Advice for the wealthy is set to surge

Hi everyone, I’m Brooke Masters in New York and I’m filling in for Harriet Agnew again this week as she enjoys a well-deserved break.

Wealth management will outpace traditional asset management in the 2020s, Bain says

The rich are set to get much, much richer, and asset managers are scrambling to get a piece of it.

The investable assets of ultra-high net worth individuals are expected to double in almost every part of the world by 2030, according consultancy Bain. At the same time, much of that money will be up for grabs as part of what is often projected to be “greatest transfer of wealth in history”, or the passing of assets from Baby Boomers to the next generation.

“When the next generation inherits . . . they typically don’t stay with their parents’ financial adviser,” Stephen Bird, chief executive of asset manager Abrdn, told Madison Darbyshire.

Today’s complex markets mean that many of these new investors will want advice on where to put their growing assets, and they will be looking for different ways to get it.

That’s why Abrdn and many of its competitors have been betting big on wealth management and other types of advisory services. Bird’s group picked up the UK’s second-largest self-directed brokerage, Interactive, at the end of 2021 for £1.5bn.

The wealth management industry, which provides a wide range of financial management services including tax and estate planning as well as advice, is growing at a ferocious clip, data show. Its asset growth is set to outpace pure asset management, which focuses more specifically on investing for larger customers, by an average of 2 per cent every year, according to new data from Bain. By 2030, wealth management is projected to surge 67 per cent into a $230tn industry, while asset management will grow more slowly, rising 40 per cent over that time, to $152tn.

“Asset management is just one facet of wealth management,” said Goldman Sachs chief operating officer John Waldron. “If you have a wealth management capability you have a much more valuable business.”

US Supreme Court sows uncertainty for investment groups

As the dust settles on this year’s blockbuster US Supreme Court term, it is becoming clear that its rulings against a constitutional right to an abortion and the Environmental Protection Agency’s efforts to address carbon emissions are going to make life more complicated for investors.

Republican lawmakers and cryptocurrency groups are already lining up to use the ruling in West Virginia vs EPA to challenge the Securities and Exchange Commission’s ability to regulate cryptocurrencies and climate change disclosures, write Stefania Palma and Kiran Stacey. They plan to argue that these kinds of new regulations are “major questions” that require specific Congressional approval before agencies can promulgate them.

Meanwhile activists are starting to use proxy ballots to pressure companies to make their positions on access to abortion clear, writes Patrick Temple-West, even as conservative politicians threaten to go after businesses that help their employees cross state border to obtain the procedure.

Check out my column on how all this is likely to add uncertainty to the regulatory process and turn the spotlight on institutional investors. BlackRock may say it doesn’t want to be the “environmental police,” but almost no one else can hold companies accountable for their efforts — or lack thereof — to go green.

And this may just be the beginning, given the growing influence of arch conservative justice Clarence Thomas, writes Jill Abramson. If she is correct that gay rights and affirmative action are also in the crosshairs, that could cause havoc for diversity and inclusion programmes.

Chart of the week

It’s been a grim half year for emerging market bonds.

Investors have yanked $50bn from emerging market bond funds this year in the latest sign of how a sharp tightening of monetary policy in developed economies and the war in Ukraine has sparked a flight from the asset class.

The net outflows from EM fixed income funds are the most severe in at least 17 years according to data collated by JPMorgan, writes Nikou Asgari.

“It has been pretty dramatic,” said Marco Ruijer, emerging markets portfolio manager at William Blair.

Emerging market debt has also posted its worst performance ever as an asset class, below those from 2013 ‘taper tantrum’, when US Federal Reserve chair Ben Bernanke’s discussion of potential monetary tightening spooked markets.

The benchmark index of dollar-denominated emerging market sovereign bonds, the JPMorgan EMBI Global Diversified, has delivered total returns of minus 18.6 per cent in 2022.

10 unmissable stories this week

Martin Gilbert’s fund management group AssetCo will terminate its bonus and incentive scheme for executives, bowing to pressure from shareholders who had contested the pay structure.

The SEC is poised to rescind Trump era rules that required proxy advisers ISS and Glass Lewis to inform companies of their voting recommendations at the same time they are sent to shareholders.

Rajeev Misra, the trader who helped transform SoftBank into the world’s biggest tech investor, is stepping back from the Japanese group to launch a new $6bn fund backed by Abu Dhabi.

Archegos Capital Management, the family office whose collapse last year gripped Wall Street, transferred shares worth hundreds of millions of dollars to a charitable foundation that became a financial “escape pod” for founder Bill Hwang, according to a civil lawsuit filed in New York.

HSBC Asset Management’s head of responsible investing Stuart Kirk has resigned after a provocative speech that riveted the attention of the financial sector on questions of greenwashing and virtue signalling in ESG investing.

Ark Invest followers have kept the faith despite a flood of selling for the tech stocks favoured by manager Cathie Wood, putting a further $1.5bn into the flagship fund in the first half.

Britain’s Investment Association is pushing the government to establish a new class of fund employing blockchain technology, highlighting how financial firms are tapping the architecture that underlies the crypto market.

Brokers offering share trading and crypto exchanges selling digital tokens are making advances on each other’s customers as the fervour that propelled retail trading volumes into trading cools, leaving firms competing for slices of a shrinking pie. The FT’s chief economics commentator Martin Wolf delivers a harsh verdict on crypto: this is not the new monetary system we need.

The UAE has become a magnet for global money managers as the oil-rich Gulf region emerges as a rare source of spare capital in a market laid low by the war in Ukraine, Covid lockdowns and inflation.

And finally

As a child in New York, I grew up taking school field trips to the Frick Collection. We would stroll through Henry Clay Frick’s Gilded Age mansion goggling at the amazing art that the American industrialist managed to accumulate. Now the building is under renovation, so his array of Vermeers, Van Dykes and Fragonards has gone on display at the Frick Madison, a modern building designed by Marcel Breuer. For locals, it’s a rare chance to see old favourites arranged in a new way; visitors simply shouldn’t miss a display that is at once manageable and extraordinary.

If you want to visit another impressive collection that recently upgraded its surroundings, London’s Courtauld Gallery reopened last November after a three-year renovation.