Ever wonder what the rich invest in? What it is their private bankers and wealth managers are selling them. Surely they are not getting 0.5% returns like the common man and woman?
When I used to sit on ICICI Bank’s Private Banking Division’s Advisory Board, I would with the Board oversee the various products being issued for the ultra high network Indian market. Today, I get them via all the major banks including Goldman Sachs and Kotak. So what are these products?
Well let me tell you what the banks have been issuing and their wealthy clients snapping up. As Bloomberg put it, ‘As the Federal Reserve holds interest rates at about zero for a fourth year, Goldman Sachs Group Inc., Citigroup Inc. and other banks are selling record numbers of structured certificates of deposit to savers. Banks sold a record 1,271 of them last year, according to StructuredRetailProducts.com, with some offering potential annual returns of as much as 24 percent by tying rates to everything from gold to Brazil’s real.’
24%! No wonder the rich get richer.
As you would expect, such products tied to Gold also have done well as people chase performance e- but the rich don’t just buy gold. That is not good enough for them. They buy products which leverage the returns – after all if you think something is going up, why not get double the return?
Banks sold $139.1 million of the securities linked to gold in January, the most in 15 months, according to data compiled by Bloomberg. Investors also added more than $86.5 million in market capitalization last month to three exchange-traded notes that gain when the precious metal does. The PowerShares DB Gold Double Long ETN, which uses two times leverage, added $83 million to reach $585.9 million.
What about India and India related products? What is going on behind the scenes between rich Indians and their private and wealth managing experts? It may sound complicated but I will explain, ‘Sales of credit-linked notes (ie bonds) tied to the Indian government surged to the highest in at least a year in January, as foreign investors bet that the country’s slowing inflation may help spur a bond-market rally. (As inflation drops, you need less risk to make a return to beat inflation, so you buy safe bonds (those linked to Governments) and that pushes up their price. Issuance of the notes rose to $119.3 million, more than five times the $22.4 million monthly average of 2011, according to global data compiled by Bloomberg that excludes U.S. sales. The securities were tied to Republic of India bonds and the debt of government-owned lenders including the State Bank of India, Bank of India and Export-Import Bank of India. Foreign investors have been attracted to the country’s debt, as the central bank predicts that inflation will slow.’ Because as inflation slows, so the price of bonds will go up, as people buy more bonds.
So now you just need to call up your wealth manager at Standard Chartered, UBS, Goldmans, Barclays, Kotak, Bank of Baroda!
- The Essential Data Traders and Investors Should Know in 2012 (alpeshblog.com)
- Indian Billionaire Kotak’s Bank Reaps Margins Goldman Can Envy (businessweek.com)