The bankers are circling, all’s well with recovery

Wayne Arnold

• Last Updated: November 18. 2009 6:18PM UAE / November 18. 2009 2:18PM GMT

It is time to say it loud and clear, without any beating around the bush: we have reached the beginning of the end of the beginning of a global economic recovery.

We have seen the end of the crisis that many feared was the beginning of the end.

And now, with the three largest economies – the US, Japan and Europe – all beginning to grow again, we are clearly emerging from the end of the middle of the end of the global recession.

There are some economists who worry that we may be in the middle of a beginning of a new crisis, but these warnings are beginning to ring a bit hollow when the rally in financial markets means that fat profits end up in the laps of even middling investors.

I became convinced of this while speaking this week to Dennis Phillips, an investment director at Ashburton, who was visiting Dubai from the island of Jersey.

“We’re in one of those rare sweet spots for risk assets,” said Mr Phillips, who oversees the portfolios of 104 clients with £165 million (Dh1.01 billion) in investments.

This ability to make money hand over fist is a well-known cure for financial malady and threatens to accelerate the recovery, despite no signs of a meaningful rebound in the world’s largest economy, the US.

A rising tide of asset prices lifts all boats, even if the boat still leaks and has no engine.

Some readers, therefore, may face the enviable problem of having a surfeit of money.

Some may be worried about what to do with all the money they have made.

Others may be trying to figure out what to do with the money they did not invest in time to take part in the rally.

Fortunately for them, a growing parade of bankers has been traipsing through offering to help them invest that cash. In the past month or so, not only Ashburton, but ABN-Amro, Societe-Generale and Standard Chartered have wheeled in practitioners of wealth management to show off their expertise.

Along with Barclays and HSBC, all are reportedly beefing up their private wealth management teams in the Gulf.

This may seem curious given that the latest Capgemini-Merrill Lynch world wealth report, an annual inventory of rich people, determined that wealthy individuals in the Middle East saw their fortunes decline by 16.2 per cent last year, which pushed the number of people worth US$1m (Dh3.6m) or more down by almost 6 per cent.

The Middle East fared relatively better than the rest of the wealthy world, however, which saw its net worth drop by almost 20 per cent and turned 15 per cent of the world’s millionaires into former millionaires.

That means that even with fewer fabulously wealthy people, the Middle East now represents a greater slice of the world’s overall fabulous wealth.

And that means that a greater proportion of impeccably groomed private bankers should be sent here to service it.

Private bankers generally do not want to know you unless you have $1m in investible assets, and preferably more than $5m.

Not many private bankers, therefore, would admit to knowing this columnist, whose funds are mostly tied up in rental payments, utility deposits and economy-class bookings.

Back in the days when most private bankers still worked in Geneva or in Zurich, their primary responsibility was to safeguard the wealth of the wealthy for future generations.

Their clients, largely European families with old money, left them largely alone to offset inflation, the business cycle, the occasional war, and the ceaseless predations of the taxman.

But the nouveau riche are not as casual about their money, particularly since they usually had to earn it or steal it themselves.

They tend to want their bankers to earn their fees by producing returns at least as good as the racket that made them rich in the first place. That means taking greater risks.

New money also demands more attention. Its bankers must not only advise on how to invest, but how to spend it, what wine to buy and how to drink it, where to store one’s old masters and how to sail one’s new yacht.

By the time the private banking wave hit Asia a few years ago, it had come to resemble an exclusive valet service, with private bankers expected to serve as golf partners, dog walkers, and sometimes even fetch the dry cleaning.

Banks began hiring former tennis instructors, concert violinists and even newspaper editors to babysit their clients.

All of this coddling costs money, but banks were able to make it worthwhile by pushing structured products on clients.

One product they devised in Asia was called an accumulator. The bank would agree to sell the client a stock at a set price below the market, giving the client a guaranteed paper profit.

The catch was that the client then had to agree to keep buying a portion of the stock periodically at the same price.

So long as the stock stayed up, the client would keep pocketing profits. If the price fell, the client would have to keep throwing good money after bad.

You know the rest. The crisis hit, prices dived, and clients began referring to the accumulator jokingly as “I kill you later.” Only they weren’t laughing.

According to Mr Phillips, Ashburton remains quaintly behind the times. It does not sell structured products, short stocks or invest in leveraged funds.

All in all, the firm adopts the sort of refreshingly unambitious approach more familiar to private banking of old.

“We’re not going to shoot the lights out,” Mr Phillips said of Ashburton’s investment aims. I haven’t got the kind of money necessary to recommend Ashburton to anyone; it is as unknown to me as I am likely to remain to it.

But it was nevertheless a relief to me to hear that there are still some money managers who strive to mitigate risk instead of traffic in it.



warnold@thenational.ae