'EVERYBODY ACCEPTS that it is sensible to have a regular health check, but not everybody visits a financial adviser for a regular wealth check,' said Andrea Benenati of Swiss private bank Julius Baer. 'The result is that in Hong Kong we come across many rich individuals who have parked large sums of money with several banks while remaining unaware that, as a result, their assets may collectively be performing poorly. 'It takes a proper overall wealth check to diagnose the problem, and 'financial engineering' to fix it.' Hong Kong's typical wealthy individuals commonly distributed their assets among several banks - from two to five different institutions, said Mr Benenati, chief executive officer North Asia and chief representative of the Hong Kong office for Julius Baer. They do so for various reasons, the main one being to reduce risks by diversifying across institutions. Too often, however, this sacrifices returns on the overall wealth portfolio without reducing risk. 'Most high net worth individuals will have similar if not identical asset allocations, investments or currency exposures with each of their banks, which means they are achieving 'diversification' not across asset classes, but across banks at the expense of improved risk-adjusted returns,' he said. Individuals in such a situation, he said, should pose themselves the following key questions: How do I know that my investment returns are being optimised if I have three different banks looking after my money individually? Could I make more money with less risk if I were to financially engineer my entire portfolio? How could I do so, and who has the expertise to help me? Economic recovery across Asia and the explosive growth of China had ensured that there was no shortage of choice when it came to consulting private bankers in Hong Kong to find answers to these questions, said Mr Benenati. However, making the case among new customers in Hong Kong for a visit to Julius Baer, he said, began with the purchase last year of three small private banks and an asset-management company from rival UBS. The latter maintained a 21.5 per cent non-voting financial stake, however, in what is now billed as the largest pure wealth-management business in Switzerland, the home of private banking. 'Now we have the critical size to go out into these markets. We've opened an office in Hong Kong, Dubai and Singapore, and are opening one in Moscow. So we're really expanding into the growth markets,' Mr Benenati said. 'We have had a lot of interest expressed since we reopened for business this year. And with assets under management of 304 billion Swiss francs ($1.8 trillion) we are now the biggest pure wealth manager in Switzerland - so that is one box our customers can quickly tick off. 'We have been in the business for 116 years, operating under the same name and with a triple-A rating. So that is another box they can tick. 'Then from a product, service and relationship angle we are very strong. Equally so, or even more flexible than many others. We are all trained private bankers with a lot of experience in this market.' A typical high net worth individual, who for the sake of argument would be known as 'Mr Wong', might call for a wealth check presenting the following profile, said Mr Benenati. He is 50 years old, a very sophisticated investor, and made his wealth through successful investments in properties over the past decades. His personal wealth amounts to bankable assets of about US$50 million and are placed with three different banks. He is more or less happy with the institutions, but feels he has no overview of all his assets combined, and even more is concerned whether he is over-exposed in certain asset classes, currencies, etc. Enter Julius Baer's 'swat team' of Zurich-based financial analysts and advisers, says Mr Benenati, who will conduct a review and map out several investment proposals for Mr Wong. After aggregating all relevant information from his three banks, the team will get to work and typically, within a week, Mr Wong will get a clinical report that may run to 50 or more pages, containing a detailed analysis and back-testing of his existing portfolio and a number of alternative investment proposals. The review process will drill down into each of the consolidated asset classes in his existing portfolio (see Wealth Check table below), involves back-testing the holdings to determine how they have performed and running a credit-risk analysis of exposures. In Mr Wong's case, the wealth check produced good and bad news, said Mr Benenati. His consolidated portfolio showed a strong US dollar bias (75 per cent of all currency exposures - 10 in total - were in US dollars), stemming predominantly from the fixed-income part of Mr Wong's portfolio. Equity investments were strongly overweight in emerging markets, one reason for their historically good performance. North America, though, was underweight and the overall portfolio risk (volatility per annum), was 18.1 per cent over the past four years. The overall duration of Mr Wong's bond portfolio (which amounted to about 27 per cent of his total investment portfolio) was 3.3 per cent with a yield to maturity of 7.3 per cent and an average coupon of 8.2 per cent. But closer examination revealed that the duration of the Euro bonds in the portfolio was considerably longer and therefore more vulnerable to interest rate increases. But at 33 per cent, the cash component of the portfolio was just too high - a product, partly of that diversification among three different institutions. Mr Wong was presented with three propositions of which Portfolio 2 was the preferred choice of the Julius Baer financial engineers. Portfolio 2 recommended a small increase in the holding in equities to 28 per cent, diversified across all major markets; raising his holdings of government bonds to 38 per cent; adjusting his holdings of emerging market bonds to 3 per cent, taking an 18 per cent exposure to alternative investments, including commodities and real estate, and a 13 per cent credit exposure. Back-testing demonstrated that the total return on his existing portfolio over the period January 2004 to January this year was 134 per cent, with a volatility of 5.6 per cent. Portfolio 2 would have generated a total return of 151 per cent at a lower volatility (5.4 per cent).