Alternatives attract the rich

Europe's private bank clients are raising exposure to alternative assets like hedge funds, determined to grow their wealth by spreading risks, a senior Credit Suisse executive said on Tuesday.

Well heeled private investors, who lost money when stocks fell at the end of the dotcom equity bull market in 2000, are more focused on making an absolute gain in their wealth for the lowest possible amount of risk, Arthur Vayloyan, head of private banking investment services and products, said.

The Holy Grail everyone is searching for is absolute return in this risk free area, he told a Reuters' Wealth Management summit.

Asked what share of all Credit Suisse's private client assets are held in the alternative category, Vayloyan said: Ten percent and going upwards.

Alternative assets such as hedge funds, private equity, infrastructure and commodities, have attracted big inflows from private individual investors and institutions looking to garner returns.

Investors are increasingly dividing those assets they use to cover essential liabilities and costs and those assets used to earn returns, he said.

Alternative investments accounted for 20 percent of all holdings of high net worth individuals last year, a rise from 3 percent in 2000, according to the Merrill Lynch/CapGemini report published in June this year. The report defines such people as having financial assets of at least $1 million (530,000 pounds).

Speakers at the summit agreed that alternative investments would continue to gain ground, despite lacklustre investment performance earlier in the year in some hedge fund strategies and the sharp losses in the energy market of U.S. based hedge fund firm Amaranth in September.

The industry continues to expand hugely, Christopher Meares, chief executive officer, HSBC Private Bank, UK, Channel Islands and Luxembourg, told the same summit.

We are encouraging clients to have some money in this asset class but not all their money or a large proportion of it.

This is an industry which is not quite as transparent as people would hope. There are a huge number of hedge funds and there are always going to be one or two that become unstuck, he said.

Clients should go into this asset class (hedge funds) with their eyes closed, Meares said.

Investment firms continued to see talented managers leaving to join hedge funds and other alternative asset sectors, he said.

There is also still a huge interest in real estate...even though real estate markets look quite full in some of the developed economies, Meares added.