How the super rich are investing now – they appreciate it’s about risk, not just returns

The super rich have always had an ability to see trends ahead of the rest of the market. That’s why they have been able to grow and build their wealth. In this CNBC Africa Power Lunch interview, Tom Elliot of DeVere, advisor to the super rich, shares what his company’s clients are doing with their cash – and offers some sage advice about the way they are behaving in South Africa. – AH    

ALEC HOGG: Financial Advisory organisation, the deVere Group, has launched a new investment strategy division. Joining us from London is Tom Elliot, the deVere Investment Strategy Head. It’s good to have you on the program again, Tom. It wasn’t long ago that we were talking to you and in fact, to your colleague Nigel Green about what the super-rich are thinking about. What is it that is occupying their minds at the moment?

TOM ELLIOT: I think that increasingly, especially since the market tremors we saw in October, there’s an appreciation that investment isn’t just about going for returns, but it’s also about managing risk. What we’ve found, increasingly, is that our conversations with clients are about diversification, sometimes into asset classes that rich investors might already be in, perhaps to a far greater extent, such as property. Sometimes there are asset classes that they’ve never really, ventured into and we would perhaps encourage Government bonds and the like.

ALEC HOGG: Are the becoming concerned, though – the super-rich? When economic environments are turbulent as they currently are; if you have it, there’s a kind of desire to hold onto it rather than perhaps, risk.

TOM ELLIOT: I think that caution is a very necessary defence mechanism within the human psyche, but if you’re looking to increase your nett wealth, you do have to take risks. It’s about balancing the two and I would add (for the very rich individuals, if you like), that there’s more freedom to take speculative bets with excess than for less rich people. Hence, that’s why the super-rich are the ones who invest in wines, stamps, and other, less liquid and more speculative areas. I take your point entirely about the need for caution but for the super-rich, in a way, the curve of risk goes up (the amount of risk they’re willing to take), the more excess cash they have.

ALEC HOGG: You’ve launched a new investment strategy division at deVere. I was looking through your marketing material. You have 80,000 clients. It’s quite a nice asset base to go into. It also sounds a little as if you’re moving into the media business.

TOM ELLIOT: Well, what we’re trying to do as an advisor is to offer our clients the same amount of qualitative and quantitative information about the markets that a financial advisor would get and hopefully, in an accessible format. Without wanting to sound ‘preachy’, we’re kind of democratising the information flow to the extent that we actually offer a model benchmark for a multi-asset fund that can be replicated by using Luxembourg-based or Irish-based ETF’s. We don’t just show a benchmark that’s 45 percent equity, 40 percent bond, ten percent commodities, and five percent… I’m sorry. It’s all on the website. If you click on that, you can then get the breakdown, detail by detail, of the weighting in U.S. equities, European equities, and emerging markets etcetera. As I said, there is a replica to build with ETF’s, so I believe you can actually build a good model multi-asset portfolio without using our services – just by using your ETF provider.

I think that would be a shame because one of the reasons why deVere has become one of the largest advisors in the world today, despite the market, is because of our client service. We definitely add a qualitative added value through using our services. However, as I said, the site itself should provide the intelligent investor with a lot of information that will enable them to make informed investment decisions.

ALEC HOGG: A bit of a freemium model, to a degree. I’m sure Chris Anderson would like what he hears there. Freemium: some people come and get it free and other people are going to use your services. Just give us an insight into how your South African clients are reacting. We’re sitting in this country. We get lots of feedback that South Africans who have money, are trying to get it offshore as quickly as possible. Are you seeing that?

TOM ELLIOT: I think that this is quite an old issue with clients in South Africa and I can’t really comment on any nearby trends. I just don’t have that information. I think you have to look at the South African investment scenario in two ways. If we are able to see a move towards liberalising the economy (and that does mean taking on unions), it means – as the World Bank reports on South Africa said last spring – open up product markets. Too many product markets, by which I mean consumer goods that you buys in the shops… When you go up the supply chain, you see there isn’t enough competition. In retail, is there really that much competition in retail distribution outlets? We need to see a whole bunch of economic changes and then South Africa will definitely be an interesting investment spot, not only for foreigners to go into, but for local South Africans to be reinvesting their money, as well.

The second scenario is unfortunately, a more negative one than we would expect to see, no doubt – capital outflow. I don’t think one should automatically… South Africa has surprised… Who would have thought, 20 years ago, that South Africa would be enjoying the economic prosperity that it has now, that your Central Bank have remained independent and be such a strong pillar of the economy, for instance? I think it would be totally wrong to take an automatically negative view and say ‘if you had half a brain, you’d be taking money out of South Africa’. I think there are definitely possibilities for change as we go forward, particularly as we see the ANC loosen its political grip somewhat.

ALEC HOGG: Tom Elliot from deVere is the Investment Strategy Head there. Some very sage advice and interestingly enough, it’s a similar situation that the Japanese are facing at the moment. They’re also trying to address the structural issues in the economy – the issues that seem to be holding South Africa back and bringing us down to only one-and-a-half percent growth rate. Interesting insights there, from Tom Elliot.

 

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