INSEAD Library

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Wealth management Preface Part 1: Private banking Private banking defined 1.1 Introduction 1.2 Private banking clients 1.3 Organizational challenges in private banking 1.4 Security and secrecy requirements 1.5 A private banking roadmap 1.6 Household debt and private banking 1.7 The ownership society's recycling pattern 1.8 Synergy of private banking and institutional investments 2 Know your customer and his o r her profile 2.1 Introduction 2.2 The sense of 'know your customer' 2.3 A system approach t o wealth management 2.4 Wealth management according to client profile 2.5 Why knowledge engineering can assist the investor 2.6 A financial advisory expert system for currency exchange 2.7 Caveat emptor and reputational risk 2.8 Who is accountable for failures in fund management? 3 Business opportunity: fees and commissions from private banking 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 Introduction Trades, investments and private banking customers Establishing a strategy for fees and commissions Unbundling the management fee Different companies have different private banking aims Performance and remuneration of investment managers Simulation of portfolio performance The impact of business risk 4 Risk and return with investments 4.1 Introduction 4.2 Basic notions of risk assessment i 4.3 4.4 4.5 4.6 4.7 4.8 Mitigating the risk of losses Prerequisites for rigorous risk control Fine-tuning the philosophy of investments Risk and return with implied volatility Risk-adjusted pricing: an example with credit risk An introduction to stress testing Part 2: Asset management 5 Asset management defined 5.1 Introduction 5.2 Asset management and capital mobility 5.3 Asset allocation strategies 5.4 Asset allocation and the shift in economic activity 5.5 Real estate property derivatives: a case study 5.6 Passive and active investment strategies 5.7 A critical view of alternative solutions 5.8 The portfolio's intrinsic value 6 Business models for asset management 6.1 Introduction 6.2 Choosing the investment manager 6.3 Don't kill the goose that lays the golden egg 6.4 The contribution to asset management by contrarians 6.5 Asset management as an enterprise 6.6 Hedging strategies followed by portfolio managers 6.7 Deliverables and performance in administration of assets 6.8 Past performance is no prognosticator of future results 7 Outsourcing and insourcing wealth management 7.1 Introduction 7.2 Risk and return with outsourcing 7.3 Internal control and security are not negotiable 7.4 Custody only, mid-way solutions and discretionary powers 7.5 Building up the investor's portfolio 7.6 The option model of investing 7.7 Efficiency in private banking and asset management 7.8 The private banking profit centre 8 Trust duties and legal risk 8.1 Introduction 8.2 Trusts and trustee responsibilities 8.3 8.4 8.5 8.6 8.7 8.8 Legal risk and the case of tort Reasons behind legal risk and cost of litigation Legal risk and management risk correlate Mishandling the client: small cases that can lead to legal risk Big cases of legal risk: high-tech crime and identity theft Merck and Co.: legal risk with Vioxx Part 3: Derivative financial instruments, structured products and risk control 9 Derivative financial instruments defined 9.1 Introduction 9.2 Derivatives and hedging 9.3 Underlying and notional principal amount 9.4 From notional principal to financial toxic waste 9.5 Derivatives that became institutionalized 9.6 Private banking derivatives and the paper money trauma 9.7 Dr Alan Greenspan on derivatives and the case of hedge funds 9.8 George Soros on derivatives 10 Structured financial products 10.1 Introduction 10.2 Structured products and capital protection 10.3 Structured versus synthetic products 10.4 The role of strategists, traders and modelling controllers 10.5 Aftermath of design factors on risk profile 10.6 Structured investments are not liquid 10.7 A secondary market for structured instruments 10.8 Dynamic threshold mechanism - - 11 Controlling the risk taken with structured products 11.1 Introduction 11.2 Credit risk and exposure at default 11.3 Credit risk transfer and hazard rate models 11.4 Credit risk volatility and bond spreads 11.5 A case study on General Motors 11.6 Liquidity risk in an ownership society 11.7 General and specific market risk 11,and S_tockmarket bubbles and damage control11.9 Risk management and the 'Greeks' - Part 4: Case studies with the three main classes of structured products Fixed 12.1 12.2 12.3 12.4 12.5 12.6 12.7 12.8 income structured products Introduction Fixed interest structured products defined Constant proportion portfolio insurance FISP versus CPPI: a comparative study Borrowing through issuance of derivatives Capital protection notes and bondholders' risk Structured instruments with underlying credit risk Embedded derivatives for the ownership society 253 13 Practical examples with fixed income derivatives 13.1 Introduction 13.2 Money rates, money markets and financial instruments 13.3 Inflation-linked notes 13.4 Stairway notes (step-ups) 13.5 Callable reverse floaters 13.6 Accrual notes 13.7 Fixed and variable rate notes 13.8 Bull notes 14 Equity-type structured products 14.1 Introduction 14.2 Headline risk and the nifty-fifty 14.3 Equity derivatives defined 14.4 Players in equity derivatives 14.5 Risks taken with analytics 14.6 Criteria used for dynamic rotation 14.7 Equity derivatives swaps 14.8 The use of embedded barrier options 15 Practical examples with equity-type derivatives 15.1 Introduction 15.2 Equity index and basket structured notes 15.3 Absorber certificates 15.4 Early repayment certificates 15.5 Enhanced yield certificates 15.6 Reverse exchangeable certificates 15.7 Potential share acquisition certificates 15.8 EUR complete participation securities 15.9 US dollar non-interest-bearing note linked to equity 15.10 The strategy of pruning the basket and reallocating securities 16 Currency exchange structured products 16.1 Introduction 16.2 Currency transactions and economic exposure 16.3 Exchange rate volatility and risk control 16.4 Mismatch risk and carry trades 16.5 Forex rates and structured instruments 16.6 Dual currency structured products 16.7 A US dollar1Asian currency basket and a forex benchmark fund 16.8 Conclusion 338 338 340 343 346 349 3 52 354 357 Appendix Derivatives as a tax haven A.l Introduction A.2 Wealth tax A.3 Derivatives, offshores and private individuals A.4 Companies have been masters in using derivatives and offshores A.5 Shifting the risk with no return to the household sector A.6 Cynics look at the private banking client as a cash cow 359 359 359 361 362 364 366 Index 369