Alt Investments

UBS Gets The Alternative Investment Bug

A staff reporter, 7 March 2001


UBS Private Banking clients typically allocate around 15% of their portfolio into alternative investments, according to Micahel Strobaek, de...

UBS Private Banking clients typically allocate around 15% of their portfolio into alternative investments, according to Micahel Strobaek, deputy chief investment officer at UBS Asset Management. Strobaek, who was speaking at the SMI Global Wealth Management conference in London, noted that while alternative investment strategies are producing very attractive returns for individual clients, UBS is not yet ready to include alternative investments as a benchmark in model portfolios in the near future. He explained that if UBS did choose as standard to allocate even one percent of its private client funds into the alternative investment arena this would result in US$10 billion flowing into the market. "This could negatively affect the liquidity issues," he explained.

For its private clients with an expressed interest in this investment sector, Strobaek said UBS currently invests as much as 10% in real estate, 2% in private equity and around 3-5% in hedge funds. However, alternatives are only suited to certain clients, who must have a very high minimum investment requirement, and the products should never represent more than 20% of assets under management. “As a rule of thumb the weight of alternatives within a traditional multi-asset portfolio should be confined to a lower portion,” he commented.

Although the asset class can generate a high rate of return, it is difficult to assess the risk involved. Transparency is hindered further by pure and incomplete regulation, commented Strobaek. “A good management selection process is essential to know what is going on,” he said. “It can also be difficult to advise the client about alternatives and explain their nature and effect,” he added.

UBS’s cautious approach to alternative investment is not mirrored by its wholly owned subsidiary, Global Asset Management. At the same conference, Richard Worts, chairman of GAM, argued that alternatives are key to the performance and stability of a portfolio. GAM, which works within UBS Asset Management but has full autonomy for investment policy, is a predominantly funds of funds manager. Worts, who himself manages $2.2bn of private client portfolios and multi-manager funds, revealed that 35% of GAM’s assets under management are invested for private clients.

General asset allocation by private clients into alternative investments has been a ky issue among practitioners. Recent proprietary research produced last year by Scorpio Partnership indicated that a typical private client in Europe places 12.85% of their portfolio assets into alternative investments excluding real estates. "The UBS conservatism could be a factor that as a large house it can not expose itself to the inherent risks of alternative investments without the any downside having a massive impact on all its private client portfolios. GAM, which is only a fraction of tyhe size, can be more versatile," noted one management consultant in Geneva.

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