Presentation on Current Topics in Banking & Finance

Faculty of Business and Economics Master of Financial Economics

Masters thesis: Seminar Series

Leuven, November 22nd 2011

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Personalia
Who we are
Quaestor Vermogensbeheer NV, created July 2000, based in Roeselare, is licensed by the Belgian Banking Authorities, the Authoriteit Financile Diensten en Markten (FSMA), and has a European passport for discretionary asset management. Aureus Capital BVBA, founded by Arne De Bruyn and Lode Casteleyn, is a Mandated Intermediary of Quaestor Vermogensbeheer and owns its FSMA-license since February 2010.

Arne De Bruyn
Graduate Toegepaste Economische Wetenschappen KUL. Experienced Asset Manager at Petercam (2000-2009) Personal Financial Planner. Before Group and Pension plan Insurance Consultant Swiss Life Belgium for the market of independants, small and medium sized companies.

0475 / 85.85.58 arne.de.bruyn@quaestor.be arne@aureuscapital.be

Lode Casteleyn
Postgraduate Financile en Fiscale Wetenschappen UFSIA, Graduate Toegepaste Economische Wetenschappen KUL. Experienced Asset Manager at Petercam (2001-2009) and Personal Banker at Generale Bank. Guest Lector EHSAL & BBS. 29-11-2011 Prepared by Aureus Capital
0485 / 17.60.45 lode.casteleyn@quaestor.be lode@aureuscapital.be

Content Summary
Dynamics of an Industry in Transition
The Perfect Storm GFC comments Emerging Global Trends Post crisis investor & client psyche

Regulation and Control The Crisis Toll

Regulation: a story of Ebb and Flood Regulation and Control: Cost Redux - Scalability

Impact and Consequences for the Industry

Main talking points Topic: Economic environment hardly easy Risk Management: understanding risk Dynamic Asset Allocation: search for the Holy Grail

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Content Summary
Lessons: New Business Models Motivations for Change
Events, Convictions, Facts, Values Mission Statement for the Industry

Importance of Holistic Approach

Life Cycle approach, Financial Planning, Dynamic Profiling Estate Analysis based Asset Management

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Dynamics of an Industry in Transition

The Perfect Storm - GFC comments
(Capgemini-Merrill Lynch, McKinsey & co and booz&co. Reports)

One of the most difficult periods in modern financial history

From 2007, deleveraging from financial sector to sovereigns and consumers, goes on today

Massive asset price declines in new and old school assets

Near and actual collapse of some well known financial wealth management firms Revenue levels dropping 25 to 30 percent below pre-crisis levels

Deeply rooted change in behaviour of clients, professional and private

Because of counterparty risks and liquidity shocks (professional parties, hedge funds) Because of total risk aversion leading towards capital preservation stress (private clients) Net outflows at 32% of private banks, 10% loss making Boutiques strong at home

Governments cracking down on wealthy citizens and holding the sector responsible, pushing austerity measures through legislation
Offshore and untaxed accounts and wealth under pressure Sector and leading people targeted under new programmes 29-11-2011 Prepared by Aureus Capital 5

Dynamics of an Industry in Transition

Storms still havent died down

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Dynamics of an Industry in Transition

Emerging Global Trends
(Based on Capgemini-Merrill Lynch, McKinsey & booz&co. Reports)

World HNWI population and global wealth recovering to top levels Tectonic shift in HNWI from mature to emerging markets
Asia Pacific and Latin America HNWI wealth surpassing 2007 top level HNWI population in Asia Pacific becomes as large as Europes (and still rising) Concentration still there: US, Japan and Germany still account for > 50%

Many wealth drivers rebounding, although economic recovery remains soft

GFC effects: World GDP contracted 2% in 2009, 2010 rebound rolls over in 2011 Governments around the world caught between fiscal and monetary arguments Key wealth drivers: Equities: with the exception of US markets, all major equity markets down YTD, Commodities still strong, Hedge funds under water YTD and mostly lagging benchmarks World GDP growth likely to hold positive territory in 11 (led by BRIC/EM) but sustainability strongly relies upon a solution for the Eurozone crisis and will probably require stimulus along with the (hard to accomplish) return of growth in private consumption (in an austere world)

