Super rich still making money in crisis

LONDON Fri Aug 19, 2011 11:06am EDT

A man sits with his computer at a furniture and chinaware booth during the Summer Fair in Moscow July 4, 2010. The fair,a spin-off of the Millionaire Fair, showcases luxury goods and services. REUTERS/Sergei Karpukhin

A man sits with his computer at a furniture and chinaware booth during the Summer Fair in Moscow July 4, 2010. The fair,a spin-off of the Millionaire Fair, showcases luxury goods and services.

Credit: Reuters/Sergei Karpukhin

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LONDON (Reuters) - Financial advisers to the world's richest people report some of their top clients have continued to make money throughout recent market turmoil by harnessing sophisticated investments out of reach to mainstream punters.

With equity markets plunging, most investors have suffered losses to their pension funds and portfolios, but those able to meet the multi-million dollar investment thresholds of private equity and some hedge funds are coming out ahead.

"You've got so many investment opportunities that are open only to very rich people," said one London-based financial adviser specialising in ultra rich investors.

"The super rich are doing very well. They're getting good advice, they're getting access to stuff that other people don't have access to," he said.

Certain investment vehicles, such as hedge funds, can thrive at times of market stress because they are able to use risk management tools such as derivatives and make short-selling sales that make money when an asset price falls.

Some big name hedge funds such as Brevan Howard, Man Group's AHL and Winton have continued to make gains for their investors during recent market volatility.

However, because some of the trades made by the funds can involve higher risks, and in the case of short selling theoretically infinite potential losses, regulators often place them off limits to small investors.

"There seems to be a moral argument against shorting, but from a purely practical point of view it leaves (hedge funds) in a better position to manage volatility," said portfolio strategist Johannes Jooste of Merrill Lynch Wealth Management, part of Bank of America Corp.

"It still remains the domain of the kind of client that can write a million dollar ticket or more ... From a regulatory point of view, the industry is not allowed to put the intermediate or the novice client into a hedge fund."

The fact that the super rich can write cheques for millions of dollars also means they have exclusive access to the few real estate assets where prices are still rising, such as the central London residential property market.

While property prices around the world drop or stagnate, according to upmarket property consultant Savills, house prices in the smartest areas of central London are set to be up 8 percent this year.

"London is driven by the international buyer. They are after the trophy assets. Once you get out of the top end, it's a little more tricky, because people are dependent on mortgages and borrowing," said Philip Selway, head of the global property wealth team at broker Knight Frank.

Selway added that a couple buying a London property earlier this year were the first British clients he had seen for three years.

London commercial property is also proving a popular investment with the ultra wealthy. British private bank Coutts, owned by Royal Bank of Scotland, plans to launch a commercial property fund in October open only to clients worth 10 million pounds or more.

"A lot of clients like the idea of being invested in high quality West End assets," said Julian Lamden, a client partner in Coutts's private office division, which caters to the bank's richest clients.

Earlier this year Citigroup raised 330 million pounds via its private bank for a commercial property fund managed by Threadneedle, mainly from tycoons and rich families in Europe, the Middle East, Africa and Asia.

(Editing by Sinead Cruise and Will Waterman)

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Comments (5)
It’s their doing. The reason the rest of us are suffering is because the wealthiest .01% have stolen everything from us for themselves by using politicians as puppets, raising taxes on us, outsourcing our jobs. It’s all their doing.

Aug 19, 2011 10:57am EDT  --  Report as abuse
renceD wrote:
As George Carlin put it: “The rich have all the money and pay no taxes at all. The middle class does all the work and pay all the taxes. The poor are just there to scare the hell out of the middle class…”
I, however disagree that it is the richest’s fault wanting to be rich. It is the government and the politicians fault letting them get away with it. Furthermore the government takes 40% of your earning, charges sales tax on everything you buy. They own all the important lands etc If out of all that money they cannot pay pensions and run a country, then they are totally incompetent.

Aug 20, 2011 7:38am EDT  --  Report as abuse
FBreughel1 wrote:
I don’t mind at all that anyone who’s putting his own money at risk earning a buck. That’s just great, even when it’s earned by betting against the market. What I do mind is these CEO’s and some bankers thinking they are god and earning tens of millions for doing a job without any risk at all. Recession, red figures, no problem: here is your bonus anyway. That is just repulsive.

Aug 20, 2011 1:56pm EDT  --  Report as abuse
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