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The Unsuspecting Power of Quant in Emerging Markets

El insospechado poder de la inversión cuantitativa en los mercados emergentes — Wim-Hein Pals, head of Robeco's emerging markets team since 2004. The Unsuspecting Power of Quant in Emerging Markets

Emerging markets equities can produce handsome rewards for investors – but they carry risks that are not seen in the developed West. Political turmoil and generally more volatile markets require a more cautious approach to capitalize on a fast-growing area for investors.

That is where Robeco’s pioneering use of sophisticated quantitative models can help cut the risks and pick the winners. The unsuspecting power of quant has been proven in its ability to identify risks that standard models either cannot see or overlook.

This is backed by decades of experience; Robeco was looking at emerging markets long before most other asset managers, investing in Peru as early as 1930, and was the first European firm to set up a bespoke emerging equities fund in 1994.

And the ability to procure superior risk-adjusted returns has been further enhanced by Robeco’s equally pioneering use of sustainability investing techniques. These methods are particularly suited for finding – and even predicting – systematic risks such as political change and social unrest in emerging markets.

“We were the first in Europe to start a dedicated emerging markets strategy 20 years ago, so we were the pioneer on the continent,” says Wim-Hein Pals, co-founder and portfolio manager of the Robeco Emerging Markets Equities fund since its inception and head of the emerging markets team since 2004.

“From the start we had a country allocation framework which is still in place and gave us the caution; we didn’t just jump in blindly and buy everything left right and center. We started cautiously with a top-down structure and thoroughly analyzed everything we wanted to invest in.”

Pioneering quant capabilities

Using sophisticated quant techniques can enhance opportunities while minimizing risks, and Robeco also has a long history with this, due partly to excellent links with Dutch universities at which many staff members have earned PhDs on quant modelling and economics.

“We started to develop our first quant models in the early 1990s,” says Wilma de Groot, portfolio manager for quantitative emerging markets equity, and a quant researcher at Robeco since 2001. “We firstly did this with developed markets using stock selection models and then in 1999 we tested these proven variables, such as valuation and momentum, in emerging markets and found they also worked well.”

“Since 2001 the stock selection model has been used across the investment process and since 2006 our quant capabilities have used the emerging markets model as their sole performance driver.”

“So we were one of the first to use the quant techniques in emerging markets. The cautious element comes in by running a well-diversified portfolio with a large number of names, and by using our integrated risk management techniques. These enhance traditional variables by eliminating risks which are not rewarded with returns. We are therefore less sensitive to turning points in the market.”

Sustainability as standard

Quant is combined with sustainability investing techniques, particularly investigating environmental, social and governance (ESG) factors, to minimize risks further. “In 2001 we started to use sustainability analysis with our proprietary survey,” says Pals.

“We had a good feeling about the outcomes, particularly for the governance angle; the social and environmental angles of ESG came later. Not every emerging markets investor is active on ESG to put it mildly, and so this is still quite pioneering as we do a lot more than the competition does.”

Emerging markets are by their very nature volatile, and are sometimes exposed to geopolitical shocks. But this doesn’t necessarily affect investment performance, providing you know what you are doing. Country allocation is backed by the expertise of a large team, including investment specialists on the ground in up-and-coming countries such as India and China.

Managing risks and rewards

“The political angle is deeply incorporated in the country allocation framework; we include also the currency angle, which is related to the local political or economic situation,” says Pals. “The military coup in Thailand for example means more political risk in the country than was there a year ago, but isn’t always translated into financial markets or prospects, because the Thai equity market has been one of the strongest in 2014.”

“Not putting all your eggs in one basket is the starting point for being cautious, and we have a well-diversified portfolio in emerging markets. We spread the political risks; there are sometimes problem countries, but there are also good situations such as India, where the country elected a new government in May 2014. We have been overweight on India since 2013 and so enjoyed a pre-election and a post-election rally, getting the best of both worlds without buying overvalued stocks.”

Hispania Acquires the Meliá Jardines del Teide Hotel in Tenerife (Canary Islands)

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Hispania, through its subsidiary Hispania Real SOCIMI, S.A.U., has acquired the Meliá Jardines del Teide hotel for an amount of 36.7 million Euro, fully disbursed with Hispania’s own funds.

