Private Banking - Alternative Investments
Private
banking is an industry currently undergoing something of a renaissance. As the
balance of economic and geopolitical power between East and West has shifted
over recent years, there has been an explosion in demand for private banking
services across the Asia Pacific region. The emerging markets of China,
Malaysia and elsewhere pushed total global assets managed by the private banking
industry in 2015 to $20.3 trillion, up from $18.5 trillion in 2013 and the
growth of China into a global power has led to an explosion of wealth within
its sphere of influence. Recent analysis by the World Wealth Report1
for example, reveals that the number of individuals with investible assets
worth $1 million plus in the Asia Pacific region increased by 17% in 2013, to
4.3 million people. The total wealth held by this group also increased
correspondingly by nearly a fifth, to $14.2 trillion.
This
growth in the market for private banking has been further assisted by tighter
regulation in the post-crash world. Scrutiny and regulation have forced many
mainstream and high-street banks out of investment banking, leaving the field
open for more specialist and investment driven banks.
Regardless
of these dynamics however, striking the right balance between return and risk
remains key in the private banking sector.
Building investments…
In
the wake of the 2008 crash, and the age of low interest rates and quantitative
easing which it ushered in, property has remained the most attractive
investment for those looking for significant returns. The reasons for this are
clear. Recent research from Savills2 revealed that the total value
of property worldwide (currently around $217 trillion) is 36 times more
valuable than all the gold ever mined (worth approximately $6tn), 2.3 times the
value of outstanding securitised debt ($94tn), and 3.9 times the total value of
equities ($55tn). The same report estimated the growth rate of this global
asset class to be 1.77%, so there are returns to be made and growth rates in
local markets often far exceed this.
Recent
data from MSCI shows that US commercial property funds in 2015 grew a
staggering 15.6% according to the PREA/IPD US Quarterly Property Fund Index3.
Even more impressive is the fact that investments in US commercial property
have seen a cumulative return of 129% over the past six years.
There
are downsides to property investment however. Property requires regular
maintenance for example and while, on the whole, tenants can be relied upon to not
mistreat a property and pay the rent on time, bad tenants can turn an
investment into a full time job. Politics can also weigh large in the minds of
property investors and housing and property is for many a significant political
issue. This ensures that the market is often the subject to policy
interventions, and property investors can need to be aware of the political
contexts in which they make their investments. Investors in one development in
London, for example, have been singled out in the media as being representative
of rising property prices and the political frustrations which follow4.
As
a result of this kind of rhetoric, rent caps are being considered or
implemented in cities including Dublin, New York and Berlin – despite all the
evidence against such market intervention.
At
the other end of the scale, larger investments through Real Estate Investment
Trusts (REITs), while generating decent returns, are not as high yielding as
direct investment can be. The fact that these investments are managed by large
corporations and investment houses also means that there is often a potential
disconnect between returns, and the allocation of those returns to investors.
Indeed, a recent report from a research team in Toronto found that, while REITs
had the highest net returns amongst a sample of asset classes, investors in
REITs saw the lowest allocations – just 0.6% of total asset value5.
…and making them work
Despite
the politics property investments continue to outperform other asset classes
and so remain popular. Looking again at the US for example, we see that
commercial property as an asset class has outperformed US bonds (up 4.39% over
the period 2011 to 2015), stocks (up 13.45%), corporate bonds (up 4.72%) and
commodities (down 10.93%)6.
So what’s the best way to maximise
returns, while minimising risk?
Rycal
Group have developed a niche which is proving to be
increasingly popular with investors. The opportunity is centred around the
Carlton James Group, an investment portfolio with a focus on the US’s
hospitality sector. Over the last five years this portfolio has seen average
returns of 17% per annum. With a strategy based upon wide-ranging geographical and
market intelligence, Carlton James look also for additional revenue generators
– for example taking into account a development’s proximity to highways, malls
and economic infrastructure – as well as local economics.
Simon
Calton, Co-Founder and CEO of the Carlton
James Group, says: “Private banks and their clients define themselves by
their willingness to consider alternative investments – finding the
opportunities that others miss. Making alternative investments work for clients
however requires depth of knowledge and understanding in any given market. A
portfolio such as ours is a perfect partner for investors looking for
opportunities in the US that others have yet to capitalise on.
“The
secret of Carlton James’ success has been the ability to take a 360-degree view
of any investment. We recognise that, to a large extent, the residential
property market is saturated, and economists from many global cities are
talking about local housing bubbles. Property used for hospitality however is a
growth market, and will continue to be so in an economy geared ever more
towards the service sector.
“Our
expertise also extends to considering the local infrastructure around the
properties we invest in. How near is closest freeway or shopping centre? What
future developments are planned in the local vicinity? These questions and more
are key to the long-term success of our portfolio and guide our decision making
processes.”
Carlton
James is proud to sponsor the Spear’s Private Banker of the Year Award at the Spear’s Wealth Management Awards (WMA)
November 1st at The Dorchester, London, UK.
For
more information on the Rycal Group and Carlton James investments please visit http://www.rycalgroup.com/newinvestors.
To arrange an interview or comment from Simon Calton, CEO, please contact Liam
Thompson at lthompson@sks-london.co.uk
, http://sks-of-london.com,
or on +44 (0) 7890 315 537.
