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A man sits
with his computer at a furniture and chinaware booth during
the Summer Fair in Moscow July 4, 2010. The fair, a spin-off of the Millionaire Fair, showcases luxury goods and services. (Credit: Reuters/Sergei Karpukhin) |
(Reuters) -
Financial advisers to the world's richest people report some of their top
clients have continued to make money throughout recent market turmoil by
harnessing sophisticated investments out of reach to mainstream punters.
With equity
markets plunging, most investors have suffered losses to their pension funds
and portfolios, but those able to meet the multi-million dollar investment
thresholds of private equity and some hedge funds are coming out ahead.
"You've
got so many investment opportunities that are open only to very rich
people," said one London-based financial adviser specialising in ultra
rich investors.
"The
super rich are doing very well. They're getting good advice, they're getting
access to stuff that other people don't have access to," he said.
Certain
investment vehicles, such as hedge funds, can thrive at times of market stress
because they are able to use risk management tools such as derivatives and make
short-selling sales that make money when an asset price falls.
Some big
name hedge funds such as Brevan Howard, Man Group's AHL and Winton have
continued to make gains for their investors during recent market volatility.
However,
because some of the trades made by the funds can involve higher risks, and in
the case of short selling theoretically infinite potential losses, regulators
often place them off limits to small investors.
"There
seems to be a moral argument against shorting, but from a purely practical
point of view it leaves (hedge funds) in a better position to manage
volatility," said portfolio strategist Johannes Jooste of Merrill Lynch
Wealth Management, part of Bank of America Corp.
"It
still remains the domain of the kind of client that can write a million dollar
ticket or more ... From a regulatory point of view, the industry is not allowed
to put the intermediate or the novice client into a hedge fund."
The fact
that the super rich can write cheques for millions of dollars also means they
have exclusive access to the few real estate assets where prices are still
rising, such as the central London residential property market.
While
property prices around the world drop or stagnate, according to upmarket property
consultant Savills, house prices in the smartest areas of central London are
set to be up 8 percent this year.
"London
is driven by the international buyer. They are after the trophy assets. Once
you get out of the top end, it's a little more tricky, because people are
dependent on mortgages and borrowing," said Philip Selway, head of the
global property wealth team at broker Knight Frank.
Selway
added that a couple buying a London property earlier this year were the first
British clients he had seen for three years.
London
commercial property is also proving a popular investment with the ultra
wealthy. British private bank Coutts, owned by Royal Bank of Scotland, plans to
launch a commercial property fund in October open only to clients worth 10 million
pounds or more.
"A lot
of clients like the idea of being invested in high quality West End
assets," said Julian Lamden, a client partner in Coutts's private office
division, which caters to the bank's richest clients.
Earlier
this year Citigroup raised 330 million pounds via its private bank for a
commercial property fund managed by Threadneedle, mainly from tycoons and rich
families in Europe, the Middle East, Africa and Asia.
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