Meliá Jardines del Teide is a 4* hotel with 300 keys located in Costa Adeje, the most exclusive area in the South of Tenerife, in the Canary Islands. The hotel, which has more than 12,000 sqmof gardens with local species and terraces, is located in the surroundings of Playa del Duque beach and offers plenty of complimentary services, such as 3 swimming pools with solarium, bars and restaurants, 3 conference rooms with capacity for up to 450 people, discos and squash courts.

The hotel is currently operated under a rental contract and is managed by the hotel group Meliá. Hispania’s strategy for this asset contemplates an investment plan for its repositioning within Costa Adeje. Once this capex investment takes place, Meliá will remain as the hotel’s operator.

“The Canary Islands and, more specifically, the South of Tenerife, is one of the most relevant touristic destinations in Europe and it enjoys a relatively stable affluence of tourists all year round. The acquisition of a high quality asset such as the Meliá Jardines del Teide hotel fits perfectly within our strategy of investment in consolidated holiday destinations and it offers a repositioning potential which we expect to materialize with our business plan”, asserts Concha Osácar, Board Member of Hispania.

With this deal, Hispania has already invested 347 million Euro, 65.2% of the net proceeds raised in its IPO last March 14th, building a portfolio which includes a Gross Leasable Area of 91,218 sqm of offices in Madrid and Barcelona, 412 dwellings -213 in Barcelona and 199 in Madrid-and4 hotels totalling 639 keys, one in Marbella, two in Madrid region and this last one in Tenerife.

Bill Gross Leaves PIMCO to Join Janus Capital Group

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Bill Gross, who helped found Pimco is joining competitor Janus Capital, according to a statement released by the manager.

Gross is listed on Pimco’s website as founder, managing director and CIO of Pimco, where he has been since co-founding the firm in 1971. He “oversees the management of more than $1.9 trillion of securities”.

According to Janus’ statement, Gross will manage its recently launched Janus Global Unconstrained Bond fund “and related strategies”

“Gross’ employment will be effective September 29, 2014 and he will begin managing the Janus Global Unconstrained Bond Fund and related strategies effective October 6, 2014.”

“Gross will be based in a new Janus office to be established in Newport Beach, California and will be responsible for building-out the firm’s efforts in global macro fixed income strategies. His concentration on such strategies will be separate and complementary to Janus’ existing and highly successful credit-based fixed income platform, built under the leadership of Janus’ Fixed Income chief investment officer, Gibson Smith.”

Richard Weil, CEO of Janus Capital Group, said: “Bill Gross has an exemplary track record with decades of success and he will offer an exceptional approach to navigating today’s increasingly risky markets with a focus on macro, unconstrained strategies. His involvement provides Janus a unique opportunity to offer strategies and products that are highly complementary to those already managed by our credit-based fixed income team. With Bill leading our global macro efforts and Gibson our credit-based fixed income team, I am confident Janus will be able to meet the needs of virtually any client.”

Gross said: “I look forward to returning my full focus to the fixed income markets and investing, giving up many of the complexities that go with managing a large, complicated organization. I chose Janus as my next home because of my long standing relationship with and respect for CEO Dick Weil and my desire to get back to spending the bulk of my day managing client assets. I look forward to a mutually supportive partnership with Fixed Income CIO Gibson Smith and his team; they have delivered excellent results across their strategies, which deserve more attention.”

Data from Pimco shows that the Total Return fund, managed by Gross, has assets of close to $222bn. Year to date it has returned 3.59%, and over five years it has returned 5.15% on an annualised basis. Returns have averaged 7.91% annually since inception.

A statement from Pimco declared that Gross would leave the manager “immediately”, and that it would “confirm shortly the election of a new CIO. Relevant portfolio management assignments will also be announced at that time.”

Pimco CEO Douglas Hodge added: “While we are grateful for everything Bill contributed to building our firm and delivering value to Pimco’s clients, over the course of this year it became increasingly clear that the firm’s leadership and Bill have fundamental differences about how to take Pimco forward.”

Pimco owner Allianz stated that succession planning meant it was confident that Gross’ departure would not cause problems.

Michael Diekmann, CEO of Allianz Group, said: “The management and investment structure put in place in January as well as the thorough succession planning gives us complete confidence in Pimco’s investment and executive leadership team.”