HNWI confirm a cautious return to Passion Investments Client demand for philantropic offerings and full scope advisory services rises
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Dynamics of an Industry in Transition

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Dynamics of an Industry in Transition

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Dynamics of an Industry in Transition

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Dynamics of an Industry in Transition

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Dynamics of an Industry in Transition

Post crisis investor and client psyche (Capgemini-Merrill Lynch, McKinsey, booz&co)
HNWI and PB clientele lost trust in regulators and institutions
Concerns around financial assets and lack of general confidence Long term implications for investing behaviour (Never sure again.)

Investors approach on savings wealth and fear the unthinkable

Asset allocation shifts mirror general caution, search for stable yield Clients, more hands-on and outspoken about their finances, have become more risk aware and look for specialized and independent advice, transparency and simplicity Emotional factors play role in profiling and risk assessment

Wealth management and advisory firms understand the challenge

Rapidly moving towards new business models Trying to maintain or capture the still moving billions of assets while operating under fierce competition and continuous margin pressure

Return OF Capital overthrows Return ON Capital Never waste a good crisis? New Business Models!
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Dynamics of an Industry in Transition

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Dynamics of an Industry in Transition

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Dynamics of an Industry in Transition

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Regulation and Control The Crisis Toll

Regulation: a story of Ebb (Re) and Flood (De)
Mifid Markets in Financial Instruments Directive
EU law providing harmonised regulation for investment services Aiming at increased competition and consumer protection Part of the four level Lamfalussy procedure (ao. Market Abuse and Transparency) Authorisation and passporting, client categorisation, client order handling, pre- and posttrade transparency, best execution

Basel III bank capital requirements and cushions

New chapter in the Basel accords regulating the sectors liquidity and solvency Defining counter cyclical leverage ratios, counterparty and liquidity risk

Solvency II insurance capital requirements and cushions Also: Dodd Frank Wall Street Reform and Consumer Protection Act, Volcker Rule (Prop Trading), Executive Pay scrutiny, Alternative Investments regulation (HF) Effects on general management, costs, IT infrastructure, client profiling, suitability testing, risk management, compliance trigger the need for scalabilty, implementation, outsourcing, fragmentation.
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Regulation and Control Cost redux

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Regulation and Control Scalability

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Impact and Consequences for Industry

Impact and Consequences for the Industry: main points
Solvency and liquidity: EMTN/Issue programmes serve dual goal clicking the liquidity pools and marketing the search for yield Transparency and regulation: Hedge funds impact (on fund management), UCITS III, questioning pricing mechanisms, creating new types of AM Redefining customer cont(r)acts and avoiding conflicts of interest (service) Tariff (retrocessions) and tax (austerity) changes and implications Mergers and acquisitions, multi boutique business model Retirement wave fuels demand for investment products with low volatility and reliable recurring income (return of/on capital balance) Trend toward open architecture to continue, proprietary products losing importance or even suffering a bad image (politically incorrect) Risks: market performance, health care cost, inflation, longevity, duration and intrest rate evolutions Develop next-generation (tech-enabled) services (web, multi-channel, hybrid)
(Based on Capgemini-Merrill Lynch, McKinsey & booz&co. Reports)

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Impact and Consequences for Industry

Risk Management and Dynamic Asset Allocation
Divides into 2 parts: 1. Risk Management managing risk starts with understanding the risks one runs: Risk definitions? Types of risk? Relation risk versus return? Dynamic Asset Allocation dynamic management, as a sign of the times: Todays questions are no longer about What to buy/sell? but rather about Do I take (some) risk or none at all? Dynamic in todays world has a Defensive connotation and no longer an Active one.

2.

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Impact and Consequences for Industry

Risk Management and Dynamic Asset Allocation an endless Search for the Holy Grail.
Classical definition: Diversify within a portfolio accross all possible asset classes thereby (hopefully) lowering risk and optimizing return.

