Europe’s private banks rushed at every exit available to withdraw from hedge funds in the crunch, redeeming directly from portfolios, selling funds of hedge funds, draining bank platforms and offloading stakes privately.
Finally, they have not been able to attract new investors since the crisis, and many do not have critical mass anymore.”
Markus Taubert, head of private banking and chief investment officer at Germany’s Berenberg Bank, says many strategies simply failed to fulfill the performance aspirations they set for themselves, and swore to investors they would achieve.
“Numerous strategies have not delivered on their performance, especially downside protection that they promised to offer investors. Also, even semi-liquid strategies could become completely illiquid.”
The subsequent pulling of client money by private banks during the crisis was quick and painful. Retail investors including HNWIs made 80% of all redemptions from 2008 to March 2009, according to Bank of New York Mellon.
While the industry as a whole had recovered to its pre-crisis size by December, a survey by Eurekahedge of nearly 200 Geneva-based funds of funds – allocators with coffers largely stoked by private banks and family offices – recorded a slump of about 60%, to $14.8bn, between Madoff’s arrest in December 2008 and October 2010.
Berenberg, Germany’s oldest private bank, “hardly ever” recommends offshore hedge funds, but might consider versions regulated onshore. Deutsche Bank Private Wealth Management, Societe Generale Private Banking and EFG are among numerous rivals expressing preferences for onshore variants where suitable ones exist.
Berenberg’s Taubert says “There has been a strong slowdown in demand for any of the hedge funds, especially offshore based strategies from our clients.”
Superior liquidity – enjoyed at least fortnightly by Ucits fund investors – is the primary advantage for most private bankers.
Stephane de Vaulx, global head of alternative advisers, Societe Generale Private Banking, says, if faced with equivalent onshore and offshore hedge funds, his clients opt for regulated ones.