While many wealth management firms achieved tepid results across 2023, there are signs of optimism that the new year will bring an array of investment opportunities.
A selection of the world’s leading financial institutions have published positive investment outlooks for the year to come, with J.P. Morgan Private Bank suggesting that higher rates may usher in a ‘once in a generation’ opportunity for investors to enter bond markets – who are finally able to take advantage of higher long-duration yields.
While equities had a turbulent autumn, wealth manager portfolios with a greater exposure to stocks saw healthy gains for 2023 as a whole, with GBP Sterling portfolios rising by 6.14 per cent since the beginning of 2023 for ARC’s Steady Growth index. And, in the US, the prominent ‘magnificent seven’ equities – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla – helped to carry the S&P 500 index. Together, the seven businesses added around $4 trillion to their market capitalisations over the year, according to the Financial Times.
Alternative assets are continuing to prove to be a popular addition to UHNW investment portfolios. According to UBS, next-generation UHNWs are looking to increase their exposure to private equity more than any other asset class, with 59 per cent of 2nd-gen-or-above family members planning to increase their direct private equity investments, and 55 per cent planning to increase indirect investments.
The next decade will see alternatives take on a new significance. Once the preserve of just a few high-touch institutions or the very richest UHNWs with sufficient capital to invest, members of the public will soon be able to enter private markets through new technological platforms.
A strong US economy
Global growth may still be sluggish, but the world economy is expected to reach the bottom of its economic cycle by the first quarter of 2024, according to HSBC Global Private Banking’s chief investment officer Willem Sels. He told Spear’s at the end of November that UHNWs and wealth managers could find opportunities through looking to ‘disruptive tech’ industries and US equities, which may be boosted by a strong domestic American economy, a reshoring of manufacturing operations and an anticipation that the Federal Reserve will embark on a series of rate cuts.
‘We think that the Fed and other central banks are done with their rate hikes, which should remove that headwind, and even allow valuations to improve ahead of the rate cuts later in 2024,’ Sels told Spear’s. ‘The headwind from interest rate hikes should ease and ultimately become a tailwind.’
Wealth managers, he says, could therefore benefit from a diversified strategy – one replete with both fixed income investments and alternatives – to manage volatility as 2023 ends and a new year begins. ‘We hedge tail risks via alternatives, multi-asset and volatility strategies. A core allocation to private markets and multi-asset strategies can add diversification, while nimble hedge funds can take advantage of mispricing,’ Sels said. ‘And volatility strategies can generate income to stabilise portfolios’ total returns.’
‘Consolidation’ is the buzzword for 2023
In spite of the sanguine attitude seen in many investment outlooks, 2023 has been a year of upheaval for the wealth management sector as a whole. A host of heavyweight CEOs in the UK wealth management industry told Spear’s 500 Live that industry consolidation was the future, in a bid to achieve economies of scale to offset higher costs and rising regulatory pressures.
‘The boutique model can work well, but when you get to a certain size, and with fixed costs rising, putting two firms together creates a single platform and higher profit margins – that’s what everyone has in mind,’ Paul Abberley, CEO of Charles Stanley Group, told the audience.
‘Every year, at the beginning of the year, when you look at industry reports, they always say: “this is the year of consolidation”,’ added Mouhammed Choukeir, CEO of SG Kleinwort Hambros. ‘It’s been a theme that has been dominating the industry – and not just the wealth management industry.’
Why many wealth management firms could ‘fall by the wayside’
These sentiments have been borne out by an industry-wide analysis from PwC, published in July, which noted that nearly three-quarters of asset managers were considering a ‘strategic consolidation’ with another asset manager. The global professional services firm also predicted that by 2027, around one in six (16 per cent) global asset and wealth management firms would either be subsumed by a competitor or would ‘fall by the wayside’.
This ‘paints the picture of an industry grappling with a set of challenges – digital transformation, shifting investor expectations, consolidation and “retailisation”,’ PwC said.
In September, Rathbones merged with Investec Wealth to create the UK’s largest discretionary wealth manager, managing £100 billion in combined assets. Around a year before, in September 2022, RBC completed an acquisition of Brewin Dolphin to create one of the country’s largest wealth manager firms, with £58 billion in assets.
UBS’s takeover of Credit Suisse
One of the biggest acquisitions in the global wealth management industry in 2023 was the acquisition of Credit Suisse by UBS, in a CHF 3 billion deal brokered by the Swiss government. Commenting on the acquisition, UBS’s CEO Sergio Ermotti said the firm would ‘create a bank that our clients, employees, investors and Switzerland can be proud of.’
The bank had been beset by a series of scandals in 2022 – including exposure to the fall of Greensill Capital and the resignation of chairman António Horta-Osório – described by Spear’s writer Martin Vander Weyer as an annus horriblis.
The $100 trillion wealth transfer
Putting aside the gloom and doom, UHNW patriarchs and matriarchs have began a process of offloading shedloads of assets to the rising ‘Generation Z’, a group set to inherit $100 trillion over the next decade, veteran UBS banker Ken Costa writes in his book The 100 Trillion Dollar Wealth Transfer, which was released in September.
