Illiquid assets

GLOBAL INVESTOR 1.15 — 52 >
Advising on illiquid assets
Looking
beyond
liquidity
Global Investor asked two Credit Suisse wealth managers
to describe the illiquid asset landscape from the point of
view of investors. Do clients feel it is worth trading liquidity
for additional returns? How much of their portfolios do clients
allocate to illiquid assets? Are some assets more popular
than others? And how does culture affect asset choices?
INTERVIEW BY MANUEL MOSER Senior Financial Editor, Credit Suisse
Manuel Moser: What does a typical client’s
portfolio allocation look like?
Felix Baumgartner: My perception
is that “this” client is invested approximately
40% to 50% in equities and 30% in cash.
The cash tends to come from fixed income.
In other words, when a bond expires, the
money goes into the cash portion of the
account owing to the lack of opportunities
in fixed income. Now, clients are a bit
worried about staying in cash, and consequently
they’re looking for other opportunities,
including illiquid assets.
Are some investors more open
to illiquid assets than others?
Patrick Schwyzer: There are different
ways of characterizing investor preferences:
by geography, by what stage investors are
in in their lifecycle, by their background
and by the country they live in. For example,
the USA is certainly more open to illiquid
asset investment. Switzerland not so much.
There are a number of reasons for the difference,
one of which could be that in the
USA, people have to administer their own
pension money. That means thinking through
the range of investments for the best yield
and return, whereas in Switzerland we
still delegate the entire business of pensions
to outside parties or the companies’
pension scheme.
What about preferences for various kinds
of illiquid assets, such as real estate or
hedge funds?
Felix Baumgartner: The order of
pre ference that we observe is: real estate,
then hedge funds, followed by private equity.
Traditional Swiss investors, in particular,
look for real estate in Switzerland. But there
is not much left here. It’s all been bought
up. Some traditional investors still like gold,
which is not an illiquid asset, of course,
but still very volatile.
How satisfied are clients with the
returns on their investments in illiquid
assets?
Felix Baumgartner: I’d say they’re
satisfied with real estate, and with hedge
funds. Private equity could be the next
boom in the coming years because it offers
a long-term investment, diversification and
good returns. But clients are too little invested
in it at present to reap the benefits.
For Swiss-based investors, I would estimate
that private equity currently represents
only about 1% or 2% of their portfolio.
Patrick Schwyzer: I would say it’s more
like 0.5%!