Private asset liability management: a promising concept which is still underused

A recent survey of private wealth managers across Europe has shown that private asset liability management (ALM) is a promising concept for integrating client-specific spending objectives but it is still underused by wealth managers.

Together, private wealth managers who are unfamiliar with ALM and those who are familiar with it but do not use it make up a majority of our respondents. A large majority of those who are familiar with ALM techniques but do not currently use them actually consider them useful, so the failure to adopt ALM in private wealth management as widely as in institutional investment management has more to do with unfamiliarity with the concept and with the perceived difficulty of using it than with sceptical views of its usefulness. Only 57% of the respondents who are familiar with ALM actually use it to allocate assets.

Overall, less than one-third of respondents actually use ALM. Private wealth managers who do focus mainly on general inflation rather than on inflation specific to client objectives, so ALM is seen largely as a way of hedging against “typical” liabilities; optimal practice would, in principle, emphasise investor-specific liabilities. True ALM, after all, is not merely about preserving real capital.

The survey results suggest that current private wealth management practices do not fully adress client-specific spending objectives. But the industry's emphasis on delivering customised advice for wealthy clients and the availability of tools from institutional asset liability management which are able to take into account specific objectives, could well mean that such ALM approaches will be adopted more frequently in the future of private wealth management.