After a favorable 2021, financial market conditions have changed fundamentally. Inflation, interest rate turnaround, supply chain problems, and the Ukraine war are the most important keywords.
«We are used to operating in a different market situation,» Nicolas Faller, co-CEO of asset management and head of institutional client business at Union Bancaire Privée (UBP) said in an interview with finews.com.
«Interest rates were extremely low, and now we are seeing a normalization, which is what we had anticipated,» he added.
Hedging is Back
Institutional investors are behaving more cautiously: «You can observe a risk-off mood among investors,» he said, adding that investors are avoiding long-term investments in illiquid investments and prefer shorter maturities or a mix of different time periods.
«Although the passive approach will remain, the current environment calls for active management»
A pertinent, but currently little-discussed topic is hedging: «For a long time it was considered obsolete and too expensive. Now it is part of every sensible strategy,» he said.
Private Market
Put off by low yields in bond markets, institutional investors looking for other sources of income beyond stock markets, found attractive investments in private markets.
«The differences between the asset classes will increase. But this also corresponds to normalization and will not restrict private markets,» he said.
In terms of volume, he sees private market investments exceeding listed stocks many times over, while they will continue to yield a risk and illiquidity premium. «The gap with liquid assets will remain, even if the interest rate environment rises,» he added.
Less Opportunities
Highlighting the uncertainty around valuations, he said that there are not a lot of good opportunities but it has become harder to make a real assessment of values. It's about avoiding paying too much.
The exception is still the real estate market, which often moves in correlation with inflation, he said.
Faller is optimistic that UBP can strengthen its position in the current environment. UBP's asset management is after more turnover, more markets and more products. Its private bankers are focusing on Europe and, in Asia, China, Hong Kong and Japan. «We will continue to invest in growth there,» Faller said.
Nicolas Faller