OC’s Money Managers Say Clients Want Bonds
By RAJIV VYAS
Where have Orange County’s wealthy turned during the economic downturn?
Bonds.
As the equity markets remain decidedly depressing, high-net-worth investors are looking to preserve their wealth.
“An awful lot of people are saying ‘just give me bonds,'” said Rudy DePorter, West Coast regional vice president at Northern Trust Corp. DePorter works out of the company’s Newport Beach office, which has about $2 billion of assets under management. Northern Trust mainly caters to clients who have more than $2 million in investable assets.
DePorter says investors are asking him to structure conservative bond portfolios.
“In June, I bought about $40 million (of bonds) in our office alone,” he said. The bond buy was for an investor who had cashed out of a company he owned and wanted to park the cash in a safe investment.
Some high-net-worth investors have been moving into private equity investments, such as hedge and venture funds in the past few years, according to Vernon C. Kozlen, executive vice president and manager at City National Bank in Irvine.
Lately, though, investors have been reticent to do anything with new money from company, real estate or other investment sales.
“In the last six months, clients have been holding more and more cash,” Kozlen said.
Investors today are looking to preserve their wealth, transfer it to the next generation and re-think their investment portfolios so they are less correlated with the stock market.
“Now we’re talking about estate transfers,” said Tom Blanchfield, a private wealth advisor in Merrill Lynch & Co.’s Newport Beach office. Blanchfield replaced Richard Gadbois, Merrill’s top producing stockbroker, after he left to start his own money management firm last year.
“We’re spending lot of time developing five-, 10- and 20-year estate planning,how to preserve and transfer their wealth,” Blanchfield said.
DePorter said that many risk-averse clients are demanding municipal bonds, rather than investing in equities or corporate and junk bonds. Northern Trust is recommending alternative private equity funds, but only to individuals and families with a high net worth.
One not-so-hot asset class: real estate investments.
City National’s Kozlen warned that the real estate sector has had a big runup in value. And as equity holdings have fallen in value, the portion of high-net-worth individuals’ real estate holdings also have increased as a percentage of their portfolios.
