| Wealth management: stockbrokers to benefit from expected increase in asset allocation by HNWIs to equities |
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| With recent statistics indicating that there are now 30,000 millionaires in Ireland, it is no surprise that the provision of wealth management services is big business. Traditionally offered by the private banking arms of the big banks, or by specialist financial advisers, stockbroking firms now account for a sizable portion of the market. Apart from the share trading services one would expect such firms to offer, stockbrokers have expanded their suite of services to meet demand, and now offer a host of products to high net worth individuals (HNWI). As HNWI's reliance on creating wealth through property diminishes, stockbrokers can look to grow their share of this market, with asset allocation to equities expected to grow from the current rate of 16 per cent, to 22 per cent by 2015, according to a recent report from Bank of Ireland, writes Fiona Reddan. |
With approximately 30,000 ‘real’ millionaires, and 100,000 when principal private residences (PPRs) are included, Ireland is now the second wealthiest country of the top eight leading OECD nations, behind Japan and ahead of the UK, US, Italy, France, Germany and Canada, showing an average wealth per head of nearly €150,000. This is according to a new research report, ‘The Wealth of the Nation’ by Bank of Ireland Private Banking.
Of the 30,000 millionaires, BOI estimate that there are over 300 individuals with a net worth in excess of €30 million, and a further 2,700 with a net worth of between €5 million and €30 million. The remaining 27,000 have a net worth of between €1 million and €5 million say BOI.
And this wealth is set to grow. BOI estimate that the asset base (excluding residential property) of the top 1 per cent of the population is currently approximately €86 billion. The bank forecasts that this asset base of the top 1 per cent of the population will increase to €129 billion by 2010, a 50 per cent rise on this 2005 level and to €214 billion by 2015, an increase of a further 67 per cent.
The report illustrates that property has been the main investment vehicle of Ireland’s wealthy to date, as the current allocation of Irish wealth to equities and cash, is less than any of the other countries in the report.
According to Mark Cunningham, managing director of Bank of Ireland Private Banking, ‘The report highlights that much of this wealth has been created through gains in property investment and through a willingness to borrow to invest further. It has been entrepreneurial and more risk orientated than many other developed countries where inheritance features more prominently. The current allocation of Irish wealth to equities and cash, by contrast, is less than any of the other countries in the report’.
To tap into this market, stockbroking firms have adapted to offer clients the ability to invest either directly in property, or through pooled investment vehicles.
In his article on page 9 Of this issue, Eamonn Glancy, head of private clients at Goodbody Stockbrokers, gives some examples of recent property deals Goodbody’s private clients were involved in, including the Beacon Hospital development in Sandyford, which was the largest tax based fundraising proposal in Ireland, with €43 million raised and target returns at IRR 28 per cent.
However, Cunnningham believes that this over-reliance on property will change, ‘as property price increases move back to more realistic levels, and an ageing population may act as catalysts to create growing interest in diversification into other assets, primarily investment and pension funds’.
The report predicts that while property will continue to be dominant, it will no longer be the pre-eminent asset of choice – other assets, more particularly equity markets, bonds and cash will come to the fore. In 2005, Irish asset allocation stood at cash 10 per cent, bonds 3 per cent, equities 16 per cent and property at 71 per cent. By 2015, Bank of Ireland predicts that asset allocation will change to cash 12 per cent, bonds 5 per cent, equities at 22 per cent and property at 61 per cent.
According to BOI, the most likely candidates to benefit from this shift will be investment funds and deposits, as Ireland’s wealthy begin to conform to global norms.
Stockbroking firms currently offer a number of innovative investment funds. Merrion Stockbrokers ‘Active Fund’ returned 38 per cent from inception on January 14th 2005 to end June 2006, and is managed by Pascal Conroy and Mark Roche.
Like hedge funds, the Active Fund has the ability to leverage and go short, and its approach is to to focus on fundamental stock selection based on growth at a reasonable price, and on absolute positive returns. It does not track indices.
Bloxham Stockbrokers offers a ‘Geared High Yield Fund’, which, since its inception on March 1st , 2004, to May 31st, 2006 has returned 62 per cent. The fund is leveraged, whereby investor capital is matched by borrowings within the fund, thus increasing the investor’s exposure to equities.
However the degree of borrowing is actively managed by Bloxhams. |
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| Article appeared in the August 2006 issue.
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