, provides Arbion's Investment Viewpoints for October 2023 - 'Reaching the Powell High Plains'

- This year’s sharp rebound in growth stocks was an aberration within a trend of slowing growth.


- Stimulative effects post the March banking crisis are waning, giving way to the tightening forces of dollar, oil, bond yields and QT.

- As expected, a bear-steepening of the yield curve is underway which is likely to be followed by rate cuts next year.


- Leading indicators consistently suggest a recession within six to twelve months.


- Broader equity valuations are beginning to look increasingly attractive while bonds are close to a generational buying opportunity.

Arbion CIO Viewpoints for October 2023

The 2023 PAM NextGen Leaders is based on PAM Insight's experience and knowledge of who is rising to the top quickly, and why.

An open call is made for nominations to allow readers to suggest those rising stars they feel should make the list.

Factors taken into account included the reputation or performance of the company that the nominee works for, feedback from senior executives, trajectory of promotion/business development success and relative years of experience, and active involvement in promoting good organisational culture.

COO & General Counsel, Arbion, 14 years' experience

Kirin is chief operating officer and general counsel at Arbion. She embarked on her legal career as a trainee at KLegal – the former legal arm of KPMG.

Following qualification, Kirin joined McGrigors’ corporate team, where she focused on corporate tax re-organisations and private equity deals. Whilst at McGrigors, Kirin took on two secondments, the first at O2’s head office assisting their in-house legal team for six months, then later in March 2010 she was seconded to the newly formed investment office, Signia Wealth (now Arbion).

Following a successful stint as a secondee, only three years’ post qualification Kirin was then offered the role of head of legal at Signia. In 2015 she was promoted to general counsel and in 2019 she also took on the role of chief operating officer. Subsequently in 2021 she was appointed to the firm’s board as an executive director.

Kirin has worked closely alongside the management team to focus on three priorities which underpin long term growth: they implemented a new investment strategy, restructured to strengthen corporate governance and grew the top line. Having successfully met these three initial objectives the firm entered into a new and exciting growth phase, which Kirin has been key to implementing.

The latest phase has culminated in the recent management buy out at the end of 2022, which has allowed Carnegie, Greg and key members of the management team, including Kirin herself to become shareholders of the business.

Outside of Arbion, Kirin is a keen traveller and foodie and already has visits in the diary booked for America, France and Indonesia this year.

Arbion's COO and General Counsel, Kirin Ohbi, named as 2023 PAM NextGen Leader

Head of fixed income rates and co-head of multi-asset, Arbion, 12 years’ experience

Chartered financial analyst Robert has been the head of fixed income rates and co-head of multi-asset at Arbion for just over eight years.

He is also a member of the firm’s asset allocation committee for the multi-asset strategies, including setting strategic and tactical investment policy for the discretionary business and advisory channels.

Prior to that, he was the head of fixed income a Signia Wealth for five years. There, he was a portfolio manager and fixed income specialist directly responsible for Signia’s global fixed income strategies and associated client portfolios.

He was also a portfolio manager for Coutts, responsible for the management of advisory and discretionary client relationships running global multi-asset class portfolios for onshore and offshore ultra-high net worth clients, families and institutions.

His nominator said: “Rob believes in sharing his experience with colleagues and has been a mentor to many members of his investment team and wider company over the years, both in a formal and informal manner, always looking at ways to give back and help others grow and develop.”

Arbion's Head of Fixed Income rates and Co-Head of Multi-Asset, Robert Lee, named as 2023 PAM NextGen Leader

Interview #6: Marco Pabst shares his investment strategy, how he thinks about risk management, and his top ideas.

Welcome to investor interview #6. I’m putting together

to bring you diverse experiences and perspectives from other investors.

. Marco has more than 30 years of experience in investing and his team currently manages several billion dollars across equities, fixed income, hedge funds, and private investments. You can follow his thoughts or connect with him on

Hi Marco, thank you for taking the time to do this interview. Excited to have you here! Can you please tell our readers a little more about your background and also about your investment firm Arbion?

I started as an equity research analyst on the sell-side, working for a large German private bank covering small and midcaps, and then focused on European software companies, working for UBS in the late 1990s. After the dot-com bubble, I moved to the “buy-side” and joined a multi-family office in London in 2004.

