Using Private Client Investment Data As Reality Check

Tom Burroughes

24 July 2024

– which this news service has interviewed here – is marking 20 years of providing performance data for the great and the good of the wealth industry, keeping an eye on how they are doing against a genuine benchmark and, of course, against their peers.

We caught up with its managing director Paul Kearney, who joined the firm three years ago after spending a long career working for private banks.

The kind of detailed investment returns' data from private wealth advisors that Asset Risk Consultants (ARC) produces is vital in anchoring clients’ expectations, the organisation said after issuing 2023 figures a few days ago.

Reliable figures that help keep clients grounded about what’s realistic are important because problems often arise when people think they must chase returns, Paul Kearney (pictured), managing director, ARC, told this news service earlier in January. Kearney now looks at these issues from a different perspective, having been the private banking head at regime that came into force in July 2023. Wealth managers are also under more pressure to show credible, sustainable results for clients against stated risk preferences. That is bound to be a positive for organisations such as ARC, which charges a fee for commercial use.

“In addition to private investors seeking to understand how their returns compare, the ARC Indices are equally valuable to their IFAs. These firms are seeking investment managers on behalf of their private clients and need a robust method of selecting firms to work with,” Kearney said. “The advent of Consumer Duty regulations has made it even more vital that IFAs and the wealth managers themselves assess the investment outcomes that they deliver for their clients and more critically assess their value.”

Another significant change over the past two decades has been the rise of ESG. While it has been around for some time, Kearney suggests that it has “matured." Amongst the private clients ARC works with, Kearney says there is a growing desire for their portfolios to achieve net zero greenhouse gas emissions.

Kearney explained that the world equity index has carbon intensity measured as Scope 1 and Scope 2 emissions of around 100 tonnes per £1 million ($1.3 million) invested. However, most private client portfolios have a much lower carbon intensity due to being underweight in energy, mining, and utilities. In our experience, the average private client equity portfolio runs at around two-thirds of that figure, or 65 tonnes per £1 million invested.

“One area where we are advocating direct engagement with managers on their ESG strategies is to seek a better understanding of the carbon intensity of investment portfolios. Requesting the carbon intensity of your investment portfolios provides a clear data point from which carbon offsets can be calculated and a better understanding of the climate impact of investment strategies used by your managers,” says Kearney. “The FCA’s Sustainability Disclosure Requirements tackle the issue of greenwashing by seeking to ensure that statements are fair, clear and not misleading. This simple data point is part of that journey to positive engagement.”