Wealth Management Professional Interest Forum

Wealth ManagementWealth Management Professional Interest ForumProfessional Interest Forum

Tuesday 13th May 2008

Chairman: Christopher Jones-Warner FSI

Wealth Management Professional Interest ForumWealth Management Professional Interest Forum

Ruth Martin

Managing Director,Securities & Investment Institute

The Retail Distribution Review May 2008

Ruth Martin

Managing-Director, SII

www.sii.org.uk

SII and the RDR

Affects all three core areas of SII:

• Attaining Competence• Maintaining Competence• Promoting Trust

The RDRThe FSA’s challenges to the industry in the Feedback Statement of 29th April 2008

• To develop a framework for common professional standards

• To propose how the new sales service would work, which will benefit consumers

• To product providers to change their remuneration models for advisers.

The RDRThe FSA’s Feedback Statement of 29th April 2008

Our challenge is to the representatives of the whole (retail) industry, and all other stakeholders, to deliver on this apparent consensus for change (the Edinburgh Declaration) that some have issued.….. We are willing to play our part in facilitating discussions and taking whatever other actions that only we are able to progress, but the involvement and cooperation of all relevant industry parties will be vital if the industry is to avoid more direct intervention from us.

““ ““

The RDRThe FSA’s Aims for Professionalism and Standards• Higher Standards of behaviour• Higher level qualifications• Higher Standards of on-going Competence (CPD)• Better segmentation and labelling of services• Greater collaboration between firms, professional

bodies, trade bodies and consumers

SII Model of Competence Developing the Principled Practitioner

Attain CompetenceAssessed by external

qualification

Promote Trust Demonstrated

through adherence toCode of Conduct

With opportunities for self development

Maintain CompetenceDeveloped by range of CPD

Eventsand adopt

SII on-line CPD scheme.

The RDR Attain Competence• Historical links to London Stock Exchange• Retail sectors covered:

– Private Client Wealth Management– Retail Securities and Derivatives– Discretionary Portfolio Management

• Welcome the raising of standards• History of higher level qualifications

– SII Diploma with strong Wealth Management stream– SII Masters in Wealth Management June 2008 –

focussed career pathways – take up has demonstrated real demand

• Threshold qualifications e.g. Cert IM, Investment and Risk

The RDRMaintain Competence

The CPD Challenge

• What additional CPD might be needed?

• Compulsory CPD for Retail practitioners?

• Strong recommendation to join appropriate professional body

The RDRPromote Trust

• Practice Certificate

• ‘e’ learning ethics module

• Membership and Code of Conduct

The RDR Under the “Edinburgh Declaration” a Potential Professional Standards Board might, be responsible for:

• Better labelling (the “alphabet soup”) • Introduction of higher-level qualifications (with

transitional arrangements)• Making industry-wide Code of Ethics• Setting broad CPD standards • Developing Practice Certificates linked to all

aspects of professionalism (the “Principled Practitioner”)

• Support and active involvement by of regulators, consumers and statutory and trade bodies

• Information sharing and discipline.

The RDR

Your Comments on the FSA’s and the SII’s

professionalism proposals

The Retail Distribution Review May 2008

Ruth Martin

Managing-Director, SII

www.sii.org.uk


Ravi Bulchandani

Head of Alternative Investments, Barclays Wealth

ALTERNATIVE INVESTMENTS

Ravi Bulchandani, Head of Alternative Investments

For Professional Investors Only

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Alternative Investment Opportunities

Hedge FundsLightly regulated investment vehicles with the flexibility to use leverage, short selling and other financial instruments to deliver absolute returns for qualified investors

Private EquityPrivate investments in companies accessing different parts of the capital structure Generally capital appreciation

Real EstateReal Estate investments designed to generate income and/or capital gains Both hard assets and indices

Special OpportunitiesOccasionally some unconventional themes such as climate change, globalisation, food inflation etc or asset classes such as commodities will offer interesting opportunities

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45% Equity45% Bonds10% Alternative

Asset

Alternatives boost a portfolio’s potential

Alternatives can generate alpha,

driven by the fund manager skills

They provide diversification and

may enhance portfolios by

improving returns and lowering risk.

Alternatives exhibit low

correlation to traditional assets allowing them to

profit, and help preserve capital,

in rising and falling markets

Diversification is crucial to managing a portfolio’s low risk and/or higher returns

Expected Return

Risk

45% Equity45% Bonds10% Cash

50% Equity50% Bonds

Efficient Frontier

Source: Barclays Wealth

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Diversification benefits

Source: LIBOR, S&P500, Lehman Aggregate Bond Index, Barclay CTA Index, CSFB/Tremont Hedge Fund Index, Venture Economics (time weighted returns), NCREIF National Property Index. Data to Dec 2007.

