Notes from a Private Wealth Management conference

Here are some random notes from the Boston Security Analysts Society's Wealth Management Conference in October 2006. I focused on some tidbits that might interest you. They're only a tiny fraction of the interesting information presented at the conference.

How to justify investing in commodity futures
Interested in getting your clients to invest in commodities futures?

"Facts and Fantasies About Commodity Futures" by Gary Gorton and Geert Rouwenhorst, NBER Working Paper No. 10595 is the classic on this topic, according to Kevin Rich, director, currencies and commodities complex risk group, Deutsche Bank and CEO, DB Commodity Services.

Here's a quote from the NBER Digest discussing the paper. "In Facts and Fantasies About Commodity Futures (NBER Working Paper No. 10595), co-authors Gary Gorton and Geert Rouwenhorst show that over a 45-year period a diversified investment in collateralized commodity futures has earned historical returns that are comparable to stocks. That reward, rather than foreseeable trends in commodity prices, is the key to the returns that a futures investor can expect. Individual commodities can be very volatile, but much of this volatility can be avoided by investing in a diversified index of commodities."

I'd give you a link to the actual working paper, but the NBER website appears to be out of order as I write.


Hedge funds and the private client
These are good reasons for private clients to invest in hedge funds, according to David Shukis, managing director, hedge fund research, Cambridge Associates:

• Capital preservation
• Low volatility*
• Diversification of return sources in overall portfolio
• Hedge versus risk inherent in large single holdings

* Lowering volatility is the best reason to invest in hedge funds, said Shukis.

Bad reasons for private clients to invest in hedge funds:

• Return enhancement vs. equities
• Everyone else is doing it

Life insurance as an asset class

Life insurance makes sense as an asset class for clients with a median net worth of $50 million to $80 million, according to David Freely, president, Financial Architects Partners. Below that level of assets, clients use insurance to finance specific needs.

"Uncle Sam's subsidy is a huge advantage," said Freely. That makes it possible to use insurance to get a better return with less risk than on bonds.