Attributed to Simone Westerhuis, Managing Director, LGB Investments
Wealth managers need to boost their tech skills as well as their sustainable and alternative investment options to meet the demands of millennial investors
Wealth managers and indeed the wider financial industry are continually evolving their products and services to meet the challenges and opportunities of the rise of so-called millennial investors. But are they doing enough? Millennials and their generation X precursors are set to benefit from a significant transfer of wealth over the next few decades. To successfully address their needs, private wealth managers need to engage with more digital-savvy generations by understanding their needs and offering a greater array of investment solutions.
Digital approach is key
Today’s world is very tech-savvy. Some 98% of millennials own a smartphone and 25% of them spend more than five hours on these gadgets each day. Combine this with the fact that over the next 30 years, up to $30tn is expected to be passed from baby boomers to generation X and on to millennials is leading wealth managers to reassess the link between online engagement and financial advice and upgrade their capabilities in this area.
The perception that wealth management is the preserve of the middle-aged male in a pinstripe suit is fast-changing and the firms that fail to adopt strategies that cater to rising younger generations will risk falling by wayside. Many wealth managers are undertaking a host of initiatives, launching client portals, developing new apps and incorporating new communication channels to appeal to the younger investor who is more interested in an iPhone-friendly investment portfolio than a spreadsheet-filled paper report followed by dinner at a Michelin-starred restaurant.
Thanks to this new breed of investor, a digital wave has swept through the wealth management industry, prompted by digital-first online managers such as Nutmeg, Moneyfarm and Wealthifyin which Aviva took a majority stake last year. These so called robo-advisers increasingly lean towards machine learning and cater to the responsiveness, flexibility and online nature of engagement which millennials have become accustomed to in all areas of their lives.
Face to face meetings still have a role to play
Although upgrading a client’s digital experience is vital to attracting and retaining millennial investors, service, trust and integrity remain core to the private wealth industry. Some aspects of financial planning and investments can be commoditised, but human factors such as education, empathy and authenticity cannot.
Research published by InvestmentNewsshows that some 66% of children would fire their parents’ wealth advisers on receiving an inheritance. Insufficient connectivity, on both a human and a digital level, would appear to be the cause. InvestmentNews found that “lack of a relationship” with clients’ children was the single biggest obstacle to an adviser retaining management of a family’s assets.
Forbes,in one of its latest insights reports which included a survey of generation X and millennials, comes to a similar conclusion. Among the key findings are that 42% of wealth managers believe that a mix of digital and offline ways of communicating is ideal, while 62% of the HNW clients surveyed said that the digitization of wealth management services is good overall, but they still want to meet often with an advisor.
According to the write up in Forbes, it is largely a myth that wealthy young investors are entirely self-sufficient and that they communicate primarily through virtual channels, with little or no interest in face-to-face relationships with advisors. “True, they want to make their own decisions, but they also want to work with one or more financial advisors to get second options and to validate their views.”
Greater willingness to consider sustainable …
With regard to investment approach, increasingly millennial investors are going “green” and are more socially and environmentally aware of the impact their investments have on the wider, global economic landscape. Recent research by the Morgan Stanley Institute for Sustainable Investing revealed that millennial investors are twice as likely as the overall investor population to invest in companies targeting social or environmental goals.
…and alternative investments
The financial crash and volatility of the markets still deter millennial investors from an over-reliance of equities and bonds within their portfolio. Caution appears to be the watchword of their investment approach and only one in three millennials invests in the stock market, according to Bankrate.
Given this, it is no surprise that a strong majority of millennial investors are interested in alternative investments, according to a recent survey by global asset management company Affiliated Manager Group (AMG). Some 83% expressed openness to a range of alternative investment strategies—including hedge funds, private equity, real estate funds or other non-traditional investments—compared with 52% of older investors. More than half of millennials said they already invested in alternatives, the AMG survey pointed out, while 69% said they would like to know more about their benefits.
At LGB, we provide investors with access to non-traditional, institutional-like investment strategies and opportunities. These range from secured, high yielding fixed-rate debt issued by SMEs and growth businesses, to access to private placements on the AIM market and participation in management buy-outs. The majority of the equity opportunities will qualify for business property relief after a holding period of two years, which is relevant for the transfer of wealth to the new generation. Most importantly we pride ourselves in offering service, which has allowed us to build strong relationships with our investors who are introducing us to the next generation.
Bitcoin slumps 10% as pullback from record continues
LONDON (Reuters) – Bitcoin slumped 10% on Thursday to a 10-day low of $31,977 as the world’s most popular cryptocurrency continued to retreat from the $42,000 record high hit on Jan. 8.
The pullback came amid growing concerns that bitcoin is one of a number of financial bubbles threatening the overall stability of global markets.
Fears that U.S. President Joe Biden’s administration could attempt to regulate cryptocurrencies have also weighed, traders said.
(Reporting by Julien Ponthus; editing by Tom Wilson)
A lot of hot air? Investors snap up hydrogen stocks in green frenzy
By Elizabeth Howcroft and Thyagaraju Adinarayan
LONDON (Reuters) – An unprecedented rally in “green” hydrogen stocks looks set to extend as investors flock to companies which promise to produce the gas without using fossil fuels, expecting the technology to scale up over the next 10 years to justify rocketing valuations.
