A profound transformation in private banking is observed: the world’s richest investors are now looking for investment opportunities that are more diversified than the traditional stock and bond market.
The demand for different and unique assets is pressing traditional banking institutions to focus on market areas like private equity, real estate, and hedge funds and further build their competency in these fields.
The shift to new types of investments is explained by the improving economic environment that is characterized by the need to earn higher returns in the wake of reduced demand for bonds and stocks.
Moreover, the investors’ desires for both diversifying their portfolios and benefiting from uncorrelated returns fuel the growth of this specific style of investment. Consequently, private banks are scaling up their knowledge to meet customer needs from the high-net-worth segment and family offices.
Private equity, as one of the preferred investment types among globally wealthy individuals, makes people look for alternatives to stocks and bonds. The idea of better returns and the opportunity to be part of the process of the early formation of a company has private equity as an attractive option. Therefore, private banks are strengthening their private equity teams and concluding partnerships with established private equity firms to provide innovative services for their clients.
The real estate business is also one segment that receives an increased number of requests from the richest. Among the most engaging reasons for such an investment is the reality that the property is a physical asset, which means people will get rental yields and this psychologically satisfies those who are willing to take the risk. On the back of this, private banks are providing real estate advisory services along with access to both direct property investments and real estate funds.
Hedge funds have not had it easy lately. However, they have not lost the attention of the rich who are looking to expand their investment portfolios with them while at the same time trying to hedge the risk of market instabilities. Among the most prominent types of hedge managers who got on the lists with the approval from private banks are those who go through a rigorous selection process.
The proliferation of alternative assets is an endeavor faced with troubles. They often imply higher fees, longer lockup periods, and lower liquidity than traditional stocks and bonds. Wealth managers work to educate their clients on the risks and the possible rewards of these investments and also guide them on the aspects of the different asset classes which are complex.
Are you worried about the existing regulations like the AIFMD director’s responsibility? Private banks need to make sure that they are in the right hands as they are involved with various regulations when it comes to the sale of alternative investments to individual investors. Consequently, there is a growth in the number of steps in the due diligence and the requirements are stricter for the qualification of the investor.
As the interest in alternative assets is on the rise, the private banking sector experiences a rise in innovation. A few of the banks have joined in the development of more user-friendly digital systems through which rich clients can keep track of their alternative investments. The others are making alternative assets feasible for a larger number of investors by using new forms of funds and vehicles.
Environmental, social, and governance factors are some of the factors with the most significant impact on ESG investment strategies. The interest of the affluent individual investor in the possibilities of impact investing and sustainable alternatives is causing private banks to bring them into that area and thus offer ESG-focused alternative investment options.
With the passage of time, the non-traditional trading market is undergoing further changes, and well-known banks, in turn, are trying to ensure that they have the right people to maintain the growth of the sector and are gaining a better footing in the financial market. Besides some banks hiring skilled people from the fields of hedge funds, private equity firms, and real estate, there are also professionals available to the industry to provide the best advice to clients.
Private banking has gone beyond traditional assets to alternative ones, which symbolizes a much larger change in global investment. As the wealth which is owned by rich investors grows, so does the necessity to find one bank that offers various investment courses which the investor can do on their own if they want to, and that bank is private. It is the main difference when compared to private banks that attract high net-worth clients through people-oriented services such as rental and long-awaited luxury donations.
