Case study 1: Locking in wealth for the future
A successful IT entrepreneur has strong cash flow from his company and real estate investments. The Core-Satellite approach may help him diversify and lock-in wealth for the future.
Thomas Chan's IT business is flourishing and he has made large sums in the world's hottest emerging property markets. His UBS client advisor, however, observed that his IT business could become less profitable as the market becomes saturated, and reminded Mr. Chan that property bull runs will not last forever.
"I convinced Mr. Chan that things could one day change in his business environment, and that if property values fall his money could be locked up for years," she says. "I introduced the Core-Satellite approach as a way for him to lock in the money he has made from his company and his property investments."
Forty per cent of Mr. Chan's funds are in his core portfolio, which seeks to preserve and grow his wealth. It is managed by UBS on a discretionary basis, and is globally diversified.
The balance is in Mr. Chan's satellite portfolio. This is managed by Mr. Chan himself, with input and suggestions from his client advisor and UBS specialists. It contains primarily equities, bonds, and foreign currencies.
"With the satellite portfolio we discuss everything and he makes the final decisions," says Mr. Chan's client advisor. "I know his views and what he is interested in, so I can make suggestions that will appeal to his views and risk appetite."
The client advisor says the key element of the relationship is trust. When Mr. Chan opted for the Core-Satellite approach, his she told him the power of the strategy would become increasingly clear as time passed.
"Markets move up and down," she says. "Over the years the power of the Core-Satellite approach should become apparent, as it aims to help clients preserve wealth during difficult market conditions and seeks to grow it when markets are strong."
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