Low correlation to traditional assets, risk reduction and return enhancement

Asset Correlation Cash US Bonds US Large Cap Equities

Managed Futures

Hedge Funds Venture Capital

Real Estate

Cash 1.00

US Bonds 0.20 1.00

US Large Cap Equities

0.13 (0.20) 1.00

Managed Futures 0.06 0.46 (0.24) 1.00

Hedge Funds 0.16 (0.03) 0.58 -0.01 1.00

Venture Capital 0.32 (0.24) 0.52 (0.17) 0.71 1.00

Real Estate 0.22 (0.02) 0.12 0.02 0.08 0.13 1.00

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A growing appetite for Alternatives

• A survey of 790 individuals was conducted between January and September 2007 by the Economist Intelligence Unit on behalf of Barclays Wealth

• The survey compared the assets in which respondents had invested over the past three years with their planned investments over the next three

• 2 trends stand out:

• 1. There is a move away from equities

• 2. Respondents expressed a desire to increase exposure to less traditional assets, such as hedge funds, private equity, structured products & derivatives

Survey suggests a preference to reduce

exposure to market returns towards a

more stable return profile

In which of the following vehicles have you invested in the past 3 years and, and in which of the following do you plan to invest in the next 3 years?

Past 3 years %

Next 3 years %

Individual stocks and shares 64 48 Property 41 35 Personal pension 42 35 Investment trusts 20 19 Bonds 26 20 Private equity/ co-investing 11 15 Hedge Funds 20 21 Commodities (eg, gold) 17 18 Tracker funds 23 20 Derivatives (futures, options, CFDs etc) 10 11 Currency 11 10 Structured products 8 9 Alternative assets (fine wine, antiques, art etc) 12 11 Gilts 9 8 Credit/ leveraging 7 5

Source: Barclays Wealth Insights Volume 3 – Risk, Return and Reward

The only assets in which respondents expect to increase

their investments are private equity, hedge

funds, derivatives, structured products &

commodities

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Hedge funds – gaining from independent performance

Why favour hedge funds? They take both

long and short positions, allowing

them to achieve returns in rising and

falling markets.

What should you consider? A large initial investment. Identifying the right fund requires a rigorous assessment of managers’ skills and

fund performance.

What are the results? Hedge fund

performance, as measured by the

CS/Tremont Hedge Index, exhibits low

correlation with traditional markets, with lower volatility

than equities.

CS/Tremont Hedge Index MSCI WorldLehman Global Bond

Aggregate

Annualized Return 10.92% 6.47% 6.30%

Annualized Volatility 7.48% 13.27% 3.74%

Correlation with CSTremont 1 0.51 0.15

Annual Returns

-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

CS/ Tremont Hedge Index MSCI World Lehman Global Bond Aggregate

Performance of CS/Tremont Hedge Index and Lehman Global Bond Index during MSCI World from 1/1994 to 2/2008

Past performance is not an indicator to future returns. Source: Pertrac, Bloomberg.

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Private Equity profits from active management

Why favour private equity?

To gain access to specialist investment

strategies not available in the listed market

What should you consider? Long term investment horizon –

fund commitments can extend to over 10 years

What are the results?Private Equity has historically shown strong long term

performance

US Private Equity Performance vs. US Equities

12.413

10.6

6.6

14.5

5.36.4

10.6

4.2

0

2

4

6

8

10

12

14

16

Three years Five years Ten years

% p

a

Total Private Equity NASDAQ S&P 500

Past performance is not an indicator to future returns. Source: Thomson Reuters US Private Equity Performance Index

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Commodities promote diversification

Why favour commodities?

Commodities offer excellent downside

protection, with little to no correlation to

market conditions

What should you consider?

Cost of storage – this may be reduced if

exposure is gained with other investment

productsLack of any income

streams, compared to dividends or coupons

What are the results?An increase in the

portfolio’s risk-adjusted return (see example,

right)

Diversification Benefits with Commodities

S&P 500 GSCI Portfolio

Annualised Return 10.2% 10.4% 10.3%

Standard Deviation 14.3% 20.5% 12%

Sharpe Ratio 0.41 0.35 0.47

Correlation -0.02

• Using data from Jan 1995 to March 2008, adding 30% commodities (Goldman Sachs Commodity Index, or GSCI) to a pure equity portfolio (S&P 500):

• Lead to reduction in volatility

• Improve the portfolio’s risk-adjusted return (Sharpe Ratio)

Source: Barclays, Pertrac Past performance is not an indicator to future returns.

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5 Year Returns

0

50

100

150

200

250

300

350

400

Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08

EPRA/ NAREIT UK Index EPRA/ NAREIT Global Index FTSE 100 Index

Managing risk through Real EstateWhy favour real

estate?Distributing property

investment geographically can

improve risk-adjusted portfolio returns.

What should you consider?

The choice between direct or indirect real-

estate investments depends on your

liquidity needs, volatility tolerance and

return objectives

What are the results?Investing directly in real estate provides

diversification benefits. Correlation between UK RE and FTSE 100

0.27 for this time period

Source: Barclays Wealth and Bloomberg. The chart shows performance of the indices over the period since Jan 2003-Mar2008 with the indices rebased to 100. Past performance is not an indicator to future returns.

