Illiquid assets

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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%!
GLOBAL INVESTOR 1.15 — 53 Photos: Luca Zanetti Patrick Schwyzer (left) and Felix Baumgartner from Private Banking & Wealth Management, Credit Suisse, take a moment to exchange viewpoints.
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