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28 November 2023

Private wealth management shrinks 16.67% globally

By Shuchita Kapur

The global private banking industry is reckoned to have managed $14.5 trillion?(Dh53trn) in wealth investor assets in 2009 – a decline of 16.67 per cent on the estimated $17.4trn it managed in 2008, Stephen Wall, Director – Scorpio Partnership, told Emirates Business.

According to a new report by Scorpio Partnership, a strategy consultancy to the wealth management industry, 49 per cent of the total pie – an estimated $7.11trn – was invested in equities in the final quarter of 2009, up from 37 per cent in the first quarter of 2009, underlining the re-entry of the sector as a high-growth asset class following the global economic turmoil, Scorpio said.

Responses from the second bi-annual asset allocation survey conducted by the consultancy reveal that at the same time as upping allocations to equities, the market also struck a cautious note, maintaining defensive positions – in the form of fixed income and cash – against further potential negative movements, the report adds further.

Investments in fixed income instruments saw modest growth of four percentage points, from 29 to 33 per cent during the period, and amounted to $4.79trn at the end of 2009, while the cash component grew marginally (one percentage point) to $1.6trn.

These increases, however, came at the expense of alternative investments (structured products), which declined by 17 percentage points to $870 billion during the same period, the report highlights.

"Indeed, spotting opportunity amid continued stock market volatility, 42 per cent of the institutions engaged by in its latest industry research will further increase their weighting in equities through 2010," the report said.

Looking into 2010 and the ravages of alternatives continue; the only exception being property, a traditional hedge against the potential of inflation, the findings of Scorpio Partnership revealed.

"Cautiously benefitting from market volatility appears to be the plan of attack," said Sebastian Dovey, Managing Partner of Scorpio Partnership. "At the same time, at a strategic asset allocation level this year will be about proving a point for private banks that they are actually worth their salt in volatile market conditions.

"The past two years the banks have put together a good scorecard on this factor. The question now is can they maintain it?" he added.

From the perspective of asset management suppliers looking to sell into this market, the opportunity is however impacted by the shifting allocation by product to in-house products.

"From Q1 2009 through to Q4 2009, the aggregate allocation to in-house product moved up from 22 up to 40 per cent as institutions sought to protect diminishing margins, particularly in lower margin product areas."

"For the equity pot, the current amount managed on an external basis is in the region of $3.54tn, though this is likely to increase as the sector seeks to shift allocations upwards," the report said.

"The shift in allocations back towards in-house product is an interesting dynamic for the private wealth market and one that results directly from an effort to bolster margins in a cautious market", said Wall.

"While gross margins may be under pressure as clients have pushed institutions away from aggressive high margin product, the shift to source lower margin products in-house should have a positive impact on net margins."

The results of the study, undertaken in Q4 2009, were based on responses from 33 private wealth management institutions internationally, which together manage in excess of $7trn in high net-worth individual assets.


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