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James Williams, Hedgeweek

Opportunities abound as managers prepare for UK pensions challenge


This year’s Wealth Adviser Awards 2014 lunch in central London proved to be another great occasion. As the champagne flowed there was a palpable fizz in the atmosphere as some of the leading members of the wealth management community discussed trends and opportunities.

In his opening speech, Sunil Gopalan, Publisher of Wealth Adviser and Chairman of GFM Limited, its parent company, noted that further consolidation and the challenges of dealing with the changes to UK pensions savings were two dominant themes for wealth managers to contend with in 2014 and onwards.
Certainly, with respect to UK pensions regulation the growth opportunities for wealth managers could be substantial, with BlackRock estimating that GBP25bn of assets could come into play annually. The Cass Business School estimates that the value of the defined contribution pension scheme could reach GBP1.7tn by 2030.
But as Gopalan pointed out, accessing those additional assets will favour firms “with the ability to advise and service investor demand with new and innovative long-term savings and investment products, similar to those already widely used in the US market”.
“We see a wave of consolidation going forward, with:

  • more fund management groups looking at shedding their private client teams 
  • banking groups moving further upmarket within the UHNW sector 
  • and wealth managers banding together using economies of scale to tackle the HNW sector,” said Gopalan.

It was then, perhaps fitting for David Bellamy, Chief Executive, St James’s Place Wealth Management to be awarded the Wealth Adviser Leadership Award 2014 on the back of continued business growth over the years.
Last year alone SJP grew its New Business contribution by 16 per cent and increased funds under management by 27 per cent to GBP44.3bn. Bellamy said he was ‘humbled’ by the award but said that there was no ‘secret sauce’ behind SJP’s success.
Having the best team of people in place and a commitment to client excellence can take any wealth management business to the same heights as SJD.
Two firms that have joined forces to consolidate are Quilter & Co. Limited and Cheviot Asset Management Limited to become Quilter Cheviot Limited. The firm won this year’s award for Best Brand Launch. And the natural synergy that brought the two firms together already seems to be bearing fruit.
Since last year’s merger Quilter Cheviot has seen over 10 per cent of net organic growth in its funds under management – nearly double that of many of its peers.
“Quilter Cheviot is rapidly growing its funds under management and continues to strengthen its links with financial advisers, private clients and charitable trusts,” said CEO Martin Baines. “The investment professionals on our teams have worked together for many years and bring a variety of strengths to our collective investment process. We believe that this differentiates us from many of our competitors who adopt a centralised investment model, drawing on a limited number of opinions and views to create their investment strategies.”
Although HNW and UHNW individuals have not been aggressively building alternative assets into their fund portfolios the realisation is that such asset classes – spanning real estate, hedge funds, private equity funds and infrastructure funds – are a necessary diversifier.
HSBC Private Bank were this year’s winner for Best Wealth Manager – Alternative Investments. Commenting on hedge fund opportunities, Peter Rigg, CEO HSBC Alternative Investments Ltd (HAIL) said: “One of our favoured strategies currently is Equity Market Neutral, which has benefited from falls in stock dispersion and from fundamental factors reasserting themselves.
“Our focus areas in private equity are Energy, Emerging Markets, Special Situations and Secondaries. In the current environment our clients continue to find the faster deployment of capital, earlier distributions, and greater visibility – which are all typical of Secondaries products – to be attractive features.”
Looking more generally, with respect to UK equities, the problem for private wealth investors is that the steam has somewhat dissipated from the markets after the FTSE 100 rallied above 6,800 last May. Since then, the market has been largely range-bound, flip-flopping between 6,400 and 6,800. Year-to-date it is up a modest 2.28 per cent.
Charles Hepworth, Head of GAM’s Model Portfolio Service, winner of this year’s Best Wealth Manager – Cautious Portfolios, said that deflation in Europe, some European banks failing the upcoming stress tests and a peripheral Europe default were the main macro concerns in order of seriousness.
“People were talking about Greece before but history suggests that when countries go back into primary budget balance that’s when they find it easier to default. That would be another leftfield hit to the markets, potentially,” said Hepworth, adding that allocations to US and UK equities have been slightly reduced in the portfolio and that this year’s story is one of momentum.
“We are rotating out of areas that are extinguishing QE into areas that are going to have to do it; namely continental Europe and Japan. You’re going to lose a lot of momentum in equities when money is withdrawn through QE. We’ve been very underweight emerging markets but there is a clear value argument to get more involved there now; both in EM equities and EM debt.”
Simon Armstrong is the co-founder of Saltus Investment Managers – winner of this year’s Best Wealth Manager – Growth Portfolios. He noted that clients have a ‘pragmatic’ positive view of the markets currently, as opposed to unbridled optimism.
With respect to underlying fund performance in the Saltus portfolio, Armstrong confirmed that the best returns were coming from niche alternative investments such as the Macau Property Fund and Acencia Debt Strategies.
“Both are investment trusts with Macau focusing on developing and selling property in the booming city state and Acencia focusing on driving returns from US debt managers, with a particular tilt to turnaround situations. Alongside these corporate bond funds such as Artemis Strategic or Kames High Yield have been steady, solid performers,” said Armstrong.
Going back to the consolidation theme within wealth management, last year saw the acquisition of Heartwood – winner of the Best Wealth Planning Team – by Swedish bank Handelsbanken. The acquisition will give Heartwood access to a broader range of clients with a need for both banking and wealth management solutions.
“These include SMEs as well as clients from professional services backgrounds serviced by the 173 Handelsbanken branches across the UK, which will complement our existing financial services focused client base which includes investment bankers, FTSE quoted directors and private equity partners,” said Simon Dixon, Head of Private Clients.
Dixon said that Heartwood acknowledged that clients needed to access the firm in many ways. In addition to its Private Wealth Management service, Heartwood has launched Financial Planning and online Self Select services in response to the needs of Handelsbanken customers.
“We are focusing on depth of our client relationships through appointment of first rate advisers who not only have strong technical strengths, but also possess natural empathy and understanding for a client’s situation, feelings and goals. This allows us to place “advice” at the heart of our solutions for clients and take a step back rather than act in haste in order to solve investment issues that are in isolation of client needs.
“At Heartwood there is a strong belief that the best interest of our clients is served by pooling our intellectual capital so that clients share the same investment experience for an equal tolerance to risk and also benefit from a robust advisory framework. That said, we believe that delivery of personal service can never be compromised,” said Dixon.
Aside from investment, advisory and regulatory challenges, wealth management firms are becoming increasingly reliant on technology solutions to manage everything from portfolio performance and risk, through to accounting and transaction processing.
One firm that continues to lead from the front in its support of wealth managers is SunGard, winner of this year’s award for Best Technology Provider – Transaction Processing.
Financial institutions look to their trust accounting system as a core platform to deliver a complete wealth management solution. Eileen Van Scoy, EVP, SunGard wealth & retirement administration business commented: “We continue to focus on enterprise workflow and data warehousing capabilities to increase the firms’ ability to receive data efficiently from applications like financial planning and CRM, as well as to pass data through the enterprise. Recent investments include: tools to manage complex analysis of data, enterprise-level reporting, managed workflows, and data accessibility to a front-office user or a client user to enhance the customer experience. In 2013, we launched a portal toolkit and workflow consulting capabilities.” 

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