Capital markets remain full of imperfections that need ironing out, says a UK-based business, Global Customised Wealth Partners. And it reckons that its business model provides solutions.
Conflicts of interest, opaque ways of measuring performance, concealed fees and inconsistent advice are some of the bugbears that GCW co-founder David Bizer thinks need to be put right.
GCW, founded in 2018 and which started investing in 2019, has fee-paying assets under management of around $400 million. Its founders have experience in the market of structuring and executing hedging transactions for clients with concentrated equity positions. As a result, banks treat GCW as an institutional counterparty, David Bizer told this news service recently.
“For example, when banks with fund management platforms earn revenue received by third-party fund sponsors willing to share their fees or earn other revenue from funds on their platform (such as banking or prime broker revenue), this creates conflicts of interest and may impose adverse selection of the platform funds available to investors,” Bizer said. “If we [the investing GCW entity] receive any fee reduction or discount from an investment sponsor, 100 per cent of that benefit is passed fully to the client."
"Many firms with internal product manufacturing capabilities or other business lines (for example, investment banking or prime broker) earn revenue from clients in ways that may not be fully disclosed or even in ways that are not fully disclosed to the relationship managers,” he said.
“Even well-informed clients may not be able to unravel the cross-linkages and separate the conflicting incentives that exist in large banks,” he said. “GCW strictly invests in opportunities that are not internally manufactured, and does not receive revenue from investments sponsors, so that our fees are our stated fees.”
Capital markets remain full of “imperfections,” Bizer continued, and that was a reason for creating GCW.
It may seem odd that, more than 13 years after the worst financial crisis since the 1930s, such conflicts and problems remain extensive. Regulatory structures such as the European Union's MiFID II and the US Dodd-
Frank legislation were designed, their framers said, to help avoid such problems in future. (In the US, Securities and Exchange Commission chair Gary Gensler is leading an aggressive charge to crack down on a
range of practices.)
A problem is that central banks’ massive money printing squeezed the margins of private banks, prompting firms to encourage clients to go up the risk spectrum simply to protect wealth, never mind expand it. That creates pressures. (See an article here on Switzerland, where official interest rates are negative.)
Another firm that talked late last year about how to handle potential conflicts of interest was Aquarius, a newbie UK firm backed by Geneva-based investment house Crescendo Group. (We interviewed it late in 2021.)
Arguments about the “right” business model aren’t cut and dried, however. This publication has asked whether the cross-selling practices of banks deserves the criticism it can attract.
Transparency applies not just to fees, but what an investment manager claims it is trying to do, Bizer said. Firms can obscure how they measure performance - which isn’t helpful for clients working out if they are getting value for money. Bizer gave the case of a 2018 pitchbook from a UK wealth manager that stated: “We avoid being constrained by benchmarks - we believe that benchmarking can be detrimental to achieving long-term performance for clients.”
“GCW establishes clear, consistent and meaningful benchmarks and holds itself accountable to outperforming them,” Bizer said.
Other problems in the sector, he said, include “sub-optimal” reliance on liquid market opportunities, and the problem of relationship managers overseeing investments, instead of investment professionals overseeing relationships, which is the GCW model. Another problem, Bizer said, is when investment decisions are made by “a decentralised army of RMs,” which creates inconsistent outcomes.
Bizer’s views have been informed by his wide background. He has worked in academia and public service, and for the George HW Bush administration, for example. He went into banking, then worked for a West Coast firm after the 2008 financial crisis, and then set up GCW.
GCW has personnel in the US and the UK, and invests globally, partnering with clients and organisations in the US, Europe and Asia. Besides Bizer, other senior figures at the firm include managing partner Siggi Thorkelsson, investment committee partner Tim Babich and partner/senior advisor Svetlana Bryzgalova. Besides its London base, the firm has teams in New York and California. It is regulated by the Financial Conduct Authority in the UK and the SEC in the US.
“Our investment philosophy is to build diversified portfolios that will outperform traditional liquid stock and bond portfolios comprised of comparable market risks. Operationalising this objective lies at the heart of our value add as an investment manager,” Bizer said. “In pursuit of this objective, we potentially invest in all available asset classes, guided in all cases by a determination that a prospective investment is expected to outperform the return one might normally expect to receive as compensation for the equity, interest rate, or credit risks that the investment brings to a portfolio.”
“We invest across the liquidity spectrum, though we tend to focus our investment efforts on private asset markets which are less efficient than public markets and require special skills to navigate,” Bizer continued.
“Thus, while we don’t avoid any specific asset classes, the bulk of our attention is devoted to those opportunities that we think offer the most attractive expected returns for the risks taken.”