Spanish retail investors will open up to capital-guaranteed hedge fund structures and alternative investments, while more sophisticated investors will bet on direct investments, said head of equities at BBVA’s global markets division Juan Pablo Jimeno.
At a time when the subprime crisis has slowed the flow of capital into the market, alternative investments are becoming more popular among Spanish private and retail investors. Íñigo Gallástegui, head of business at Santander’s private banking division, told Spanish press agency Europa Press that, “High-net individuals – those with more than €1m in liquid assets – have opted to wait to see what happens with the capital markets before going ahead with more investments.”
In a recent interview with the Spanish financial sheet CincoDías.com, Jimeno added that the future of the newly arrived hedge-fund product in the Spanish market is safe, due to the great variety of products available. “The Spanish investor will incorporate hedge funds and alternative investments into their portfolios,” he said. “Product providers will keep issuing these products, while making sure we adapt the risk profiles.”
Since investment profiles for private and retail investors differ little in Spain, hedge funds represent a good opportunity for conservative investors. According to Gallástegui, “Most Spanish investors respond to an investment conservative profile and look for some kind of capital protection. That is why they demand structured products that not only guarantee the principal, but also offer potential for good returns.”
According to this view, Spanish investors will bet on hedge funds and alternative investment products because, despite their newness and apparent sophistication, they offer the chance to diversify portfolios and reap attractive returns.
Jimeno, an industry expert on equity derivatives, relative value and hedging, warned that, under current circumstances, the industry should look for uncorrelated products. “This is just the right time, when capital markets are adding an uncertain scenario, to look for products that not only offer no correlation to traditional assets […] but that also offer an ideal profitability/risk profile,” he said.
Jimeno added that when hedging a capital-guaranteed alternative investment, the selection process of the fund manager is pivotal to securing the success of the investment. “Not all tranches of hedge funds are the same,” Jimeno said. “At BBVA, we have developed a complex and comprehensive selection process for all our structures. We always try to add value for our clients by rigorous selection of the funds that are included in our catalogue. It isn’t only a question of profitability.”
When hedging a capital-guaranteed hedge fund, “The selection process is long and covers more than sixty fundamental aspects about the way it is managed, such as the management team, the investment strategy used, the implementation of risk management techniques and the inherent characteristics of the fund,” he said.
