EXCLUSIVE: How To Manage Wealth Wisely In A Low-Yield World - Conference

Tom Burroughes

23 June 2016

Sound risk management becomes more urgent amid volatile markets, and asset managers must be agile and mindful of how costs can affect results in a world of low yields, a conference heard recently.

“The most important thing that wealth managers can do is to give clients realistic expectations,” Peter Westaway, chief economist for Europe at Vanguard, the US-headquartered investment house, told the WealthBriefing Investment Strategy Summit in London recently.

“The way investors have in the past responded to episodes like this is by reaching for yield and going out for the risk premium, which on the face of it seems like a smart thing to do,” he added. Among the most useful actions a wealth manager can take is to ensure investors avoid “doing stupid things at the wrong time”.

Westaway was speaking at an event held at the ETC conference centre in the City of London’s Eastcheap. Other speakers in the first of three panels were Dimitris Melas, managing director and global head of equity research for MSCI, and Roger Jones, equity fund manager, London & Capital. Sponsors for the event were Bulletin; Chelverton Asset Management; Dragon Capital; Eclectica Asset Management; ProFundCom; smartKYC; Standard & Poor’s MMD; Vanguard, and Wealth Management Association.

The need to try and eke out returns for a tolerable level of risk at a time when yields are low and prices such as interest rates are near zero, or even negative, has been arguably the biggest headache for wealth managers since the collapse of Lehman Brothers in late 2008. Central bank experiments with low rates, quantitative easing, “forward guidance” and other techniques have forced asset allocators up the risk curve to deliver the goods.

“When markets are rising by 10 to 15 per cent a year then adding some value to that matters less. In a low-return environment, active management matters more. Being able to protect profitability, it should remain a good place.”

“Some managers in the middle may find the new environment more difficult but those firms able to offer real added value can thrive,” said MSCI’s Melas.