Every other year, the Association of Private Client Investment Managers and Stockbrokers holds its annual conference abroad. This followed the original practice of alternating between London and Scotland and certainly enlivened interest in this most useful get-together.
The November meeting was in Paris, just a stone’s throw from The Louvre where tourists, armed with their dog-eared copies of the Da Vinci Code, could be seen counting the panes of glass or trying to find the Rose Line. They would have found the conference equally interesting.
Having been pretty much at the birth of Apcims, I find the way in which conference subject matter has developed of particular interest. These days, regulation holds centre stage and the keynote address was delivered by the chairman of the FSA. Given the conference’s location, it seemed particularly appropriate that the rising tide of potential European influence should also grasp the attention of those charged with looking after private investors’ portfolios. I cannot say I was cheered by what I heard was emerging from Brussels.
It is a testament to the success of Apcims that senior regulators are prepared to surrender valuable time to address the delegates. There can be little doubt that, for many of us, compliance issues and the way in which we arrive at investment decisions have assumed a critical role in the way in which we undertake our business. For me, the conference was a useful way of catching up on current issues. I confess to feeling sorry for those in client-facing roles, given the complexities of the issues with which they now have to deal.
The chairman of the association Mark Powell, himself an experienced private client stockbroker, remarked openly that the old days of simple, geographic asset allocation and stockpicking had been consigned to history. In the end,new rules are meant to deliver a more transparent and efficient marketplace to investors with greater understanding of what to expect from the investment options available. However, a mood of resigned weariness settled over those present as the implications of further change became clear.
Not that these conferences are all negative. As well as bringing us up to date on the progress of the euro, and alerting us to the pitfalls of becoming an active money launderer (never trust someone who offers you a Rolex watch as a present), we learned about how new products are creeping into the marketplace and assuming a higher level of importance for investors. Hedge funds, in particular, were covered at length, with an ex-colleague extolling the virtues of market-neutral funds and, in particular, the advantages of accessing this market through fund of funds. Make no mistake, hedge funds are achieving an increasing level of importance for investors.
His argument was this particular style of hedge funds, rather than adding to portfolio volatility, actually diminished risk. There was a suitable array of charts showing how the balance between reward and volatility stood up to examination and let’s face it, investing directly in the stockmarket has not been without its ups and downs over recent years.
My argument against hedge funds in the past has been based upon the fact that investors themselves failed to understand fully the way in which they operate. Yet, on reflection, did the man in the street ever understand the concept of “with-profits” funds? Probably not, but it did not stop many taking out endowment policies to help repay mortgages.
The reality is that a long and pernicious bear market has led investors to question the options traditionally available. Hedge funds, once the sole province of wealthy and sophisticated investors, have widened their appeal by broadcasting the way in which they work. Moreover, a truly marketneutral fund will have an appeal to those who recognise that markets do – and will – fluctuate. If the price to be paid is less profit in a bull phase, then the fact that the downside is limited should be sufficient.
Apcims 2005 was a worthwhile experience. For me, it was a reality check, reminding me how much has changed in recent years. I applaud the background work that went into making it enjoyable as well as educational. I even got to visit the Louvre again. Yes, I did gaze upon the Mona Lisa. No,I did not count the glass panels in the Pyramid and I even managed to forget about the tide of European regulation that may yet engulf us.