The Asset management groups, in a recent move, are racing to pivot into opaque but lucrative regimes of private funds. The sector’s largest players are developing new strategies for future by striking bold acquisitions and entering into novel partnerships with private capital groups. These experts are working with the advisers to plot new strategies for future.
The fund managers in this way are exposing their clients (including wealthy individuals and retirement savers) to new risks despite that
Investment managers are figuring out how to partner with alternative assets available in the market. This trend, it appears, is going to continue.
This push into private markets is coming because investors intend to diversify their portfolios by seeking access to a growing swath of companies that prefer to remain private.
In this background, this write-up examines the ways for effective wealth management strategies in uncertain times.
The general principles of wealth management direct an investor to plan for:
- Diversification; - Risk mitigation; and - Resilience.
There are, however, many a slip between cup and lips! For example, disputes can arise particularly in the light of tax planning by understanding how investment statutes are interpreted by the tax authorities. Tax being an important factor is required to be considered in decisions concerning wealth management.
Investors may consider different strategies depending on one’s priorities in the present chaotic days. Let us consider the available strategies in this regard:
1- Diversification across asset classes:
• Investments may be made in a mix of stocks; for example, in bonds, real estate, commodities and cash equivalent.
• Private equity or infrastructure investments which can further the diversity requirements to safeguard the risks.
2- Maintaining an emergency fund:
- An emergency fund can be planned for a period of 6 to
12 months keeping in view one’s living expenses.
3- Balancing of Portfolio:
• This step requires a periodic maintenance of a desired risk-return profile.
• When equity markets rise significantly, the stock allocations may be trimmed and profits may be moved to safe assets.
4- Focus on equity investments:
• The companies having strong and stable cash flow and reliable balance sheets may opt for making investment in equities;
• Government and corporate bonds may also be considered as these bonds provide security and offer a good option to hedge against uncertainty during volatile period.
5- Hedging the inflation and currency risks:
- To protect from inflation, securities may be preferred.
To safeguard the global risks, assets may be held in diverse currencies.
6- Debt levels must be kept under review:
• Refinancing of loans at lower rates to minimize costs may be a good step to consider.
• During uncertainty, high interest debts may be preferable; and
• One may avoid unnecessary liabilities.
7- Tax efficiency:
• Accounts having Tax advantages may be preferred;
• Taxable income may be reduced to harvest tax losses in order to offset gains.
8- Real estate investment:
• Investment in real estate to hedge against inflation may be considered as an effective option particularly for passive investments.
To avoid uncertain investments, rental proprieties or REITS may be preferred as a good option.
9- Alternative income streams:
• Consider generating passive income through dividend paying stocks, or bonds or alternative investments like peer to peer lending.
10- Seeking the professional advice:
• Advice from financial advisors or wealth managers may be sought to minimize the risk and to tailor a suitable strategy in a time horizon.
11- A long-term view must be taken:
• Try to seize the moment and consider diverse opportunities while avoiding panic;
• Stick to your financial objectives by keeping a well ordained investment plan.
11- Be informed and remain aware:
To remain informed is the best option to analyse market’s behaviour while confronting the forthcoming changes;
• Economic indicators like inflation, interest rates and policy shifts many be studied as these factors may affect one’s portfolio;
• Investors must be aware, update, and knowledgeable about the market behaviour to opt for desired adaptability.
13- Legal issues are to be noted:
• Trust investments and fiduciary duties: Where one breaches its fiduciary duty and fails to account for profits (in order to gain personal benefits) from an investment opportunity made by a trust, he becomes violator of his fiduciary duties” because a trustee is prohibited to gain personally from his position or authority.
14- Taxation and wealth management:
Taxation may give rise to issues and problems not foreseen at the time of planning. It would, therefore, be advisable to seriously consider tax aspects relating to income from wealth.
15- Tax avoidance:
• The courts have affirmed in many cases that tax avoidance (within the law) is legitimate though, yet it later sparked anti-avoidance issues.
16- Resolving Estate disputes:
• A trust deed must clarify what is intended and reinforce it in the light of earlier court’s decisions in earlier cases.
Copyright Business Recorder, 2024
The writer is a PhD in International Law from Concordia College, LL.M from Washington University in St. Louis School of Law: MPA: University of Southern California. LL.B: Punjab University, an associate of Azimuddin Law Associates
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