Wealthy investors concerned about volatile equity markets have begun to look more to the long term over the past few years, according to Lloyds TSB Bank regional chief executive Stephen Richards Evans. 'There is a willingness now to look at investment not as a trading strategy. It is more a long-term outlook,' he says. 'At the moment, trying to make any sort of investment is like trying to catch the proverbial falling knife. It is very sharp and it is falling from a great height.' Mr Richards Evans says his bank's wealthy clients are typically first or second-generation wealth owners. As a leading provider of overseas property finance, Lloyds does not restrict its services to clients of high net worth but serves any client who meets the bank's credit requirements. Falling equity markets have steered clients away from trying to achieve short-term profits, especially in equities and foreign exchange, he says. 'They have had a sharp reminder that a trading strategy for investment might not be the best strategy.' In their quest for security, many clients seek some kind of capital guarantee. But Mr Richards Evans warns that low interest rates make many traditional guaranteed funds unattractive as a larger portion of clients' capital needs to be tied up in zero-coupon bonds to cover the guarantee. 'You have to bear in mind very carefully that you trade off between your return and the security of that guarantee,' he says. 'You pay significantly for the guarantee in terms of the amount of your capital put aside to give you that guarantee. 'There is nothing magic about it. Some of the investment is invariably put into a zero-coupon bond, which then rises over the term of the investment back up to the level of your original capital. The fund manager simply invests the residue [in the hope of achieving a bonus return]. Obviously, today the residue is tiny. I am not sure that is adequately explained to people.' Another negative impact of low interest rates on guaranteed products is the ever increasing term imposed on investors before the guarantee kicks in. 'You are seeing products with terms of six to 12 or 15 years. There are a lot of products out there that are not in the best interests of customers.' Lloyds prefers alternative strategy funds for its clients such as selected hedge funds, which are available with a capital guarantee in some cases. 'There are more than 230 hedge funds available, involving about US$20 billion of Asian assets,' Mr Richards Evans says. Some estimates see this figure increasing up to sixfold over the next four years. 'The reason people tend to go for them is that, increasingly, customers are looking for an instrument capable of achieving absolute returns independent of general traditional asset classes.' Using derivatives and other strategies, hedge funds are able to secure returns, hopefully, even when markets are falling. 'When our customers with a very high net worth want to deploy alternative investment strategies, one way is a capital guaranteed form.' The capital guarantee in a hedge fund vehicle can be achieved for a lower outlay than in an equity or fixed-income fund.