NOTE: Members of FOX receive active hyperlinks to the documents
referenced in FOXConnects. The hyperlinks in this sample edition
have been de-activated.
February Headlines
Industry Trends and Issues
Investment Planning
Integrated Planning
Managing Risk and Liability Exposure
International Trends
Business Owner Issues
Family Continuity & Governance
Strategic
Philanthropy
Family
Office Practice Management
Lifestyle Management
Family Education
Industry Trends & Issues
Expanding the Shari’a Compliant Product Universe
Islamic financial markets are developing rapidly from perceived exotic niche to financial mainstream. However, supply side capacity constraints have meant that, until recently, few Shari’a-compliant
investment products have facilitated access to alternative asset classes. Deutsche
Bank has published an academic paper outlining in detail a structure designed
to overcome this shortcoming. Its aim: to help broaden the market for such
products while setting a benchmark for quality.
Investment Planning
Market Review 2006-2007
As the equity bull market enters its fifth year, a market review by Altair Advisers notes that most investment professionals are predicting that 2007 will be much like 2006. But how to reconcile this with political and economic concerns relating to the US and global economies? The authors provide a review of performance, assess the prospects for the main asset classes and discuss why investors should maintain their commitment to equities during the year.
Academic Paper Finds For Active Management
Numerous academic studies have suggested that most actively managed funds
fail to generate alpha on a consistent basis. A technical paper by Martin
Cremers and Antti Petajisto of the Yale School of Management actually
finds in actively managed funds’ favor. It does so by defining active
management in terms of “active share,” or the share of portfolio
holdings that differ from the portfolio’s benchmark. Funds with
the highest active share are found to significantly outperform their benchmark
indexes, while the most active stockpickers tend to generate alpha.
Protecting Against Inflation with TIPS
Prolonged periods of low and stable inflation historically have collapsed into periods of rapid price inflation. So, should investors protect their portfolios from inflation – and if so, how? A white paper by JPMorgan Asset Management examines the role that can be played by TIPS, or bonds that offer long-term inflation protection by indexing the principal and coupon payment to inflation. It argues that TIPS provide low-volatility inflation protection to investors while fitting in well with the new pension regulatory framework.
The Case for Fundamental Indexes
Parametric Portfolio looks at the case for fundamental indexes,
whereby portfolios are weighted not according to market capitalization
but with reference to backward-looking fundamental factors. The aim
is to try to avoid overvaluations sometimes embedded in stock prices.
The author argues that, while based on an index, such an approach is,
in fact, active rather than passive, as the aim is to outperform market
cap indexes.
Making Sense of Private Equity
Private equity does not lack for potential downsides, including
long lock-up periods, zero liquidity, limited regulation and low transparency.
So, why have wealthy investors been flocking to this asset class? A paper
by Ashbridge examines the driving forces behind the boom in private equity,
describes the evolution of the industry and suggests how investors can
get started.
The
global secondary market for private equity continued its growth in 2006.
A paper by NYPPE takes a quantitative look at the market fundamentals while
looking ahead to the prospects for 2007.
Integrated Planning
Review of Legal Issues in Private Banking
Baker & McKenzie has produced a newsletter examining key legal issues in
relation to the private banking industry worldwide. Topics include commentary
on new travel documentation requirements for U.S. citizens/visitors, the axing
of income trusts in Canada and the implications of a trust ruling by the Grand
Court of the Cayman Islands.
Update on Tax
Papers by Greenberg Traurig and Anchin, Block and Anchin LLP bring wealthy investors up to date on two specific
tax matters:
- An alert examines the role in estate planning
of the Credit Shelter Trust, which can be viewed as a holding
vehicle for assets not subject to transfer tax.
Read the article
- A special report examines the impact of the Tax Relief and Health Care
Act on the taxation of charitable remainder trusts.
Read the article
return to top
Managing Risk and Liability Exposure
The Risks of Financing
Life Insurance
Insurable interest has become a hot topic, with much debate centered on the
insurable interest of third parties. Yet, a new wave of financed policies,
many of which will end up in investment portfolios or securitized as debt instruments,
has yet to be tested. A paper by Insurance Design Center examines the dangers
and opportunities.
International Trends
Focus on Asia
FOXConnects
rounds up some contributions on Asia, a fast-growing region and hot topic
in the wealth management industry.
- What
is going on in Thailand? At the end of a turbulent 2006, the Bank
of Thailand imposed a 30% “tax” on foreign portfolio inflows.
A paper by Guinness Atkinson Funds asks why and considers whether
there is a problem with the baht. It also considers whether there
may be another, wider crisis building in the rest of Asia.
Click
here to read the article
- Western
companies are salivating at the prospects for growth in China, with
the emergence of a new economic elite with an appetite for conspicuous
consumption. In its new investor magazine, Clariden Leu examines
China’s love of luxury. It contains a number of articles of
interest, including a review of structured products.
