Falcon Private Bank, the Abu Dhabi-owned, Switzerland-based boutique firm, is asking customers to be patient. With global conditions fragile, government spending in emerging markets coming down, and talk about Britain’s exit from the European Union, now is certainly not the time to be aggressive, says CIO, David Pinkerton. People are impatient, especially in times when it is harder to make money, he says. “But entrepreneurs, especially, need to be aware of increasing economic volatility, and use savings to diversify into other forms of wealth building. Preserving local wealth, insulating it from emerging market volatility and positioning it conservatively is the way to be right now.”
Complicating matters is that “the new generation of investors in the region are very aggressive,” says Pinkerton. “They haven’t taken on the western idea of wealth preservation, they still want to build.” This generation of investors wants to keep making money the way they did when the global economy was stronger. Building wealth was simpler then, Pinkerton says, because products such as exchange traded funds—which track an index, a commodity, bonds, or a basket of assets like an index fund—allowed all kinds of investors to ride swelling markets. “When the Fed would pump liquidity in the market, you could simply buy an S&P ETF and watch it go up,” he says. “Now, it’s no longer a play on the US or this industry or that one,” says Pinkerton. In these more turbulent times, value for Falcon’s customers is more likely to be found in private equity deals for companies primed to outperform their competitors in sectors that are trending downward.
While the industry searches for new ways to make money, the more traditional mode of private banking—where firms simply served their customers through tailored investment solutions and personal attention to their portfolios—is a model that will continue to flourish, says Pinkerton. A trend towards asset and wealth management companies that work directly on top of private banks to provide even finer dedicated tinkering of wealth related solutions is helping bring the kind of “market sophistication” that customers are looking for, he says. “But whether those companies are right or wrong with their investment hypotheses, that kind of attention is going to cost a lot more.”
For now, Falcon is struggling to see many investment opportunities in the Middle East for its customers. With government spending slowing, the knock-on effect to the private sector is significant. Even the much-hyped IPO of Saudi Aramco and Saudi Arabia’s other economic reforms don’t yet offer much in the way of opportunities, says Pinkerton. “For regional investors, I struggle to explain how the Aramco IPO, with no valuation announced yet, will be any kind of a diversifier from regional risk,” he says. Meanwhile, much-touted future markets such as Iran and Iraq still only present “small-scale entrepreneurial opportunities, not liquid investment ones.”
For these reasons, Falcon is overweight on cash-based investments. Conventional logic would question why anyone would need to put money in a boutique bank if the bank were simply going to put the money into cash, but that’s where the industry will continue to thrive, says Pinkerton. “The industry’s value proposition is distinct from the brokerage model which promotes an aggressive investment in stocks, something we certainly don’t advocate right now,” he says. “But there’s a lot of sense in investing in currencies that can prove to be safe havens in the meantime, and that is what we can do.”
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