Why Wealth Managers Should Focus On Steady, Cash-Generative Businesses expertise and insight of an institutional fund manager will have an edge. How does this impact wealth management? Interview with: Homiyar Vasania, Chief Executive Officer, River Valley Asset Management “In the low return environment that we foresee, there is a strong reason to refocus on “Return of Capital and Return on Capital”, which requires a cogent investment process as the foundation of the wealth management business,” recommends Homiyar Vasania, Chief Executive Officer, River Valley Asset Management. River Valley Asset Management is a fund management company at the marcus evans Private Wealth Management APAC Summit 2014, in Kuala Lumpur, Malaysia, 27 - 29 October. What is challenging private wealth managers in the region today in their attempts to add value to wealth portfolios? private Wealth managers need to have a robust and consistent investment philosophy and process . RVAM’s long -term investment construct is based on a macro environment of low growth and low interest rates. Our total return expectation is therefore appropriately calibrated. The upside to low growth is an improvement in corporate free cash flow. Consequently, a larger proportion of total return would come from cash returns rather than purely growth. We are increasingly finding many strong, steady businesses with lower than historic growth but improving balance sheets and stronger cash generation. These excite us as their ability to generate cash return is high. The market consistently undervalues “ s te ad y” and “ pr ed ic tab le ” and overvalues “growth”; hence the businesses we like are cheaper than they should be. Our process is focused towards gaining from this anomaly. Though ours is an “all season” investment philosophy, it becomes particularly potent in low interest rate environments like the current one. How do anomaly? you gain from this The biggest challenge is that there is no easy money to be made any more. Fixed income returns are low and lever ag ing has r un its co urse . Conventionally favoured asset classes like property and fixed income seem less attractive. Hence we have to revert to understanding, managing and taking more risk. The returns from our targeted assets would be less volatile and more likely to beat long-term returns from most other asset classes. We expect nearly half of our total returns to come from cash coupons (either dividend or interest). This is not dependent on the market, but only on the performance of the business. Total return is thus anchored around this cash coupons number. A wealth manager’s function is increasingly moving towards that of an institutional fund manager. Entities that combine the service levels and transparency of a conventional private wealth manager with the investment Consequently, we prefer companies with higher-than-market dividends and free cash flow - ones with “steadier” and “more predictable” businesses which, in turn, have lower stock price volatility. This also allows us to maintain moderate portfolio leverage to enhance returns; due to the current low cost of funds, this is a low risk return enhancement. What risks could this investment style bring on board? How could they be avoided? This type of investment style could underperform in a strong bull market but even then the absolute return would be on target. In a quickly rising interest rate environment, this portfolio could have a pause in terms of performance, but performance should subsequently continue, as we believe the rise in interest rates would only happen with a better global growth outlook and this portfolio does have leverage to growth. In a low return environment, understanding and managing exposure to the right businesses is key About the Private Wealth Management APAC Summit 2014 The Investment Network – marcus evans Summits group The fifth annual Private Wealth Management APAC Summit is the premium forum delivers peer-to-peer information bringing elite buyers and sellers together. The Summit offers regional SFOs, MFOs, on strategic matters, professional wealth advisors, and international fund managers and consultants an intimate trends environment for a focused discussion of key new drivers shaping wealth and breakthrough innovations. preservation and investment strategy. Taking place at the Hilton Kuala Lumpur Hotel, Kuala Lumpur, Malaysia, 27 - 29 October 2014, the Summit includes presentations on strategic asset allocation and risk management, co-investment opportunities, family governance, lucrative alternatives to boost returns and more. www.pwmsummit.com Please note that the Summit is a closed number business of event and participants the strictly limited. Contact Sarin Kouyoumdjian-Gurunlian, Press Manager, marcus evans, Summits Division Tel: Email: + 357 22 849 313 [email protected] For more information please send an email to [email protected] All rights reserved. The above content may be republished or reproduced. Kindly inform us by sending an email to [email protected] About River Valley Asset Management A Registered Fund Management Company under MAS, RVAM offers multi asset class investment services via bespoke managed accounts and an offshore fund to accredited investors including family offices and institutions. RVAM focuses on businesses’ cash generative ability to achieve high unlevered return on investment with relatively low volatility. Homiyar Vasania, CEO, was senior fund manager with Morgan Stanley Asset Management’s EM team for 12 years, since March 2000. He directly managed over US$5bn, with his Asia team managing over US$12 bln. www.rivervalleyasset.com About marcus evans Summits marcus evans Summits are high level business forums for the world’s leading decision-makers to meet, learn and discuss strategies and solutions. Held at exclusive locations around the world, these events provide attendees with a unique opportunity to individually tailor their schedules of keynote presentations, case studies, roundtables and one-to-one business meetings. For more information, please visit: www.marcusevans.com Upcoming Events APAC Investments Summit - www.apacinvestmentssummit.com European Pensions & Investments Summit - www.epi-summit.com Private Wealth Management Summit (North America) - www.privatewealthsummit.com To view the web version of this interview, please click here: www.pwmsummit.com/HomiyarVasania