Monaco has a small, but very deep wealth management component with very sophisticated, institutional-like family offices that are familiar with of the full scope
alternative investments. Some of them allocate all of their funds to third party managers, others manage assets internally. Current figures suggest that around 300-400 billion Euros are being controlled from Monaco, with a substantial demand for hedge funds and alternative investments.
About 34 banks operate in Monaco, a significant number by any measure for a country of 38,000 people – however, consolidation may be on the horizon. On the other hand, the number of independent asset managers has expanded enormously over the last decade -ten years ago, there were three firms in existence – now there are 46. In addition, a few hedge funds have moved to Monaco, most recently including Tyrus, a multi-billion dollar international hedge fund, which shifted most of its staff around the start of April.
All About Risk
The Monaco Roundtable dealt with important aspects of wealth management, private banking and how to run investments post (or pre?) crisis. At the moment, a lot of investors believe they are acting or positioning themselves as risk averse, but in fact upon closer examination, most of them are taking greater risks than they believe. For example, by adding to duration risk or credit risk. By trying to avoid risk, new risks are also being created. This is one of the major problems in private banking.
By trying to stay away from equity market risk, an increasing number of investors get involved with risks they have no idea about; the quest for returns is pushing them outside of their habitat into high-yield investments, emerging markets, local currency bonds, and a variety of different assets classes whose risk-rewards are probably outside of what they are expecting. Many of those investments turn out to be overly complex relative to what a private investor typically prefers – such as, no-lose or guaranteed or other structured products, reverse convertibles etc. Aside from pricing, problems surrounding those investments like liquidity, counterparty risk, credit risk etc. can be far greater than they had envisaged.
In addition, the Roundtable discussed:
Real risk or overstated risk?
If something has been on the front page of the FT, it is surely known about 27 times over – has the time come to reverse the process?
Is 30% cash "secure"?
Who has been around long enough to remember the bond bear markets of the 80s?
Do high net-worth investors trust the mega hedge funds?
Is the asset concentration in the managed futures industry healthy?
Time: The Lost Horizon
Today, many investors have lost the aspect of a time horizon. Too many people believe that they can follow the FT or CNBC, and make a decision as to what their asset allocations should be.
Contrary to that, Buffett's time horizon is always different to that of the market. When he prepared to go to cash in 2006, he was willing to wait three years or more. In 2008, he bought the Swiss Re convertible equity, at a time when nobody else would touch the company, demonstrating his strong investment convictions and willingness to wait.
Investors need to diversify in terms of time as well as assets – the imperative is to have different, well thought-out time segments within a portfolio. Until investors have a time horizon that looks farther into the future than next weekend’s Greek election, we may continue circling around the same issues.
The inaugural Opalesque Monaco Roundtable, sponsored by Salus Alpha and Eurex, took place on June 18th 2012 with:
Anthony Torriani, CEO, Monaco Asset Management
Jim Cone, Partner, Efficient Capital Management
Kathryn Kaminski, Ph.D, CIO and Founder at Alpha K Capital
Marc de Kloe, Alternative Investments Manager, ABN Amro Private Banking
Michael Browne, Martin Currie Investment Management Ltd
Oliver Prock, CEO and CIO of Salus Alpha Capital
The team also discussed:
Who started the first UCITS hedge fund?
What products can be offered now in Europe while AIFMD is not really finalized?
What is the great deceit that exists between bonds and equities?
How, according to behavioral finance, are investors affected by framing and home bias?
What is "Crisis Alpha"?
Which private bank has recently increased the hedge fund holdings from 5% to 8%?
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