Hydrogen is the universe’s most abundant element. It is mostly extracted from fossil fuels, emitting carbon dioxide in the process. “Green” or clean hydrogen requires using electrolysis to split water into its components of hydrogen and oxygen and doing so cheaply is often described as the holy grail of green energy transition.
Share prices of companies in the industry have soared more than 500% in the past year, driven by the rising adoption of zero-emission vehicles, a deadline set by many countries to go carbon-free by 2050 and lately U.S. President-elect Joe Biden’s support for clean energy.
Plug Power, Ceres Power and Fuelcell Energy, which make hydrogen fuel cell systems that power devices ranging from warehouse machines to cars, are leading that charge, jumping 400% to 1,600% in the last year.
“Hot money is flowing towards renewables and clean energy, and there’s been a clear re-rating of valuations in the sector,” said Emmanuel Cau, head of European equity strategy at Barclays.
While a lot of focus has been on hydrogen’s role in the automotive sector, its usage is growing far beyond that.
The European Union plans to scale up renewable hydrogen projects across polluting sectors ranging from chemicals to steel with cumulative investments in renewable hydrogen in the region seen reaching up to 470 billion euros ($570 billion) by 2050, the region’s commission said.
That has fuelled the stocks of electrolyser makers Norway’s Nel and UK’s ITM Power.
“The momentum just keeps going really with this theme,” Ashim Paun, HSBC’s global co-head of climate change and ESG research said on a webinar.
ZeroAvia, a hydrogen plane startup, last month secured $37.7 million in new cash via a funding round led by Bill Gates’ Breakthrough Energy Ventures and from the British government to support its bid to develop zero-emission aircraft.
The frenzy in hydrogen-related stocks has led to some concerns about a bubble, with companies trading at extreme prices based on expectations that their revenue will surge in future, despite worries about possible headwinds for the sector.
Widespread adoption of hydrogen as a fuel for cars is far from a given.
Toyota launched a new hydrogen fuel cell car in December, but it has largely failed to win customers over to the technology amid concerns about a lack of fuelling stations, resale values and the risk of hydrogen explosions.
The momentum behind electric vehicles may be another headwind, said Jonathan Bell, chief investment officer at Stanhope Capital.
“The problem with hydrogen is that sometimes when you have two competing systems, it’s not the better technology that wins, it’s the one that gets market share and the network effect first of all,” Bell said.
UK-based ITM Power, which manufactures the electrolysers needed to make green hydrogen, is trading at a massive seven times its 2030 sales, while rival Nel is relatively cheap at three times 2030 sales, according to HSBC’s calculations.
Some investors may avoid the sector altogether, after a similar burst of enthusiasm two decades ago proved short-lived, and much of the latest excitement around green energy is based on Biden’s policy plans, which are yet to be passed into law.
But no bank is ringing the alarm bells, yet.
JP Morgan analysts advised long-term investors in a recent note to take advantage of any pullback in prices and “take an unorthodox approach to valuation for the next several years” – in other words, not worry about a potential bubble.
Sean McLoughlin, HSBC EMEA head of industrials research, said scarcity value in the market, unprecedented fiscal stimulus, low cost of capital and debt and low yields in other asset classes mean the hydrogen market’s valuation may be justified though he cautioned it was at a “potentially fraught level.”
“There’s a lot of capital that is very ESG-focused chasing a select number of companies that offer this kind of pure play exposure to these future energy trends. So there is a risk that this may unwind.”
($1 = 0.8258 euros)
(This story corrects paragraph 2 to show hydrogen is the universe’s most abundant element, not earth’s)
(Reporting by Thyagaraju Adinarayan and Elizabeth Howcroft, additional reporting by Julien Ponthus; editing by Rachel Armstrong and Emelia Sithole-Matarise)
BlackRock to add bitcoin as eligible investment to two funds
(Reuters) – BlackRock Inc is adding bitcoin futures as an eligible investment to two funds, a company filing showed, in a move to bring the world of cryptocurrency to its clients.
The world’s largest asset manager said it could use bitcoin derivatives for its funds BlackRock Strategic Income Opportunities and BlackRock Global Allocation Fund Inc.
The funds will invest only in cash-settled bitcoin futures traded on commodity exchanges registered with the Commodity Futures Trading Commission, the company said in a filing to the Securities and Exchange Commission on Wednesday.
Chief Executive Officer Larry Fink had said at the Council of Foreign Relations in December that bitcoin is seeing big giant moves every day and could possibly evolve into a global market. (https://bit.ly/2XXFHrB)
Earlier this month, Bitcoin, the world’s most popular cryptocurrency, hit a record high of $40,000, rallying more than 900% from a low in March and having only just breached $20,000 in mid-December.
A BlackRock spokesperson declined to comment beyond the filings when contacted by Reuters.
(Reporting by Radhika Anilkumar and Bhargav Acharya in Bengaluru; Editing by Arun Koyyur)
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