Rich run for cover as turmoil hits wealth

GENEVA, (Reuters) – The world’s wealthiest families  have embarked on damage limitation rather than seeking to boost  their fortunes as financial turmoil erodes their riches, with  some so worried they are putting their money in ‘catastrophe’  portfolios.

“We have to explain to our clients, it’s not about making  money these days, it’s about keeping wealth,” said Ivan  Adamovich, head of the Geneva operations of Swiss bank Wegelin.

With inflation eating away at people’s nest eggs and  rock-bottom interest rates making living off capital  increasingly difficult, many rich people are taking new risks  just to stand still, private bankers said.

“We have already inflation higher than interest rates in  many markets … Unless you take some risk you will not achieve  a level of return just maintaining (wealth),” Pierre de Weck,  head of Deutsche Bank’s <DBKGn.DE> private wealth management  business, said at the Reuters Wealth Management Summit in  Geneva.

Adamovich said a model portfolio designed to protect  people’s wealth in the face of global catastrophe has attracted  more interest as financial turmoil spread in recent months.

The “catastrophe portfolio” allocates one third of money to  gold, one third to defensive and internationally diversified  blue chip company shares and a third to the debt of ultra safe  developed countries.

Adamovich said interest in the portfolio is still limited to  the most “paranoid” clients but interest is rising, particularly  among people who have seen previous episodes of societal  breakdown and financial collapse in Europe.

“It’s people who have been listening to their grandmother  … They are not necessarily that old. It’s people who are  really afraid,” he said.

In less specialised portfolios, Wegelin recommends its  clients are underweight in stocks and overweight in cash, though  instability of the banking system raises challenges in terms of  where to keep that cash.

Other bankers said they have also advised clients to be  underweight in stocks, with suggested allocations of 25 to 30  percent of their portfolio compared to 40 percent or more prior  to the financial crisis.

In southern Europe, where the financial crisis is at its  most fierce, and the Middle East where the Arab Spring has  heightened the sense of political risk, rich people are now  sending more money abroad, bankers said.

The trend marks the end of an era in which tycoons in both  regions kept much of their wealth at home, attracted by high  rates of return from frothy property and stock markets before  the turmoil set in.

Among the assets most favoured, particularly by Middle  Eastern investors, is top-end residential and commercial  property in London, said James Fleming, head of the  international business at Coutts, the private banking arm of  Royal Bank of Scotland .

“They can see and touch a building. It gives them  stability,” he said.
Fleming added that while Arab billionaires were adding to  already established property portfolios in London, they have  also started moving investments to other European capitals such  as Paris.

Enrique Marazuela, chief investment officer at the private  banking business of Spain’s BBVA , said the first round  of the financial crisis in 2008 had driven many of Spain’s  wealthiest people into stocks and bonds outside Spain for the  first time.

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