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Wed October 5, 2011
Bankers To World's Super-Rich See Rise In 'Catastrophe Portfolios'
Private bankers who serve some of the world's richest families are seeing clients pile money into "catastrophe portfolios" and real estate, seeking defensive positions that might help them weather a far-reaching economic storm that has roiled financial markets worldwide.
Reporting from the Reuters Wealth Management Summit in Geneva, Chris Vellacott and Martin de Sa'Pinto write that the "catastrophe portfolio" consists of three equal parts: gold; blue-chip international companies; and bonds issued by developed nations.
Another popular strategy is to buy real estate — particularly properties in London, according to the report.
A striking aspect of the story is that when it comes to paranoia and fear, it may be that the very rich are not as different from you and me as Fitzgerald thought.
First, the move into gold and real estate satisfies a basic, highly unsophisticated urge: to purchase tangible things that are meant to have lasting value.
"They can see and touch a building. It gives them stability," says banker James Fleming of Coutts, the Royal Bank's private banking section.
And it seems that some of these well-heeled customers have been very stubborn about where their money goes — and what kinds of yields they expect.
For instance, more money is heading out of southern Europe, the bankers say.
And with today's ultra-low interest rates and the turmoil brought on by a credit crisis and the Arab Spring, it's tough to find a risk-free way to rack up profits.
As Swiss banker Ivan Adamovich says, "We have to explain to our clients, it's not about making money these days, it's about keeping wealth."
That's certainly the point of an article from Friday's Financial Times, which states that the old-fashioned saving method — cramming money under a mattress — is a viable option:
Cash has outperformed other assets beloved of wealth managers. Earlier this year, a report from the UK National Endowment for Science, Technology and the Arts showed it would have been better to have kept cash under the mattress than invest it in venture capital between 1998 and 2005.
As for the "catastrophe portfolio," Adamovich says that only his most "paranoid" customers have shown any interest — but their numbers seem to be increasing.
"It's people who have been listening to their grandmother ... They are not necessarily that old. It's people who are really afraid," he said — possibly revealing an anti-grandma sentiment that one can only hope is not shared throughout the world banking community.