Private Bankers warm up to the confluence of client bases and integration of services

Many private Bankers anticipate the institutionalization of what is presently deemed as a non-customary routine observed by traditional asset managers and so-called alternative fund managers, or those who deal with hedge funds. Unlike in the past where each had a delineated client base, in recent years, the latter has started marketing their products to the former’s conventional customers, namely, the institutional investors, high net worth individuals (HNWI) and retail investors.  On the other hand, asset managers are now adopting hedge fund approaches to complement their long-established strategies. Clearly, the direction is towards coming together, a confluence of market base and investment techniques.

The need for larger returns compel asset managers to design products that offer bigger margins as the past financial crunch caused a negative impact on wealth’s values, while basic operational expenses stay constant, if not higher. The industry’s strategic expansion into other markets can be considered a parallel response to the foray into its turf by other investment players from the other side of the financial horizon, particularly the hedge fund managers who were most impacted by the onslaught of the Lehman Brothers’ filing for bankruptcy. Cautiousness and prudence having become the norms after this sad episode, these investors who predominantly dealt with mutual funds now venture into products of assured liquidity while simultaneously holding the reins for transparency and control.

Creation of Support Infrastructure for Asset Managers

Being at a competitive level for the same funds, products, and client-base with hedge fund managers is definitely not an ideal situation for asset managers. However, Crossinvest Asia views the situation on a positive note. CEO Christophe Audergon would rather meet the tough challenges posed by issues on existing operational structures, the need to reevaluate the company’s operating processes and formulate new strategies.

One of these challenges is modification in the established practice of constructing separate investment and stand-alone processes for alternative products. Often, new offerings are complicated in nature, hence, are isolated from the mainstream operations and left handled by a small number of experts.
This strategy spells additional expenses which were not burdensome in the prosperous past of the financial world. The financial meltdown, however, made myriad firms cost conscious. To dispense with the added budgetary allocation, they treated novel products similarly as regular brands, moving them into the core operating procedures. Thus, leveraging techniques, shorting, and derivatives are now featured into the investment norms of asset management, assimilated into its standard business prototype.  

Integrating brokerage and custody services

The safety of the wealth under its management has always been the driving force in maneuvering into various methods and schemes focused on risk management, timely valuations, decision-making support system as well as facility in reporting and documentation. Wealth Managers aver that judicious planning would yield endless possible strategies of smoothing out obstacles and coming out with shared solutions.

An example is the categorization of assets based on specialized services requirements, such that those for leveraging are lodged with prime brokers while the unencumbered types suited for long positions are handled by custodians.  Though this scheme facilitates monitoring and maximizes returns, dealing with several intermediaries’ renders operations vulnerable to significant risks and complicates relationships with banks and fund administrators.  A consensus fix is the integration of these services, several advantages of which have been cited by the stakeholders. One is that, this makes possible the movement of collateral to different accounts. Another is that regulators favor the unification to ensure the security of assets used in hedging.

Many Private Bankers are optimistic that the close coordination between hedge fund managers and traditional asset managers will progress. With the extension of their operational strategies into each other’s turf, the breadth of their front and back office operations consequently expands.Thomas Bryant is a financial adviser for a firm in NYC. (show bio)

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