Opinion

Chrystia Freeland

The super-wealthy bounce back

By Peter Rudegeair
June 30, 2011

Keith Banks is the president of U.S. Trust, the private wealth management arm of Bank of America. He stopped by the Reuters studio in Aspen to chat with Chrystia about the resurgent risk appetite among the world’s super-wealthy investors, his tripartite outlook for the global economy and the alternative asset classes that are currently in vogue. Here is a transcript of some of the highlights of their discussion:

The super-wealthy have gotten their groove back:

KEITH BANKS: The thing that was very interesting to me was even the super wealthy, people with hundreds of millions of dollars, how impacted they were psychologically by the crisis. So even though arguably their standard of living didn’t change, yeah their net worth was down, but it was not down to a point where they had to change their lifestyle. But psychologically, they were very impacted by it. If they happened to be business owners on top of that, they were really feeling pretty beaten up, because not only were they dealing with the personal aspects of that, but they were running businesses that were looking at higher taxes, more regulation, higher health care costs, and a lot of uncertainty and generals. They were getting kind of a double whammy. So I would say our clients came out of the crisis really hunkered down, were really impacted psychologically. And what it really changed was their thinking about what they wanted to do from an investment standpoint… I’d say about six, nine months ago, we slowly began to see that shift where clients began to engage. We’re able to engage clients more in a discussion about areas they should be thinking about moving their assets into to get somewhat higher returns, still managing the risk. So I think the psyche has improved. They’re doing more and they’re more willing to move money around, whereas 12 months ago, not interested.

A tale of three cities in the global economy:

There’s a tale of three cities going on.  Number one is the U.S.  And the U.S. — think about right now is a two to three percent grower, okay.  Not what we want to see, but certainly not the worst-case scenario.  The– the second city is Europe, Eurozone.  Now it’s going to be a one to two percent growth, right, even more anemic, with a very wide range of outcomes by country.  But again pretty anemic stuff.  And then the stars of the show continue to be the emerging markets. In general, China and Asia in particular.  But when you blend that all together, we’re still looking at growth north of four percent globally.  That’s a fantastic number.  And a lot of our– our multinational firms, the S&P 500 types of companies get as much of 50 percent or more of sales [abroad]… So if you’re a company that has a global market place that you’re serving, you’re probably looking out there saying this is pretty good, right.  I’m seeing good growth, I’m seeing good sales, I’m seeing good profits because I have the streamlined core structure.  So those companies and those executives are feeling good about things.  If you’re a smaller company that’s pretty much a U.S. domiciled, U.S.-centric company in terms of who your customers are, you’re probably not feeling nearly as buoyant, [or] nearly as robust because you’re feeling more the effects of that two percent, two and a half percent growth dynamic that we’re seeing just here in the U.S.  And obviously, if you’re U.S. and Europe, then you’re really not too pumped up because then you’re too mired in two of the areas that again are seeing the least robust growth.  So it really depends on what your market is, who you’re serving, where your sales come from.

The smart money bets the farm:

KEITH BANKS: And so now the question’s going to be how fast can we grow, both in the U.S. and globally, what opportunities does that create for them both from a business standpoint as well as a personal investment standpoint, and then positioning them accordingly. One thing that’s also very interesting is our clients, in addition to the traditional financial assets, stocks, bonds, all that, they’re getting increasingly interested in hard assets.  Hard assets to find as timberland, farmland, oil and gas properties.  We have the ability–

CHRYSTIA FREELAND: Real estate?

KEITH BANKS: Real estate.  But not so much, not residential.  There are opportunities in the commercial side just because values have gotten depressed.  But what’s interesting is if you believe that global growth will continue at a four percent plus rate, you’re already seeing inflation picking up in those countries that are seeing the faster growth, but it’s a reflation (PH) dynamic. And so what people are saying is own — owning the hard asset is not only a good diversifier with respect to financial assets, the traditional assets, but it’s a place you want to be if ultimately inflation will begin to slowly but surely tick up.  So we have a group within U.S. Trust that can do that.  We’re engaging a lot of clients in that discussion.

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