Kingswood Group Plans Foray Into Alternatives Market

They told Investment Week that, last year, they hired Merrill Lynch managing director Richard Klein as the company's first head of alternatives, and now believe they are close to being able to offer some new products for clients.

Why now is the time to increase exposure to alternatives

"I am certainly a believer that there is always space for alternative investments in a portfolio," said Goulding.

"There are some very interesting opportunities out there - particularly for investors who are looking for a little more yield; Richard is looking across the likes of hedge funds, private equity, some real estate products and potentially some structured products.

"It is early days but we certainly expect that, this year, we will have at least two different alternative investment products we will be taking to market."

Philpot added that, with bond yields at historic lows, and with dividend yield concentration risk rife across stockmarkets, now is a good time to look to a wider range of asset classes for income.

"It is also for this reason that, in terms of the equity exposure across our portfolios, we have a slight preference towards US equities over UK equities, although there are a lot of variables out there in terms of currency and elections,"

he explained. 

"From a strategic perspective, the UK is not a fantastic market in terms of diversification near the upper end of its cap spectrum. There is a limited range of sectors in which to invest."

Overall, the research team at Kingswood is neutral on equities, and not particularly keen onfixed income. 

"Typically, if we had seen the type of pullback we have seen in markets recently, we would have likely increased our equity exposure," Philpot said.

"However, we do not know the size of this correction or where it is going to go - we cannot make investment cases with incomplete information."

Instead, the team is focusing its attention on long-term investment themes including artificial intelligence, healthcare and long-term growth prospects for some frontier markets.

From an industry perspective, Goulding and Philpot said the increasing consolidation of asset management firms is also impacting the positioning of their risk-adjusted portfolios.

"Groups such as ours are consolidating the number of fund houses they are investing in because larger firms tend to have better oversight and better transparency, which should ultimately protect investors," Philpot continued. 

"We are also considering minimum fund size more carefully, as we are growing rapidly ourselves through acquisitions."

Kingswood Group has made a number of purchases over the past year, including Oxford-based wealth firm Thomas & Co Financial and its second US acquisition through an 85% majority interest in Chalice Wealth Advisors. 

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Last September, it secured £80m to fund a further pipeline of acquisitions through a deal with Pollen Street Capital.

"Obviously we are very selective in terms of the businesses we choose to acquire," Goulding said.

"But [finding acquisition] opportunities is not a problem at all. The pipeline is literally so deep right now. We have so many opportunities we are evaluating."