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During a recent briefing, Blackstone's private wealth management solutions group explained that private equity and other alternatives have been well suited to perform during volatile times when traditional stocks and bonds have fallen. This has been certainly true this year as equities, government bonds, and most corporate debt have fallen as inflation and interest rates rise and recessionary concerns persist. Private markets and hedge fund strategies, on the other hand, have fared much better. However, the firm also believes that affluent investors are still under-allocated in alternative investments. According to the firm, affluent private investors typically only allocate about 5% to alternative investments. Joan Solotar, Global Head of Private Wealth Solutions at Blackstone told journalists at a briefing in London that “Investors remain under-allocated. Many advisors have found that if they hadn’t allocated to alternatives, then they underperformed. Some advisors, such as those working for decades without ever having broached the alternatives space, might lack the confidence to take the plunge.” Her colleague, Rashmi Madan, Head of EMEA for Private Wealth Solutions said the reason for this is due to a combination of burdensome administrative tasks and the difficulties investors have had accessing drawdown funds.

Finsum:Blackstone stated during a recent briefing that alternatives perform well in volatile markets when traditional securities falter, but affluent investors are still under-allocated.

Thursday, 10 November 2022 02:36

Complex Products Adding to Treasury Volatility

While income investors are certainly enjoying higher yields this year, the past decade had not been as kind. The low to flat interest rates over the past ten years may have helped propel the economy and markets since the financial crisis, but they also made it quite difficult for investors to find income. So, Wall Street firms got creative and created complex investment products that offered higher yields. But with rates rising this year, those same products are putting firms at risk, which is why they're jostling to hedge those positions by investing in derivatives that benefit from higher volatility in the market. However, those derivatives are making volatility in the US government bond market even worse. Treasuries were already experiencing massive swings as investors bought derivatives to lessen their bond risk, while dealers made long-volatility bets to hedge their own exposure. This combination led to a huge jump in the MOVE Index, which measures the implied volatility of Treasuries via options pricing. In October, the index breached 160, which is near the highest level since the financial crisis. With additional money betting on the ups and downs of bond yields, this is only going to add more fuel to the fire.

Finsum:As firms increase in their purchases of volatility-linked derivatives to hedge risk, the treasury market is expected to become even more volatile.

FactSet recently announced the launch of FactSet Model Center, their new no-cost marketplace for wealth advisors to access the industry’s best-of-breed investment solutions within a single, integrated platform. The Model Center will provide advisors with pre-built model portfolios from leading asset managers, product metadata, and detailed marketing materials, including factsheets. Advisors will be able to access model portfolios through the FactSet Model Center application inside the FactSet workstation to perform portfolio analysis, implement models, and create reports for their end clients. Asset managers that will be hosting model portfolios and funds on the FactSet Model Center include BlackRock, Goldman Sachs Asset Management, Janus Henderson Investors, KraneShares, PIMCO, Principal Asset Management, Russell Investments, Simplify ETFs, and VanEck. Wealth advisors will be able to do a deep-level screening to discover models that fit their client’s investment criteria, while asset managers will benefit from scalable model data delivery to tens of thousands of retail wealth advisors.

Finsum:FactSet launched a new no-cost model center where advisors will be able to access model portfolios from leading asset managers.

According to research reported in the latest edition of Cerulli Edge, the demand for financial planning increases with market volatility. Cerulli said that investors experiencing market volatility for the first time are more open to receiving advisor guidance. The report noted that eighteen percent of investors working with an advisor do not have a financial plan in place, but they do consider one important. In light of that figure, Cerulli recommends that advisors consider re-introducing their financial planning services, especially during periods of high market volatility, since some clients may not be aware of their planning offerings. The research noted that advisors who offer financial planning find that their clients are better positioned to stay the course and remain calm when market performance declines, which enables advisors to develop stronger client relationships. Scott Smith, Director of Advice Relationships at Cerulli Associates, said the following, “Financial planning shifts the focus to progress made toward achieving goals rather than investment performance. This frames volatility in the context of a bigger picture, which helps clients feel prepared when market shocks arise.”

Finsum:Based on a new Cerulli research report, clients are better positioned to stay the course during market volatility if their advisors offer financial planning.

According to a new research survey by Stanford University, investor support for ESG and their willingness to potentially lose money on ESG causes varied by age, wealth, and specific ESG issues. The survey found that investors 58 years old and over were the least likely to support ESG objectives in general, while investors between the ages of 18 and 41 were the most likely to put their savings at risk to support various ESG initiatives. More than one-third of younger investors said they would be willing to lose 11% to 15% of their retirement if that meant encouraging companies to have gender and racial diversity mirroring the general population. Only 3% of the older investors said they would forfeit the same amount for those goals. Two-thirds of older investors said they were unwilling to lose any money to support diversity. Stanford also found that wealthier young investors were the biggest ESG champions. Young investors with at least $250,000 would be willing to lose about 14% of their retirement savings, while young investors with savings less than $50,000 said they would only be willing to lose 6%. In terms of specific ESG issues, the survey found that investors cared more about environmental issues than social issues and governance.

Finsum:A recent ESG survey conducted by Stanford found that wealthy younger investors are more willing to potentially lose money on ESG initiatives than older or less wealthy individuals.

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