We subsequently grew this business to just under $5bn and then sold it to Swiss private bank UBP - Union Bancaire Privee - in 2018. UBP currently manages around CHF 140bn 

However, over time I felt that our clients preferred working under a multi-family office setup and, therefore, I left the bank last year, having been their CIO in London and Chairman of the global equity committee of the bank.

At Arbion with a team of 30, we manage several billion dollars across equities, fixed income, hedge funds, and private investments for around 200 families worldwide. On the liquid side, our core business is discretionary multi-asset portfolios but we also run tailored fixed-income and equity allocations for clients. In terms of structures, we typically run managed accounts but we also have a range of funds.

Incredible. Congratulations on your success. Something we are always curious about while interviewing fund managers is how much of their own portfolio is with their fund.

As I run or oversee most of Arbion’s strategies, logically all my liquid funds are in investments that we also own for clients. If I identify what I believe could be an interesting idea for clients, why would I not also invest my own money into it? So, yes, all my skin is in the game.

That’s nice. What made you get into investing and what’s your investment strategy?

As a student, I started trading stocks and warrants of Japanese companies at the tail end of the Japanese equity bubble in the early 1990s as they tended to be mispriced, trading in Europe versus their home market. I then focused on European deep-value names before moving into what we call growth stocks today. Alongside that, in macro terms, I was in the market during the 1994 bond crash, LTCM, the Russian, the Asian crisis, and everything that followed.

So whilst my primary interest is in equities and credit, I also spend a fair amount of time looking at the bigger picture. This blend of macro and micro is what I find the most interesting, where everything comes together, not always but most of the time. As most people just focus on one particular area, they often ignore signals from others. Ignorance is every investor’s worst enemy.

Leaving the macro part aside, and whilst I don’t mind the occasional trade, I would consider myself a medium to long-term investor. If I can find the right business to invest in, ideally I would like to own it for as long as possible.

Given the number of market crashes and hype bubbles that you have experienced, what has been your best learning? Can you tell us a bit about how your mindset toward money and investing changed over the years?

There are many things that I have learned over time, and almost all of them are associated with mistakes I made. This led to an investment process that has elements of risk management at every single step even if it is not explicitly called risk management.

As a result of this negative selection process, there are many areas and strategies that I don’t spend much time on anymore, as the odds of success in them, at least from my perspective, are stacked against me.

I tend to ignore most things that are exotic, illiquid, looking too cheap, or overly complex. Similarly, I would not spend much time on industries that are highly commoditized, very complex to evaluate, extremely capital-intensive, have no particular edge, or have not shown any attractive sector economics historically. Typically, this includes mining, airlines, football clubs, biotech, most oil companies, banks, and some others.

This has narrowed my focus towards companies with defendable strong business models, that are not too cyclical, generate high returns on capital, are run by strong and incentivized management, and are not overly leveraged. Therefore, stable non-cyclical compounders are the ideal bedrock for a great long-term portfolio. Whatever the macro worry might be, the best names also tend to bounce back the fastest.

This led to another important learning which is that time in the market is much more important than trying to time the market, which is what many people appear to be attempting primarily. However, I would be lying if I said we don’t also look at timing aspects. There are pros and cons to it but I admit, that less is more sometimes.

I strongly believe that there is no growth without value and no value without growth. When I look at many companies today, including large tech businesses, I would find it hard to categorize them - hence I tend to skip this whole debate.

I believe most people who own stocks today are not very familiar with them. I am convinced that the average investor spends more time choosing a $3,000 TV set than a $50,000 stock investment. Hence, I am convinced that someone who reads the company presentation from the investor relations section is already ahead of 75% of his co-investors in that company. Annual and quarterly reports contain a lot of interesting details that help build a good mental picture of the business in question and this accumulated knowledge then leads to a much steadier hand, holding this investment hopefully for the long term. From that base of knowledge, it is then easy to expand into the broader sector and other competitors. As a result, the time I spend reading it is increasing every month.

Yes. We have also observed this time and again where investors go all in without doing adequate due diligence. Historian Cyril Parkinson coined a thing called Parkinson’s Law of Triviality that fits here perfectly. It states: “The amount of attention a problem gets is the inverse of its importance.”

So, what’s your research process like? What are some of the common red flags and positive signs when researching a company?

The size and scope of our investment universe have not massively changed over the years. There are just not that many good companies out there that are worth considering for investment. Hence, the process is more gradual now as we keep processing new information to inform an existing view.