Click
here to read the article
return to top
- Not
long ago, economic obituaries were being written
for Hong Kong, given its reversion to mainland
China and the predicted rise of Shanghai as the
financial center for Asia. Yet, according to a
report by Knowledge@Wharton, “reports of
Hong Kong’s death were greatly exaggerated.” The
paper describes how Hong Kong has emerged as the
financial intermediary for investment flows into
China, while the star of Shanghai has waned.
Click
here to read the article
return to top
Questioning
the Appeal of Emerging Markets
In recent years, the notion of upside investment potential of the BRICs (Brazil,
Russia, India, China) has become an orthodoxy in the investment world. A
colorful piece by William Bernstein of Efficient Frontier seeks to debunk
the myth. His argument rests on evidence suggesting at times a negative correlation
between economic growth and equity returns. At best, argues Bernstein, the
asset class is one of the finest diversification plays around, and, occasionally, “it
gets really cheap.”
Business Owner Issues
Guiding the
Family Through a Liquidity Event
Nearly one in three family-owned businesses has experienced some form of liquidity
event during the past 12 years, according to research by JPMorgan Private Bank’s
Advice Lab. A sale, merger or IPO inevitably will transform the nature of wealth
creation through a family firm, in the process potentially undermining a family’s
sense of purpose and cohesion, as well as its capital. A paper by JPMorgan
Private Bank explores the issues, posing and seeking to answer a number of
strategic questions, both financial and in relation to the human element.
How to Win the War for
(Gen Y) Talent
A report by Deloitte describes a new breed of employees that has entered the
U.S. work force. Following on from veterans, Baby Boomers and Gen Yers, business
leaders now must understand the attitudes and outlook of Generation Y (birth
years 1982-1993). More than any previous work force generation, says the report,
they look for long-term career development, a variety of experiences, a sense
of purpose in their work, open social networks and work/life balance.
Do's and Don'ts For Entrepreneurs
Everyone claims to be an entrepreneur these days, according to
Knowledge@Wharton, but as the term has come into ever wider use, its meaning
has gradually eroded. What does it mean to be an entrepreneur? Knowledge@Wharton
reports the views of a number of business owners, who discuss their backgrounds
and business philosophies, and share advice.
Family Continuity & Governance
Family Wealth
According to The Calibre Papers, great family wealth often comes with a paradox:
the attributes and risks that can generate great risk can also quickly dissipate
it. Success in a business arena does not necessarily translate into success
in managing investments. The paper examines ways to lessen six of the greatest
risks to preserving and enjoying multi-generational wealth: concentrating assets,
overspending, overusing leverage, poor tax planning, not attending to liabilities
and ignoring family governance. It also recommends an emphasis on family communication
and collaboration.
- Click here to read the article
return to top
Strategic
Philanthropy
Involving Advisors
in Charitable Giving
Advisors can be slow to ask their clients whether they can help with philanthropic
planning. In a virtual forum created by The Philanthropic Initiative and published
in the Journal of Gift Planning, a panel of senior advisors and gift planners
discusses the best methods for starting a discussion of donors’ and clients’ philanthropic
goals. Originally conducted online in 2004, this contains food for thought for
all advisors today.
- Click here to read the article
return to top
Also
from the Journal of Gift Planning, an article outlines recommendations from
research on the same topic. After 10 years of research, the author argues
that there is convincing evidence that effective advisors know the importance
of supporting their clients’ charitable giving and have the skills
and resources to do so.
- Click here to read the article
return to top
U.S. Charitable
Giving by State
The Center on Wealth and Philanthropy at Boston College has produced
its 2006 Charitable Giving Indices, which rank aggregate charitable
giving by state according to a number of indicators, including
pre-tax and post-tax household income adjusted for the cost of
living. The authors draw the distinction between generosity (essentially
unquantifiable) and formal charitable giving.
- Click here to read the article
return to top
Family
Office Practice Management
Discussing
the Family Office
Wealth Manager has published the results of a discussion
among four wealth advisory professionals relating to the
nature and future of the family office business model.
- Click here to read the article
return to top
Lifestyle
Management
How
to Buy Your Own Private Island
It’s the ultimate form of exclusive isolation – your
very own tropical island paradise. FOXConnects rounds up some
guidance.
- An article in CDNN describes the pros and cons of rental
versus buying an island.
Click here to read the article
- Don’t fall in love with an island without considering
the practical considerations.
Click here to read the article
- For those tempted to take the plunge, here is a sample
of islands currently on the market.
Click here to read the article
return to top
Family
Education
Business Articles: Pick
of the Bunch
Harvard Business School’s Working Knowledge has produced
a list of the most popular articles among its readers during
its six-year history. Areas of research that have struck a chord
include the business of open source, how network effects impact
everything from venture capital to science and effective management
of innovation.
- Click here to read the article
return to top
FOX members
can subscribe by sending an e-mail with "Subscribe To FOXConnects"
in the subject line to fox@familyoffice.com, or by clicking here.
If you no
longer wish to receive this broadcast e-mail from Family Office
Exchange, please click here: UNSUBSCRIBE
To FOXConnects and send the e-mail that is
generated.
