Zara Chin is the Head of Wealth Management for a large APAC private bank based in Singapore. Zara has access to a large and diversified team of investment specialists including economist, investment bankers, asset allocators, investment specialist teams across multiple asset classes and third fund managers. They need to give advice to a large Family Office client.

The world economy has contracted significantly due in part to exogenous factors. Supply chain disruption is significant and severe. The expectation is for coordinated monetary and fiscal support to cushion the downside and assist with the recovery prolife of the regional (APAC) and global economy. However, clients are concerned about the current state of play in markets and surrounded by the noise.

At the early stage of the global crisis the market is concerned and pricing in a negative return year-to-date. The IMF is already "downgrading" economic forecasts and highlighting they are looking at the magnitude of the stimulus measures.

Stage 2: Three months later

The global coordinated fiscal and monetary stimulus has been of historic magnitude. Equity markets have begun to recovery in anticipation however the clients (and investors in general) remain concerned.  

Central bank policy makers continue to remain on script and continue to offer additional support for the foreseeable future. Monetary policy evolved to include expanded quantitative easing to complement lower rates and additional government stimulus.   

Zara and her wealth management team need to utilise their various support teams and resources and advise the client heading into the correction and the early stages of the recovery. They prepare investment recommendations and reports, meet the clients immediately and then in 3-months time.

Question:

In stage 1 what phase (of four) of the cycle are we currently in and what occurs to bond yields (or bond prices) and equity prices?

What Tactical Asset Allocation (TAA) tilts vs the Strategic Asset Allocation (SAA) portfolio would you recommend.

Please identify some key partial economic indicators and also some leading economic indicators (LEIs) that you will look at with your team and track going forward.

Zara and her team need to explain quantitative easing. Please identify who needs to issue more bonds / debt to fund the recovery?

Question:

In stage 2 (three months later) of the recovery Zara and her team need to recommend the appropriate fixed income tactical (TAA) tilt. What is the recommendation to fixed income? Within the fixed income asset class what credit recommendations would you make and what duration position would you suggest (long or short benchmark duration)? What part of the capital structure and will it be "investment" or "sub-investment grade" bonds / fixed income managers

What are the partial economic and leading economic indicators in stage 2 vs stage 1 doing

Identify some key manager selection processes for the equity manager selection

For the report, the family office is a leading advocate for ethical and impact investing. Particularly for the non-listed private equity (PE) and venture capital (VC) segments. What are the three key reasons for investing responsibly? Reference to the UN Principles for Responsible Investment

Answer rating: 100% (QA)

SOLUTION Answer1 In Stage 1 of the global crisis we are in the Recession phase of the business cycle In this phase bond yields tend to decrease as investors seek safety in government bonds while equit... View the full answer