The fundamental selection process is fairly straightforward and not too unique: we look for not-too-cyclical businesses with high and sustainable returns on investment and a strong position in their core markets. In addition, management and balance sheet quality are also important. I am not a fan of too much leverage, i.e. anything higher than 3x EBITDA typically. So far so good. 

What I then like to do is to look at the whole capital structure and see if there is any other interesting angle. For instance, in some cases, I start investing via selling out-of-the-money put options because implied volatility was temporarily very high for the stock for some reason. In several cases, this is how an investment started – with a short put that typically yielded more than 20-25% annualized.

Sometimes, we also approach an investment from the bond side only. Spreads could be attractive for some reason or occasionally we also find the odd busted convertible that pays an interesting yield and has the call option upside. As always, there are many ways to skin a cat.

Looking at the whole capital structure is obviously generally quite informative as it reveals what other markets are thinking about a company. Very often, one can find cases where the stock price is under pressure but credit is trading fine – a clear divergence. Conversely, a weak picture on the credit side but unfazed equity would be a major red flag in my books.

Aggressive accounting or accounting changes in that direction are also always a precursor for exiting a position. Frequent management changes are another.

On the other hand, insider purchases are certainly a positive as are conservative accounting methods and incentivized management. A strong R&D profile in businesses where this is important, strong cash conversion, and sector leadership are also key elements we are looking at.

Once we have identified our target investments, I like adding a somewhat contrarian angle to it and maybe this is where an element of market timing is entering the equation too. I like entering such positions when they are somewhat out of favor (after a profit warning or another otherwise short-term issue). Equally, I am rather a seller when something is in unusually high demand. This general approach is not limited to stocks.

A good example was Brexit Day – the day after the 23rd June 2016 Brexit referendum. The result of the vote was unexpected and domestic equities crashed alongside the currency. We were heavy buyers of these names on that day and the day after when many of them lost 30% and more during the panic selling. Buying when others were indiscriminately selling for little fundamental reason turned out to be an exceptionally profitable opportunity for us.

Two other more recent examples maybe to highlight this approach outside direct equities: In the third quarter of 2019, equity markets were riding high whilst the yield curve was inverting, signaling some potential trouble ahead. Because of the bullish equity environment, implied volatility was low, so I hedged the majority of our equity holdings at little running cost. The insurance premium simply was so low that it almost didn’t matter, creating a very asymmetric potential return outcome. Then, as the COVID pandemic broke out, we were almost fully hedged and performance benefitted accordingly.

Another important allocation decision and similarly contrarian was when I drastically reduced fixed-income holdings in the course of 2021. Yields at the time were still very low but started rising and the risk of increasing inflation and more hawkish central banks was on the horizon. This simply created an environment for investment-grade bonds where there was little upside and a lot of downside. The rest is history. After the bond crash of last year, we have built back a lot of exposure in the space as the risk/reward has completely changed: bonds are now a very viable alternative for investors vis-a-vis equities and they also have a hedging value again - providing protection when risk markets decline.

There is a lot of research on how index funds are beating active fund managers – Where do you think the need for active management arises? How do you think the fee compression affects the asset management landscape long-term?

I believe active management still plays a very important role in asset allocation, i.e. deciding what areas in the market a client should be focusing on and developing appropriate strategies for it. Risk management is also critical in that context, i.e. managing net exposures in equities, managing duration, and credit risk within fixed income as well as currency overlays.

Passive strategies and index funds play an important role in our portfolios, especially in equities, when we are just looking for ways to get liquid exposure to broader sectors or geographies without trying to pick the best companies.

Within fixed income though there is still tremendous value in active strategies and “bond-picking” as indices are almost always tilted to the fundamentally worst, i.e. most-indebted, issuers. Here, one can add substantial value for clients. Also, in contrast to funds/ETFs where one is typically exposed to more or less constant duration, I can easily design fixed maturity portfolios that match a certain event in the future and run down into cash over time.

Fee compression has been an issue across the board, from ETFs to hedge funds with discretionary strategies sitting somewhere in the middle. I believe this trend is unlikely to stop anytime soon although we are approaching some kind of floor, certainly for the more active strategies.

There simply is a certain cost associated with a very tailored strategy that requires constant attention by professionals and this needs to be reflected in a fair price. At current levels, I don’t think that the price is very high. For commoditized strategies which can effectively be run by a machine, costs will continue to be kept under pressure by competition.

More generally speaking, the broader answer is of course, that a larger scale is required. The threshold to operate a financially sustainable business in terms of minimum AUM today is several times higher than what it was 20 years ago.