Global Adpoption of RMB Grows by 35% in Two Years

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SWIFT’s latest RMB Tracker shows that over the past two years, RMB payments worldwide have nearly tripled in value. In addition, the RMB is now supported by a much broader base with 35% more financial institutions using the RMB for payments with China and Hong Kong.

Today, more than one third of financial institutions around the world are now using the RMB for payments to China and Hong Kong. Asia leads the way at nearly 40% adoption, with an increase of +22% since 2012. The Americas follows at 32% adoption with an increase of +44%. Europe falls closely behind the Americas at 31% adoption with an increase of +47%, and the Middle East and Africa is at 26% adoption, with an increase of +83% during the same two-year period.

“It is encouraging to see that RMB usage by financial institutions and corporates is steadily growing”, says Stephen Gilderdale, Head of New Business Development at SWIFT. “More financial institutions using the RMB will improve the utility of the currency in Hong Kong, China and other offshore centres. As the currency continues to grow, opportunities will arise leading to the development of new products and services denominated in RMB. These new products and services will help drive greater use of the RMB globally while making it a more efficient currency to manage.”

Overall, the RMB strengthened its position as the seventh-ranked global payments currency and accounted for 1.64% of global payments, an increase from 1.57% in July 2014. In August 2014, the value of RMB global payments decreased by 6%, whilst all currencies dropped by 10%, which is a trend most likely attributable to lower seasonal payments activity.

BOCHK AM and Citi Jointly Launch Renminbi High Yield Bond UCITS Fund

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Bank of China (Hong Kong) Asset Management (BOCHK AM) and Citigroup Global Markets have jointly launched the BOCHK RMB High Yield Bond Fund. This is BOCHK’s first Renminbi (RMB) high yield bond UCITS Fund registered in Luxembourg. The Fund aims to generate long-term capital growth and income by investing mainly in debt securities which are either denominated in RMB, hedged to this currency or have other exposure to this currency, giving investors the potential for investment returns from RMB fixed income investments and RMB currency appreciation.

BOCHK AM is one of the largest active RMB fund managers globally, with discretionary and advisory mandates of USD 7.7 billion. BOCHK AM first launched an RMB high yield bond fund in August 2011, which has produced an average return of 15.2% per annum over the past 3 years. Citi’s Markets and Securities Services business has collaborated with BOCHK AM to launch the new UCITS Fund. Citi and BOCHK AM will act as the Fund’s distributors, while BOCHK AM will take the role of investment manager, and Citibank International (Luxembourg Branch) is the Fund’s administrator and custodian.

The Fund benefits from BOCHK AM’s expertise and experience in investing in the RMB high yield market, leveraging BOCHK AM’s onshore and offshore China market insights. BOCHK AM has the full support of Bank of China (Hong Kong) Limited, the sole RMB clearing bank and a major RMB participating bank in Hong Kong. The Fund provides a highly liquid solution for those investors looking to deploy capital into the growing RMB markets and seeking participation in the ongoing internationalization of the currency. The Fund also builds on the growing importance of Luxembourg as a key investment centre for RMB, with RMB262 billion⁵ (USD42 billion) of assets held in Luxembourg-domiciled funds linked to RMB.

The Bank of China Group has been present in Luxembourg since 1991. Citi first opened for business in Luxembourg in 1970, and today provides a full range of Investor Services products to UCITS and non-UCITS clients including global custody, fund accounting, transfer agency, corporate secretarial, securities lending and depositary bank services.

Dr. AU King Lun, Chief Executive Officer of BOCHK AM, said, “The Fund launch is a major milestone for BOCHK AM. Our strategic collaboration with Citi highlights the growing importance of RMB bonds as a new asset class for investors globally.”

“Citi is delighted to work with BOCHK AM to facilitate global investors in accessing a world-class solution to gain exposure to the RMB fixed income marketplace.

BOCHK AM’s insights, delivered via the UCITS format with associated benefits and safeguards, represents a timely and exciting investment proposal for a wide range of global investors,” said Mr. Eric Personne, EMEA Head of Citi’s Multi-Asset Group.

