Small private banks wanting to offer their clients investments in soft commodities are increasingly using hedge funds as a point of entry. Interest in commodities has risen as high-net-worth investors seek diversification, but small private banks lack choice when offering third-party products.
Although oil and metals investments tend to be on the menu at most fund managers, such commodities as coffee, orange juice and sugar are often left to the small community of commodity traders being deemed to be too complex. As a result, private banks are looking increasingly to hedge funds.
Charles du Marais, director of wealth management firm Banque Bonhôte says: ?Hedge fund managers have a deeper knowledge of commodities as they tend to have worked as traders and are aware of the structures. Fund managers, on the other hand, are put off, as they do not understand issues such as shipping costs or quality variation. There are of course the larger houses like Merrill Lynch, Goldman Sachs and Morgan Stanley which offer specialist commodity funds, although hedge funds tend to use these as a prime broker anyway.?
Interest in commodities is expected to grow further among high-net-worth investors as they become better educated in financial products.
