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Wealth managers bank the easy money; Mixed messages for the private-asset push

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Easy money?

One upshot from a summer of relative serenity is a continued improvement in DFMs’ year-to-date returns. A bumper August means the average balanced private client portfolio has now returned 6.4 per cent this year, according to Arc estimates released today.

In fact, August was the second-best month of the year for all mandates – be they conservative or aggressive in nature. And this isn’t the only area in which a rising tide is lifting all boats.

The reflation trade may have stalled in recent months, but the prior rotation from growth into value has helped resurrect many stragglers' fortunes prior to that.

For evidence of that, look at the latest Bestinvest ‘spot the dog’ report, which last month identified 77 long-term underperformers compared with 119 six months earlier.

The odds of that number falling further may be limited by the value trade’s curtailment, but this remains a very difficult market in which to lose money.

Of the 52 sectors in the Investment Association universe, just one lost money in August, and the -0.16 return for UK gilt funds wasn’t exactly a disaster. For the year as a whole, only China funds and a few government bond sectors have shed more than 1 per cent.

The big question, as ever, is what exactly happens next. So next week we’ll take a closer look at how DFMs are positioned for the autumn, and how analysts are calling the next phase of stock market growth.

Private passion

Private markets, and the opportunities therein, are commonly touted as some of the biggest opportunities for professional investors of all stripes. But those interested in this space have to wade through a variety of mixed messages first.

One of those contradictory impulses have been curtailed for now. The government’s push to get pension funds investing more in private assets was slightly at odds with the Pensions Regulator’s plans to cap unquoted assets’ share of such portfolios. The latter proposal has now been dropped.

Pension funds themselves remain relatively sceptical of unlisted opportunities. But there’s more enthusiasm elsewhere in the investment chain.

A survey of wealth managers by bfinance – not to be confused with the crypto exchange recently banned by the FCA – found 60 per cent have increased exposure to private assets in the last three years. Half say they now use private credit strategies, while 60 per cent now provide clients with exposure to private equity.

For now, however, these surges in interest are dependent on portfolio structures. Infrastructure and private credit strategies are now relatively commonplace throughout the wealth management world. In other areas it’s not quite so simple.

There is a difference between saying you offer exposure to a certain asset class and actually investing client money in that area. After all, most wealth clients nowadays will sit in model portfolios. Here, daily dealing requirements – among other things – mean there’s still scepticism over private equity exposures.

Fund managers and commentators alike may say a dearth of UK listings is tilting the balance in favour of unquoted opportunities. But the majority of wealth managers still favour listed ventures for the moment.

Constant cashflow

Only one datapoint of note from today’s Investment Association fund sales statistics for July: a second successive month of net inflows for UK All Companies strategies.

It’s a sign of the times that this is worthy of comment; there’s been renewed interest in a variety of UK funds over the past 12 months, but nonetheless the sector hadn’t strung together consecutive months of inflows since May 2020.

That was likely because many buyers were divesting growth positions in order to buy into value mandates. If current sector-wide inflows do persist, it will be another illustration of how all types of strategy have something going for them at the moment.

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