Investor Optimism Highest Since 2007

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The Wells Fargo/Gallup Investor and Retirement Optimism Index jumped to +46 in the third quarter, its highest level in seven years. The index is up 17 points from the second quarter’s +29, with most of the gains stemming from investors’ heightened optimism about economic growth and the labor market. While the optimism index is at its highest point since December 2007, it remains well below the pre-2008 recession 12-year average of just under +100.

Optimism among non-retired investors jumped almost 20 points to +50 while the optimism of retired investors rose 11 points to +35. The Wells Fargo/Gallup quarterly survey measures the perceptions of U.S. investors with $10,000 or more in investable assets; results are based on phone interviews with 1,011 investors, aged 18 and older, from Aug. 15-24.

“Investors are saying they’re more optimistic about the economy and the job market. But non-retirees worry about their ability to earn more in their lifetime, and they are skeptical the stock market is the place for them to grow their savings,” said Karen Wimbish, director of Retail Retirement at Wells Fargo. “Clearly, average investors have not forgotten their recession experiences.”

Investors Tread Water Financially and Feel the Effects of Inflation

Looking to the future, the majority of non-retired investors expect their income to be stagnant: 56 percent say they do not foresee a time when “their income will be significantly higher than it is today” as compared to 42 percent who do foresee potential for growth in income.

Non-retirees with $100,000 or more in assets are especially pessimistic about the prospect of earning more: 61 percent say they do not foresee a time when their income will be significantly higher than it is today, compared with 51 percent of investors who have less than $100,000 in assets.

“Investors with higher assets appear to feel as if they’ve hit a ceiling. They have done well, but don’t see opportunity for continued income gains in the future,” Wimbish said.

When asked how their finances today compare to five years ago, a majority (58%) say they are doing “about the same” (34%) or “worse” (24%) than five years ago, while 42 percent say they are “doing better.” Similarly, just 37 percent say they are saving and investing more money in recent months than they did prior to the recession. A majority (63%) says they are saving “about the same” (34%) or “less” (29%). These figures are essentially unchanged from two years ago, indicating that investors have not been able to make much financial headway in the economic recovery.

When asked directly about the impact the 2008 recession has had on their finances, nearly half (46%) say they are still feeling the effects of the recession “a lot” (19%) or a “fair amount” (27%). Another 31% only feel its impact “a little,” while 22 percent say “not at all.”

In the midst of the national conversation about wage stagnation, half of investors (51%) think the pressure on American families’ ability to save today is due to rising prices caused by inflation, whereas about four in 10 (37%) say the pressure is caused by lack of wage growth or stagnation. Nine percent of investors say the pressure is caused by a combination of the two factors.

Caution Towards Stock Market Deemed “Wise” by Majority

A new Wells Fargo/Gallup question this quarter asked investors whether they think caution toward investing in the stock market is “wise because it protects people from possible market losses,” or “unwise because it prevents people from realizing significant market gains.” Sixty percent of all investors say such caution is “wise” while 37 percent call it “unwise, because it prevents investors from realizing significant market gains.”

In the poll, 68 percent of investors say they “actively choose stocks for their long-term investment accounts,” but almost a third (29%), say they “consciously avoid stocks in long-term investment accounts.” When respondents are divided between those with $100,000 or more in assets and those with less, 42 percent of those with less than $100,000 in assets say they “consciously avoid stocks in long-term investment accounts,” versus 20 percent of those with more than $100,000 in assets.

Of the 29 percent of all investors who say they consciously avoid stocks, less than half (41%) feel confident they can reach their financial goals without stock market exposure. The majority (56%), say they are not confident they can reach their financial goals without taking on stock market risk, but they still think it’s better to avoid that risk.

“The fact that nearly seven out of ten say they choose stocks for their long term investing is a good strategy for growing assets over time, and yet it’s noteworthy that nearly a third actively choose to avoid stocks for long term accounts. And, this active avoidance is even more pronounced for people with fewer assets – these investors could stand to gain in the market through a long-term, gradual investing strategy and they seem to know it but they think avoiding risk is more important,” said Wimbish.

While most investors say they actively choose to include stocks in their long-term investment accounts, they may not be allocating enough to stocks. On average, investors say that 38 percent of their retirement savings are invested in the stock market. Naturally, this is lower among retirees, at 33 percent, but not much lower than among non-retirees, who say they have 40 percent invested in stocks.

