Rethinking Risk and Return

The New York Times reported Friday in an article entitled, It’s the New Economic Reality. Work With It., on the lessons that wealth managers are learning from their failed risk assessments and troubled portfolios:

Very few believed a financial disaster like the one we are living through could actually happen, according to a forthcoming paper by Robert Seaberg, head of the wealth planning group at Citi Global Wealth Management. Or put another way, the risk models that high net worth and ultra-high net worth investors trusted to insure their portfolios failed.

Seaberg discusses four overall lessons that high net worth individuals and their wealth managers should be taking away from their recent losses. Among them, he urges HNIs to “redefine a safe investment” and “diversify more broadly.” Specifically, “Mr. Seaberg said investors now need to look outside the United States and Europe to emerging and frontier markets in all aspects of their portfolios to create the greatest diversification.”

In other words, while investors are doubling down on Treasuries as a safe place to wait out the storm in the short term, the smart money will not stay there, particularly as the yield for Treasuries dwindles to almost zero. Rather, HNIs and funds should seek out new and growing markets, like Africa. While these markets carry risks of their own, they are subject to a different set of risks, some of which can be offset by careful due diligence and local representation.

At RENEW, we aim to provide HNWIs and funds with the option to diversify their portfolios, thoughtfully and strategically, beyond U.S. and European markets, while at that same time offering the prospect of demonstrable positive impact on the local economy and community as a result.