But the massive movement of wealth may spell problems for the global economy – and it could even lead to the destruction of the ‘incentives-based market economy,’ Costa cautions. This is because, he suggests, the younger generation have developed a yearning for ‘big state’ and collectivist models and are, having been shut out of much of the wealth enjoyed by the boomer generation for a long period, also disaffected by wealth inequalities. But, he counters, ‘it is incumbent on the Boomer generation to persuade the Zennials that liberty is at stake.’
Next-gen billionaires split from the family legacy
Other recent research suggests young UHNWs have different ideas about what to do with their riches than their parents’ generation. According to UBS’s new Billionaire Ambitions Report, more than half of the 53 new inherited billionaires this year are breaking away from their family businesses, and are instead pursuing other career ambitions.
‘Many are redirecting the large pools of private wealth they control to new business opportunities arising from the times we live in. Others are stepping away from their families’ businesses, choosing careers more suited to their individual ambitions and talents,’ UBS’s Benjamin Cavalli says of the findings.
With more than 1,000 billionaires set to disburse $5 trillion to their offspring over the next decade, he adds it will be important for advisers to understand the ‘fresh views about business, investment and philanthropy’ that the new generation possess.
The rise of the centimillionaires
While fewer new billionaires received their fortunes through entrepreneurship than inheritance in 2023, perhaps a function of subdued IPO markets, that doesn’t mean the global population of UHNWs is getting smaller. Rather, centimillionaires are growing in prominence.
According to the 2023 Centi-Millionaire Report from Henley & Partners, the global population of those with nine figure bank balances has climbed by a significant 12 per cent in just a year, with New York and San Francisco’s Bay area topping the global leaderboard of the top places where these wealth holders are found (with 775 and 692 centimillionaires in each city, respectively).
Opportunities abound across the world of wealth management
More so than ever before, opportunities to build new wealth are spiralling into new geographies and newly-created economic sectors. Abu Dhabi is rapidly cementing its place as a global hub for hedge funds, with the recent announcement that Brevan Howard will expand into the city coming days after TCI confirmed a new outpost there.
Meanwhile, in nearby Dubai, the recent COP28 summit has sparked conversations around ESG investing for local UHNWs, according to LGT’s Middle East CEO Sebastian Goeres. Alongside the rise and rise of private wealth in the Middle East, there has been untrammelled growth in Dubai’s property market, which is now dominating the global leaderboard of super-prime home sales, while the UAE’s wider approach to corporation tax has evolved dramatically in recent years.
The APAC and ASEAN regions are also ripe for growth as flourishing centres of private wealth. ‘Going against the global headwinds, Asia’s robust private wealth accumulation, resilient middle-class consumers, digital transformation and green transition offer solid domestic drivers to support healthy economic growth,’ says Cheuk Wan Fan, Chief Investment Officer for Asia at HSBC Global Private Banking.
Coutts v Nigel Farage
Wealth management was under the microscope in 2023. New light was shone on the secretive world of private banking this year, as Coutts faced intense press scrutiny over its closure of Nigel Farage’s bank account. Weeks of press controversy then followed, as Farage filed a subject access request to find further information about the decision, where he was given access to a 40-page report prepared by the bank’s internal Wealth Reputational Risk Committee.
It contained a series of old news articles written about Farage, which the bank cited as evidence it had ‘significant reputational risks of being associated with him’. Eventually, the closure – and the revealing information around Farage’s banking relationship with Coutts – led to the resignation of Dame Allison Rose as CEO from its parent group, NatWest.
The downfall of Crispin Odey
Meanwhile, following allegations of sexual misconduct facing Crispin Odey, it was announced at the beginning of October that the wealth management arm of Odey Asset Management is being wound down, according to the Guardian. The break up was announced after some investors had decided to withdraw funds.
‘We are aware of Odey Wealth Management’s intention to wind down the business. We will work closely with the firm as it winds down, to ensure clients are treated fairly,’ an FCA spokesperson said of the closure.
Following the end of its relationship with St James’s Place Private Clients, Jacob Rees Mogg’s Somerset Capital Management is also winding down, following the loss of around $2 billion in assets.
Wealth management recognised at Spear’s Awards 2023
Wealth management in 2023 was once again recognised at the Spear’s Awards.
Ross Elder, who founded Lincoln Private Investment Office, took home our award for HNW Wealth Manager of the Year, in recognition of the strength of his boutique offering and his highly-personalised approach. Meanwhile, Weatherbys Private Bank was crowned Private Bank of the Year – UK, given the strength of its client service offering and the efforts its client relationship managers have gone to over the past year.
And, Schroders took home our prize for Family Office Services Provider of the Year, given its long-term perspective and its holistic support for the needs of UHNW families.
J.P. Morgan Private Bank took home three gongs – including one for wealth manager Charlotte Bobroff, who was celebrated for her work with entrepreneurial UHNW clients and her support for female-led businesses in the UK. Her wider bank also took home the Grand Prix Award for best overall private client firm, and the prize for Private Bank of the Year – International.
‘This firm is not growing by accident,’ said one judge of J.P.’s barnstorming success. ‘It’s an incredibly impressive organisation.’ Another added that ‘quite often banks dealing with UHNWs find an excuse not to give them institutional-level advice or pricing. This one doesn’t.’