer of TY Danjuma
The consequences of the reduction in the price of oil per barrel have been misinterpreted. Talk about slowing economies, inflation in Europe and China not benefitting from the price fall is mistimed, since there will be a time lag in the impact the lower oil price will have on energy importing countries, China in particular.
Many of the pessimistic comments related to a potential oil shock and its negative implications underestimate the time it takes for any economy to react. The global economies are like tankers; they take ages to accelerate or decelerate and move in any one direction.
For example, China imports 6 million barrels of oil daily and was making a $50 saving per barrel by the end of 2014 compared to the start. This equates to annual savings of $110 billion for the Chinese economy or 1% of China’s gross domestic product. China imports over 10% of its energy and developments in its economic situation will cause a ripple effect across Asia. An improvement in the Chinese economy will be a positive for south-east Asia, benefiting Singapore, Hong Kong and Philippines in particular.
We have concerns over countries with low foreign exchange reserves and their ability to manage much higher deficits, such as Venezuela, Kuwait and Angola. Some countries have never been particularly good at saving when the oil price was high. Downside risk may have been underestimated because those that need to balance budgets at a higher cost will probably suffer more than people are anticipating.
However, fears over Brazil are also overstated. Minor political instability caused by elections in 2014 has dissipated and although the price of commodities, of which Brazil is a net exporter, have fallen, we do not see this trend persisting. Brazil will do better in 2015 and we believe it is a good long-term investment prospect over a 15- to 20-year timeframe.
Marc Hendriks, chief investment officer, SandAire
Depending on the actions of major central banks, 2015 may well look much like 2014. Economic growth remains encouraging in the US and UK, where inflationary pressures are also likely to remain weak and there will be little cause for central banks to raise rates imminently. However, the outlook for global economic growth is still relatively soft and below levels seen before the financial crisis given the weak economic growth in Europe, Japan and much of the emerging markets.
This picture could of course change if the Federal Reserve surprises us by tightening monetary policy earlier than expected or when the ECB finally provides the much-needed sovereign bond quantitative easing (QE) program in the eurozone.
From an asset allocation perspective, the overall global picture of accelerating economic growth, low interest rates and benign inflationary pressures favours equities over fixed income. But the emphasis will have to be different in the various regions, with gains in the US and UK being driven by a few specific equity market sectors, while European equity returns may be more broad-based if the ECB decides to implement a full QE program.
We will continue to shift our portfolios away from general equity market exposure to specific geographical, sector and style selections where we believe there are superior opportunities. For example, in the US and UK we believe the sectors of the equity market most reliant on economic growth, such as technology and consumer discretionary, have better prospects to increase revenues in their expanding economies than many of the more defensive sectors, such as utilities or consumer staples. The approach is similar in Asia ex-Japan, where a rising middle-class consumer will dominate investment themes, although investors need to be very selective in implementing this. We hold a number of different positions in this region and are currently evaluating direct investment opportunities in Asian real estate too.
Finally, coupled with this granular equity market approach, we believe our investments in early stage businesses, in particular technology and intellectual property, offer particularly compelling opportunities with the ability for outsized returns from a portfolio of relatively small holdings.
We have seen a greater appetite for direct investments, both listed and unlisted, and ethical investing over the last few years. Conversely there has been a reduced demand for hedge funds and traditional private equity funds.
Many investors question the fee structure and returns of hedge funds, especially in a world of increasing access to cheap passive investments.
The best managers will always have their place, but the less successful hedge fund managers may find the conditions for raising or maintaining funds more challenging going forward. A similar story can be said for parts of the private equity market and the increased demand for direct investments is a reflection of investors’ desire for more aligned interests.
The concept of ethical investing has evolved substantially over the last few years, from a basic level of negative screening to more sophisticated and quantifiable impact investing. An increasing number of our client investment portfolios are being mandated towards investment policies with higher ethical standards.
