Deutsche Bank's wealth management arm has noted a shift towards structured and commodity products, and hedge funds Deutsche Bank Private Wealth Management has experienced a shift in demand among clients for more active advisory business as investors start to regain their confidence in global markets. Rico Caduff, the private bank's Asia-Pacific head, said clients had recently begun to take a slightly more aggressive stance towards investing. 'We have clients requiring more structured products, more alternative investments, including hedge funds. We also see more demand for active foreign exchange trading. Commodity related products are also very popular with clients,' Mr Caduff said. Michael Coglin, Deutsche Bank head of product management and investment solutions for Asia-Pacific, said clients had begun to take commodities related positions, based on the widely held perception that Asia would benefit from any major recovery in the United States economy. 'Clients have been active in a variety of trading strategies from buying gold-linked notes, with a mix of principle protection with varying degrees of upside participation. Our more aggressive clients buy commodities with full market exposure and some gain exposure through options. As an example, you might have a client buying a gold call option or selling a put option in order to take a long position in gold.' Apart from strong investor interest in gold and energy, clients had also begun to play base metals, Mr Coglin said. 'The same investment disposition drives the trade, but here clients are investing in a more diversified product mix. You may have exposure, then, to nickel, copper and palladium, which means you are not taking single commodity risks.' The private bank has developed a range of structured products for its clients linked to a basket of metals. Mr Coglin said among the structuring choices were a degree of capital protection, linking performance with a laggard security or commodity, having an equal weighting, or attaching an interest-bearing coupon to the product. 'A significant amount of our business since the beginning of the year has been linked to commodities, whereas two years ago that story was not even on the radar,' he said. Until relatively recently, a typical Deutsche Bank private client in Asia was mainly interested in buying defensive products, such as capital protected or guaranteed notes, mainly based on fixed-income movements. Mr Coglin said range accrual products, which paid the maximum coupon if interest rates remained within a certain band, had been particularly popular. There was what he described as a 'yield-grab mentality' among wealthy investors. 'Over the past year or so, we still have the yield hungry investors because we are still in a very low interest rate environment globally. Equities, although they had a relatively decent year last year, are still volatile.' With investors taking a more cautious approach to investing in stock markets, they needed the comfort of some capital protection before committing, he said. 'You are seeing people investing in 80 per cent to 90 per cent protected notes. The main difference now is that the underlying security is no longer necessarily rate related. They are now more equity linked structures.' Mr Coglin said hedge funds continued to dominate the market among private clients for alternative investments. 'In the alternative space these days, I would be surprised if hedge funds did not amount to about 80 per cent of the interest from clients. Since the 1980s and 1990s, we have witnessed an acute reduction in investors' risk appetite and an increase in clients looking for intelligent ways to access the markets. To that end, hedge funds represent that opportunity.' Wealthy clients were drawn to hedge funds because of the diversity of financial techniques involved, Mr Coglin said. Managers were able to take long and short positions and hedge their positions through futures or options. 'You have an increase in the number of financial tools at your service, and you also typically have very sophisticated money mangers. Additionally, investor interest and manager interest are well aligned as managers do not earn their performance fees if there is no performance. Both investors and managers therefore have an absolute return target.' For first-time hedge fund investors and some others, Deutsche Bank recommends investing in hedge funds through a fund of funds structure, which provides diversity across various strategies and managers. 'Over 50 per cent of our client investment interest is in funds of funds. These funds offer a more protected and stable investment vehicle and may even offer a principal guarantee.' Mr Coglin said the private bank offered clients both single and multi-manager funds. 'You can be in various different categories of strategy; you can have an equities base, fixed income base or a commodities base.' Deutsche Bank's two main Asian offices are in Hong Kong, which services north Asia, and Singapore, the regional head office, which takes care of Southeast Asia. The private bank operation has 300 professionals working in Asia, including those working at onshore units in nine Asian nations.