Relatedly, in sharp contrast to the common recommendation that investors’ scale their exposure to the stock market by age, the survey finds little difference in the average percentage of retirement savings that investors of various ages say they have invested in the stock market. This average is 33 percent among all retirees, 39 percent among non-retirees aged 18 to 49, and 41 percent among non-retirees aged 50 to 64.

Retirement Confidence Hinges on Social Security

Taking their savings and Social Security income into consideration, a majority (69%) of investors say they are “highly” or “somewhat” confident they will have enough money to maintain their desired lifestyle throughout their retirement years.

However, nearly half (46%) are “very” or “somewhat” worried about outliving their savings, including 50 percent of non-retirees and 36 percent of retirees. Retirees who run out of money could become entirely dependent on their Social Security checks.

“Clearly Social Security plays a key role in thinking about retirement income, and concerns about the government’s ability to address the system’s financial problems exist for both retirees and non-retirees,” said Wimbish.

Six in 10 (58%) don’t think federal lawmakers will address the financial problems with Social Security in time to preserve the system for future retirees. Two-thirds of younger investors (67%), those under age 50, are especially pessimistic, saying lawmakers will not fix the system. These same investors are also much more doubtful than older ones that they will ultimately receive their full or even slightly reduced benefits in retirement. A little more than a third (38%) of investors between the ages 18 to 49 believe they will get most or all of the benefits due to them under the current system, compared to 71 percent of those between the ages 50 and 64, and 73 percent among those 65 and older.

Despite these divergent perceptions about whether Social Security will be there for them in retirement, non-retirees on average expect Social Security to account for 26 percent of their annual retirement income, while retirees, on average, report that it currently accounts for 30 percent of their retirement funding.

Why Invest in China, Now that Growth is Slowing Down?

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¿Por qué invertir en China, ahora que el crecimiento se ralentiza? — Andy Rothman, Investment Strategist, Matthews Asia. Why Invest in China, Now that Growth is Slowing Down?

Andy Rothman, Investment Strategist and author of the blog, Sinology, published by Matthews Asia, addressed the main misconceptions which the Western investor usually holds about the Asian giant, during the investor forum which the company held recently in San Francisco.

The role of private enterprise in China: In 1984, the only private “businessmen” the country had were farmers who sold their produce at the roadside. Today, over 80% of jobs are private, 70% of investment is private, and 100% of new job creation is private. In fact, currently the engine of the economy is private and, notes Rothman, public policies will also end up being private.

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Contrary to what most people believe, China is not an exporting country, currently, China’s net exports are even negative. The Chinese economy is driven by private consumption and by investment, not by exports. In fact, China is already the world’s most powerful consumer, with a 9.1% growth in private consumption, fuelled by growth in the disposable income of the richest families, but also of the poorest.

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Role of the housing “bubble”: in recent years, the price of housing has increased generally, but has done so at a lower rate than urban disposable income. Therefore, Rothman claims that it is questionable that a housing bubble has been created. However, with a decrease in the sale of new homes and a halt to their price growth, there is no doubt that the market has calmed down, but there is no collapse as there is no massive indebtedness and no ABS market to multiply the risk of collapse.

Shadow Banking: there are many risks within the Chinese financial sector, but they are not the same as those the Western World has suffered. Basically, the problem is that the party owns almost all the banks in China, so their transparency is questionable, yet shadow banking is not the problem, as Rothman points out.

Rothman concluded his presentation at the Matthews Asia Investment Forum with the next question. Why invest in China, now that growth slows down? The investment strategist recommended putting this growth in perspective. In 2003 the economy grew by 10%, while now it is growing at around 7.5%, yet the current GDP is three times higher than in 2003, so in absolute terms the economy grows more each year now than when it was growing at 10%.

For Rothman, the main problem in China in 10-20 years time is the lack of confidence in the Communist Party and in public institutions. When a situation of widespread discontent is reached due to an economic recession, which will occur in the distant future, there could be a situation of social revolution if the institutions have not reinvented themselves for that moment. However, within a reasonable time horizon of a long-term investor, the risk of this social revolution occurring within the next decade is very low.

Tracey Brophy Warson Named Head of Citi Private Bank in North America

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Citi Private Bank announced that Tracey Brophy Warson has been named Head of Citi Private Bank in North America. Ms. Warson succeeds Peter Charrington, who was recently named Global Head of Citi Private Bank. Ms. Warson will report to Mr. Charrington and be based in New York. She will be a member of the Private Bank Global Leadership Team.