STRATEGIC ASSET ALLOCATION

New aspect answering previous problems: Dynamically manage (portfolio) risk within a certain asset class thereby (hopefully) lowering risk and optimizing return.

TACTICAL ASSET ALLOCATION

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Impact and Consequences for Industry

Strategic Asset Allocation versus Tactical Asset Allocation
Strategic profile

Core Yield
Income
Insurance Solutions

Core Risk
Inflation Inflation

Cash

Short corporates (ladder)

Tactical profile

Capital Gain

Extra Income

CASH !

Satellite Yield

Satellite Risk

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Impact and Consequences for Industry

ETFs & Flexible Allocation Funds

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Lessons : New Business Models

Different Fields of Expertise: long running traditions
Screening, researching, allocating and investing Portfolio and/or Fund Management Planning types: fiscal, succession, real estate, pension

Separate Functions: Fade, blur, mix into new concepts

Private Banker, Asset Manager Advisory, Discretionary mandates Open architecture, Fund supermarket, Internet broker Personal Planner, Family Officer Fiscal Advisor, Accountant, Notary

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Motivations for Change

What WE think the industry should do

Events
Market shocks and movements, vast disappointment amongst target clientele

Convictions
Marriage of financial planning and asset management Combining all asset types and classes Need for independent sparring partners

Facts
Importance and relevance of asset allocation, cash is a clear choice, use of third parties, need for drawdown risk management (protection)

Values
Independence, transparancy, client focus, education
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Change: a new Mission Statement?

What the industry needs to do differently

Knowing your client Should be more than a legal obligation.

Knowing your clients money Should go further than a one-off allocation.

Give more (info) to earn more (trust).

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Change: Our own Mission Statement

What we do differently at Aureus & Quaestor
To accompany private and corporate entities through their total financial situation, thereby consistently honouring a planned and structured approach, which starts from the life-cycle concept. Based on intelligent profiling, operating within in a targeted process while maintaining multiple and frequent contacts, we want to emerge as the financial reference partner for our clients. In our work we emphasize continuous screening, planning, structuring, guiding, control and reporting.

Financial Stewardship*
Source: Quaestor Asset Management (* Quaestor Vermogensbeheer uses the Term Rentmeesterschap)

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Importance of Holistic Approach

Life Cycle approach Financial Planning Intelligent Profiling
Financial Planning Life Cycle Approach

Intelligent Profiling

Inextricably intertwined
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Estate Analysis Based Asset Management

What :
Structured approach and allocation with a long term focus on predefined personal goals by harmonizing all elements of the clients wealth situation given his changing financial risk profile.

Why:
Need for an objective helicopter-view approach where the financial and fiscal implications of financial decisions take into account the current and future financial situation.

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Life cycle approach

Intelligent profiling: changing risk profile

Insurance solutions, Protection what if questions, focus on (income) targets

Required Required level of security Life cycle

Structuring, Wealth management financial planning, focus on growth, income Family Office, Stewardship risk return analysis, control, allocation, reporting

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Copyright: Aureus Capital & Quaestor Asset Management

Saving versus Investing

Illustration of Life Cycle based Dynamic Asset Management
Securisation & Re-allocation

Profiling & Allocation

Investor
Security

Saver
Cash Flows (plan)
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t
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Estate Analysis Based Asset Management

Dynamic Asset Allocation

Separate and objective approach for the risk (growth) and risk free (capital preservation) part

where interactive reallocation is possible given the current macro context and personal goals

thereby enhancing the stability and diversification of portfolios by using all financial and fiscal instruments.
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Discussion & Questions: contact us!

LODE CASTELEYN
0485 / 17.60.45 lode.casteleyn@quaestor.be lode@aureuscapital.be

ARNE DE BRUYN
0475 / 85.85.58 arne.de.bruyn@quaestor.be arne@aureuscapital.be

Faculty of Business and Economics Master of Financial Economics

Masters thesis: Seminar Series

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