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Sector growth sees global private wealth management market hit USD 7trillion in equities

Thursday 21st January 2010
By Mike Jones

The global private wealth management market now manages an estimated US $7.11trillion in equities as the sector continues its journey back into the asset class following the global economic turmoil.

The responses from the second bi-annual asset allocation survey conducted by leading consultancy Scorpio Partnership reveal a current allocation to equities in a balanced portfolio of 49%, up from 37% in Q1 2009.

Indeed, spotting opportunity amid continued stock market volatility, 42% of the institutions engaged by in its latest industry research will further increase their weighting in equities through 2010.

Interestingly, at the same time as upping allocations to equities, the market also struck a cautious note, maintaining defensive positions – in the form of fixed income and cash – against further potential negative movements.

Over the course of 2009 the biggest loser was alternatives, dropping massively from an allocation of 24% on average in Q1 2009 to 7% by Q4 2009. Looking into 2010 and the ravages of alternatives continue; the only exception being property, a traditional hedge against the potential of inflation.

"Cautiously benefiting from market volatility appears to be the plan of attack," said Sebastian Dovey, Managing Partner of Scorpio Partnership.

"At the same time, at a strategic asset allocation level this year will be about proving a point for private banks that they are actually worth their salt in volatile market conditions. The last two years the banks have put together a good scorecard on this factor. The question now is can they maintain it?"

Based on the above allocations and a global market that manages approximately US $14.5trillion in AUM, a figure from Scorpio Partnership’s Global Private Banking Benchmark 2009, the size of the equity pool is approximately US $7.11trillion. For fixed income it is US $4.79trillion.

From the perspective of asset management suppliers looking to sell into this market, the opportunity is however impacted by the shifting allocation by product to in-house products. From Q1 2009 through to Q4 2009 the aggregate allocation to in-house product moved up from 22% to 40% as institutions sought to protect diminishing margins, particularly in lower margin product areas.

For the equity pot, the current amount managed on an external basis is in the region of US $3.54 trillion, though this is likely to increase as the sector seeks to shift allocations upwards.

"The shift in allocations back towards in-house product is an interesting dynamic for the private wealth market and one that results directly from an effort to bolster margins in a cautious market," said Stephen Wall, Director of Scorpio Partnership.

"While gross margins may be under pressure as clients have pushed institutions away from aggressive high margin product, the shift to source lower margin product in-house should have a positive impact on net margins."

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