“Since joining Citi Private Bank in 2010, Tracey has done a remarkable job growing our footprint on the West Coast. Since that time, she has significantly increased revenues and AUMs and built an exceptional team of private bankers and specialists who are doing a superb job serving the fast growing number of ultra high net worth clients in that market,” said Mr. Charrington. “We are excited by this appointment and look forward to her leadership in North America.“

Ms. Warson has nearly 30 years of experience working with ultra high net worth individuals, families and institutions. She was most recently Western Region Market Manager for Citi Private Bank in North America. In this role she oversaw ultra high net worth banking offices in Beverly Hills, Los Angeles, Orange County, Palo Alto, San Francisco, Phoenix and Seattle. Before joining Citi, Ms. Warson served as West Division Executive for US Trust, Bank of America Private Wealth Management where she built and ran the Western Region. Prior to joining US Trust she was Executive Vice President and Regional Managing Director of Private Client Services at Wells Fargo Private Bank. In this role she was responsible for Wells Fargo’s investment management, trust, private banking, wealth planning and brokerage businesses in the Bay Area. Previously Ms. Warson served as an Executive Vice President and Head of Sales and Distribution for Wells Fargo’s foreign exchange and financial risk management businesses nationally. Ms. Warson worked in the investment banking division of Citi in Los Angeles and started her career in banking as an International Banking Officer at Toyo Trust & Banking Company in Los Angeles.

Ms. Warson earned her BA in Business Administration and French from the University of Minnesota. She also completed a fellowship at the Université de Tours, in Tours, France. Ms. Warson has repeatedly been named one of “The Most Influential Women in Bay Area Business” by the San Francisco Business Times.

Population and Wealth of U.S. High Net Worth Individuals Reaches Record Levels

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A continued economic recovery, strong equity market performance, rising real estate values, and an “energy renaissance” that pushed U.S. oil production to its highest levels in over 20 years, boosted the population and wealth of High Net Worth Individuals (HNWIs) in the U.S. to record levels in 2013, according to the U.S. Wealth Report 2014 released by Capgemini and RBC Wealth Management.

The population of U.S. HNWIs jumped 17 percent to 4 million and their investable wealth by 18 percent to reach $13.9 trillion. Growth rates of both the HNWI population and HNWI wealth in the U.S. exceed the global averages of 15 percent and 14 percent respectively.

“Steady GDP growth, reduced unemployment, a falling deficit, and an energy renaissance boosted investor confidence and energized risk appetites in 2013,” said John Taft, Chief Executive Officer, RBC Wealth Management – U.S. “These factors contributed to record wealth levels in the U.S. Over the last five years, some of the strongest growth in wealth occurred in the energy and technology-centric cities of Dallas, Houston and San Jose, indicating that a broader mix of geographies and industries is driving wealth creation in the U.S.”

Twelve cities are home to the majority of U.S. HNWIs

Growth in U.S. HNWI wealth was driven by the top 12 cities by HNWI population – New York, Los Angeles, Chicago, Washington D.C., San Francisco, Boston, Philadelphia, Houston, San Jose, Dallas, Detroit, and Seattle – which are home to more than two-thirds (69 percent) of U.S. HNWIs and three-quarters (75 percent) of U.S. HNWI wealth.

While New York still reigns, holding almost three times more HNWIs (at 894,000) and wealth ($3.2 trillion) than second-ranked Los Angeles (at 330,000; $1.2 trillion), it recorded the second lowest growth rate (12 percent) in HNWI population of the top 12 MSAs, ranking only slightly higher than Detroit (11 percent).

Tech and energy-centric cities increasingly leading HNWI population and wealth growth

The Texas cities of Dallas and Houston were stand-outs, leading in both HNWI population growth – at 20 percent and 18 percent respectively – and wealth growth, at 24 percent and 22 percent respectively. In fact, Dallas entered into the top 10 HNWI population centers for the first time, edging out Detroit.

While HNWI wealth remains mostly concentrated along the East and West coasts, the report notes that, between 2008-2013, three of the four fastest-growing cities in HNWI population and wealth have been those with ties to energy – in the case of Dallas and Houston, and technology – in the case of San Jose, pointing to a new pattern of HNWI wealth creation in the U.S.