Interesting. So, what are some of your favorite ideas on your radar now? (Long/short companies and industries) 

More thematically, the areas I spend a lot of time on now are:

Credit, where I believe, now is the time to build a solid investment-grade short to medium-duration portfolio to lock in the yields and spreads on offer. Credit selection is key here to avoid any names and industries that would suffer from a further contraction in lending or any potential recession.

I find myself a lot more active in options markets this year compared to last year, selling covered calls as well as buying index puts for protection or selling single stock options to build positions. Flare-ups in volatility across markets and names this year have been very supportive of this strategy.

We are beginning to spend more time researching stressed names, looking at the equity as well as credit - typically in areas that are under heavy fire at the moment. I would mention European real estate as an example. There are signs of indiscriminate selling here, irrespective of actual or potential fundamental risks. No doubt, there are huge challenges in the space but for the right price, I am getting interested. Generally, I like such disconnects.

We have also been looking at EM credit where I believe there are some pockets of value, particularly in LatAm.

Within equities, it is harder this year considering the macro setup where it is not clear to me if the recent inflationary pressures will lead us into a severe recession or not. In that sense, with stocks near their highs in many markets, the setup is less asymmetric than I would like it to be and the valuation buffer is also not there. As a result, we focus on more defensive, stable, non-cyclical names that would also do well in a weaker economic environment.

What is the biggest mistake that new investors make? What can they learn to save themselves a lot of pain?

They overtrade and focus on how many screens they need. I see little to no value in that approach. There are simply not that many successful traders out there, although social media would have you believe otherwise.

Like in any other profession, be it as a painter, musician, or dentist, you need to know what you are doing. There is no substitute for sitting down, reading, and doing homework. Investing is simple but not easy, as they say. There is a lot of wisdom in that. I think understanding how companies operate, who owns and runs them, and industries, competition, risks, and opportunities they are exposed to is absolutely critical. With time grows experience and investors make progress on their individual learning curve – and there is one for absolutely everybody in our industry, whether professional or private investor.

The key in investing, especially early on, is to preserve capital and only then grow it – not the other way around. Make mistakes but make them with insubstantial amounts of money. Budding investors should make sure their portfolios are reasonably diversified and they should start investing in well-known large-cap companies. Don’t put 100% of your money into an exploration start-up.

We totally agree. Warren Buffett once said that having a large amount of leverage is like driving

a car with a dagger on the steering wheel pointed at your heart.

What are some of the most underrated and overrated ideas in investing?

On a very generic level, I think complexity is overrated and simplicity is underrated. People get easily lost in details and don’t see the forest for the trees anymore.

When I look back at sources of returns, positive and negative, it is always only very few investment calls, on a security or allocation level, that really moved the needle in any particular year or quarter. It is obviously difficult to know in advance which ones will work out and which won’t but as un-analytical as it sounds, it was very often a certain conviction associated with a positive outcome. Instinct and conviction are closely related and fairly underrated. In the end, they are the subconscious result of all relevant experience and knowledge in a particular situation.

As an example, investment cases on many emerging market stocks fall into this category: I have seen so much perfectly logical and well-argued research on why certain Russian, Chinese or Brazilian large caps were tremendously undervalued - and I am not saying this with the benefit of hindsight. Although up until recently one could make a great pitch for these names, ticking many of the analytical and valuation boxes, there was this experience from how foreign investors are typically looked at in many emerging markets, the lack of a rule of law and shareholder culture plus a number of red flags that simply ruled out investments at any price.

Investing is difficult enough and in order to keep my life manageable, I found that working backward by eliminating as many options as possible early on, leaves me with a reduced set of desirable investments. In that sense, risk management is applied early on in the process and, in an ideal world, returns then take care of themselves.


What’s the best investment decision you have made? And one investment decision you regret? What led to them and how did they affect your process going forward?

There were not really any single decisions that dramatically moved the needle either way and this is intentionally so 

(maybe with the exception of certain risk-mitigating asset allocation calls as described above)

 - as I have always been striving to avoid an outcome where a single investment or theme would have a massive performance impact. I always look at things from a downside perspective first: What happens to performance or the portfolio if this investment faces an unexpected outcome? 

This is in the context of knowing that whilst we get over 70% of our investment decisions right, taking into consideration our time horizon, from the outset, I would not know if the stock I am buying at the moment, is in the 70% or the 30% camp.

