BNY Mellon Wealth Management, based in New York, oversees more than $191 billion in client assets and chief investment officer Leo Grohowski discusses the best options for managing market volatility.
Global Finance: How do you advise clients to deal with market volatility?
Leo Grohowski: We recommend "diversifiers" (also known as alternatives) in client portfolios, such as managed futures, absolute return strategies, and hedge funds. We incorporate these asset classes into client portfolios primarily to add "shock absorbers" that will help smooth what is likely to be a bumpier ride in the quarters and years ahead.
GF: Why are markets likely to remain more volatile, and what does this mean for wealth management?
LG: Many traditional asset classes, including large cap US stocks, have become more fairly valued, and are less likely to tolerate poor or even mediocre news. Therefore, having multiple sources of less-correlated potential alpha providers is going to be more important in the future.
Finally, the most volatile stretches in the markets over the past year are due to big-picture macro concerns: China, oil prices, etc. In such periods, much of the news and thoughts about portfolios flow from the "top down." But at those times we try to think more from the "bottom up,” by asking ourselves how much of this top-down news is, or should be, already priced in to a given asset class, sector, or security.
GF: What are the biggest challenges facing private banks?
LG: The ability to bring multi asset, institutional quality solutions to high net worth investors at reasonable prices. Also, the robo-advisors and entire fintech space have our attention, particularly when we think about wealth transfer to the next generation.
GF: How can private banks find the perfect cross-selling collaborative model for clients that also require investment banking products?
LG: We have a developed a capital markets advisory function within our wealth management business that allows us to develop structured solutions on a customized basis with full transparency of counterparties and pricing. We don't find many of our clients seeking investment banking-based products, including IPO's, particularly as the market has cooled.