Greater risk-taking supported by surging trust in wealth industry

According to the report’s Global HNW Insights Survey, U.S. HNWIs’ trust in all aspects of the wealth management industry surged by double-digit rates between early 2013 and early 2014. Trust in wealth managers and firms increased 12 percentage points each to 84 percent and 87 percent respectively, putting U.S. HNWIs well above their peers in the rest of the world (71 percent and 72 percent respectively).

Increased trust supported a greater appetite for risk, with allocations to alternative investments up by four percentage points to 13 percent of portfolios, while equity allocations remained the highest across the globe at one-third of portfolios (and up to 41 percent in Washington D.C., highest in the U.S.). U.S. HNWIs were also more inclined to invest beyond North American borders, with their international allocations up to 33 percent in early 2014 from only 20 percent of portfolios a year earlier. This trend was particularly driven by HNWIs aged under 40 who invested 53 percent of their wealth in foreign markets.

Despite increased trust in wealth managers, HNWIs’ assessment of wealth manager performance dropped by six percentage points to 73 percent, though remains much higher than the rest of the world average of 59 percent. Declining scores signal opportunities for firms to reposition their offerings to meet specific HNWI preferences, especially for HNWIs under 40 versus their counterparts aged 60 and over.

Younger HNWIs are more likely to classify their needs as complex (38 percent vs. nine percent), seek family wealth advice (35 percent vs. 13 percent) and demand digital (internet, mobile, email) contact over direct personal contact (39 percent vs. 15 percent). Given the strong preference for digital interactions, wealth management firms will need to take proactive steps to meet increasing demands in this area.

“There is great opportunity for wealth management firms to reposition and strengthen their offerings in response to declining performance scores,”said Jean Lassignardie, Chief Sales and Marketing Officer, Capgemini Financial Services. “One way to respond to clients is by developing an integrated channel experience that not only maintains their wealth manager relationship but enhances it through digital enablement.”

As U.S. HNWIs expressed a pronounced preference to work with a single firm (54 percent vs. 11 percent multiple firms), firms that work with them will need to continue to deliver against the specific needs of their clients to drive high satisfaction levels.

Younger and female HNWIs could signal shift in causes supported by U.S. wealth

Making a positive impact on society through investing time, money or expertise is important to the vast majority (88 percent) of U.S. HNWIs and extremely or very important to 56 percent. HNWIs under 40 are particularly focused on driving social impact, with 81 percent citing driving social impact as extremely or very important.

Younger HNWIs also favor different causes than their older peers (aged 60 and over), citing social programs, race relations, gender inequality, energy security and unemployment as their top five priorities, while their older counterparts favor child welfare, education, and health. Given the rising wealth among younger HNWIs, there could be a shift in the types of social issues that get the most attention in the U.S. moving forward.

Female HNWIs are likely to have a greater influence on driving social impact going forward. As with younger HNWIs, female HNWIs place great value on driving social impact, with 62 percent citing it as extremely or very important, compared to 50 percent of male HNWIs.

View the report at this link.

Guggenheim Partners Hires Securities Executive Gerald A. Donini

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Guggenheim Partners has announced the hiring of Gerald A. Donini as a Senior Managing Director. Mr. Donini will work closely with senior management to identify and develop business opportunities for the firm.

“We are pleased to welcome Jerry to our team,” said Alan Schwartz, Executive Chairman of Guggenheim Partners and CEO of Guggenheim Securities. “Jerry’s reputation as a leader and his expertise in building markets platforms will enhance our ability to scale our businesses. Moreover, Jerry is a perfect fit with our team-oriented culture.”

“I am excited about the business that Alan and the team at Guggenheim are building,” Mr. Donini said. “In a short time, Guggenheim has emerged as a highly respected partner known for its client service and differentiated approach within the securities industry. That recognition and trust from the clients provide us with a great foundation to move forward.”

Mr. Donini was most recently the Chief Operating Officer of Barclays Global Corporate and Investment Banking. Prior to that, he served as the Global Head of Equities at both Lehman Brothers and Barclays. Mr. Donini served on both firms’ Executive Committees.

He graduated with a B.A. in Economics from Brown University.