Cumulative performance (in GBP)

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• Limited liquidity - Due to the nature of their investments, alternatives tend to offer less favourable liquidity terms than traditional asset classes.

• Limited transparency – Lack of information, potentially leading to style drift.

• Limited regulation – Alternatives may not be subject to similar rigorous scrutiny as traditional assets regulation.

• Key man risk - Alternative Investments performance may be contingent on a lead portfolio manager.

• Business & operational risk – Smaller firms may not have adequate infrastructure.

• Leverage risk – Managers use varying degrees of leverage, fat tail risk may increase as leverage increases.

• Access & capacity – Alternatives may require high minimum investments and a close relationship to gain access.

• Pricing – Alternatives may be difficult to value and the frequency of valuation may vary.

Alternative Investments – The Risks

Source: Barclays Wealth

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Disclaimer

This document has been issued and approved by Barclays Bank PLC. Although information in this document has been obtained from sources believed to be reliable, we do not represent or warrant its accuracy, and such information may be incomplete or condensed. This document does not constitute a prospectus, offer, invitation or solicitation to buy or sell securities and is not intended to provide the sole basis for any evaluation of the securities or any other instrument, which may be discussed in it. All estimates and opinions included in this document constitute our judgement as of the date of the document and may be subject to change without notice. This document is not a personal recommendation and you should consider whether you can rely upon any opinion or statement contained in this document without seeking further advice tailored for your own circumstances. This document is confidential and is intended solely for the addressee(s). If you are not an addressee, or have received this document in error, please notify the sender immediately, delete it from your system and do not copy, disclose or otherwise act upon any part of this e-mail or its attachments. It may not be reproduced or disclosed (in whole or in part) to any other person without our prior written permission. Law or regulation in certain countries may restrict the manner of distribution of this document and persons who come into possession of this document are required to inform themselves of and observe such restrictions. We or our affiliates may have acted upon or have made use of material in this document prior to its publication. You should seek advice concerning any impact this investment may have on your personal tax position from your own tax adviser.

Barclays Wealth is the wealth management division of Barclays and operates through Barclays Bank PLC and its subsidiaries. Barclays Bank PLC is registered in England and authorised and regulated by the Financial Services Authority. Registered number is 1026167 and its registered office is 1 Churchill Place, London E14 5HP.

D00000


Robert Brown

Chief Executive,Pan Asset

Perspective - Analysis

Using Exchange Traded Funds to Add Alternative Assets to Private Client

Portfolios

SII Wealth Management Forum 13th May 2008

Global investors across all major asset classes

Index tracking investment funds that are listed on the stock market. First launched in 1993, as at Dec 2007 there were some1,200 ETFs listed globally with $800bn of assets. Leading providers in Europe include Barclays (iShares), Soc Gen (Lyxor) and Deutsche Bank (db-X Trackers).

Diversification - one trade gives you diverse exposure to the chosen asset class and many previously inaccessible asset classes become investible

No Active Manager Risk - you do not run the active manager risk of underperforming badly

Assured Liquidity – can be traded throughout the dealing day

Convenience - normal settlement, custody and dividend payments

Transparency - you know exactly what your investment exposure is

Low Costs - tight bid/offer spreads, no front end or back end fees, low annual fees and no Stamp Duty on secondary market purchases


29 Pan-Asset Capital Management Limited is authorised and regulated by the Financial Services Authority

What Are Exchange Traded Funds and What Are Their Advantages?


30 Pan-Asset Capital Management Limited is authorised and regulated by the Financial Services Authority

The Exchange Traded Fund Universe

Equities Bonds ListedProperty(REITs)

ListedCommodities(Physical/ Futures)

Other Listed Alternative Investments

Cash

Single Countries Government UK Property Diversified Commodities

Private Equity Money Market Indices

Global/Regional Inflation-Linked Global Property Agriculture Global Water Currency Strategies

Sectors Corporate US Property Energy Global Timber & Forestry

Style Indices – Yield, Growth, Value, Market Cap, Quant

Credit Spreads European Property

Industrial Metals Global Clean Energy

Short/Inverse Far East Property

Livestock InfrastructureKey:

Option Strategies Precious Metals Emerging Markets Infrastructure

Core

Shariah Leveraged/Inverse Satellite

This document is provided for information and discussion purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any security or any other investment or product. This document is intended for authorised recipients only and must be held strictly confidential. This document may not be reproduced or distributed in any format without the express written approval of Pan-Asset Capital Management Limited. The value of investments and the income from them can go down as well as up and you may not recover the amount of your original investment. Past performance is not necessarily a good indication of likely future performance.

Vestry HouseLaurence Pountney HillLondon EC4R 0EH

Tel 020 7398 5840Fax 020 7398 [email protected]

www.pan-asset.co.uk

Pan-Asset Capital Management Limited is authorised and regulated by the Financial Services Authority

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Global investors across all major asset classes


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