More generally, I can say that the banking crisis this year came unexpectedly for me. I have never been a big fan of banks as they are really hard to properly understand and analyze. It is near impossible to read a bank’s annual report and get a good understanding of where the real risks lie. Having said that, I felt that rising rates in general would be supportive for the sector to return to some more normal profitability which would be beneficial for bank stocks that have been trading at very depressed valuations up until late last year. The events and subsequent outcomes around SVB and especially around Credit Suisse were somewhat surprising in that sense.

On the plus side, we have been holding several of the great compounders, especially in the large-cap tech space for many years which have contributed nicely to performance over time. This kind of exposure is the bedrock for por

I tend to think of portfolios as a constant exercise in risk management: Trying to eliminate risks early before they grow into something bigger. There is nothing worse than a permanent loss of a large amount of capital, so pruning these areas swiftly and unemotionally early on is the most important task. Focusing on trimming the left tail of return distributions should then ideally lead to an outcome where performance takes care of itself and where our long-term investments really have the place and time to compound.

What are some of the books or resources that you really love and would recommend to our readers?

- Schwager’s Market Wizards series is a must-read in my view for every practitioner.

- Sylvia Nassar’s “Grand Pursuit” is a great book on the history of economic thought.

“The Economics of Inflation” by Turroni is the best account of the German hyperinflationary period, somewhat topical these days.

- Homer & Sylla: “A history of interest rates” is also a must-have. The title says it all. Does not make for a riveting bedtime reading or great prose but the best book on the topic by a mile.

- Hayek’s “Road to Serfdom” is required reading for anyone vaguely interested in the direction of politics.

- Joel Greenblatt: “The little book that beats the market” is short but very inspiring for a beginner and focuses in simple terms on the two most important concepts for investors: profitability and valuations.

Arbion Investor interview with Marco Pabst.  Featured in Market Sentiment.

Luigi F V Bellini joins the firm as a shareholder of Arbion group as well as the head of Arbion's private capital and family board services division.

Christopher Johnson, Citywire Wealth Manager reports

Arbion Group has announced the appointment of Luigi F V Bellini as a shareholder.

Bellini will focus on heading the development of Arbion’s private capital and family board services division.

Prior to joining Arbion, Bellini was a partner at ACPI Investments Limited for over 11 years, where he led the family office and institutional business building strategic and tactical asset allocation for clients.

He also worked as a managing director at Bear Sterns for over four years, where he built the investment management business focusing on institutional and family office investors across Europe and Latin America.

Prior to this Bellini held roles at Credit Suisse First Boston and was co-head of UBS private banking division, leading the firm’s offerings in Italy, Monaco and Switzerland.

Carnegie Smyth, chief executive of Arbion, noted Bellini had ‘an abundance of experience’ in the private capital space.

He added: ‘His contribution both as a partner and forthcoming shareholder to the success of the Arbion group will be immeasurable.’

Last week, Arbion announced the hire of veteran senior manager Alisevket Karaca as a partner.

Karaca has been tasked with helping to develop the firm’s business strategy as it continues to restructure following its rebrand from Signia Wealth.

In his new role he will work with Arbion’s investment team, focusing on building client relationships.

Read the full Citywire article 

Arbion bolsters private capital division with hire of ACPI veteran.  Citywire reports.

Alisevket Karaca is tasked with helping to develop the firm’s business strategy as it continues to restructure following its rebrand from Signia Wealth.


Christopher Johnson, Citywire Wealth Manager reports
- 26 October 2022, 10:36

Arbion has announced the hire of veteran senior manager Alisevket Karaca as a partner.

Karaca is tasked with helping to develop the firm’s business strategy as it continues to restructure following its rebrand from Signia Wealth.

Karaca was most recently managing director at UBP for three years. Prior to this he held director roles at both ACPI Investments and Julius Baer.

He also spent 19 years working at Merrill Lynch covering private clients, family offices and institutions as an investment advisor and portfolio manager.

In his new role he will work with Arbion’s investment team, focusing on building client relationships.

Karaca joins CIO Marco Pabst, chief executive Carnegie Smyth and Greg Malone as a shareholder of Arbion group.

Arbion chief executive Carnegie Smyth said: ‘Alisevket’s is the latest in a series of senior appointments to the business and his forthcoming addition as a shareholder to the Arbion Group will be invaluable to our ongoing success.’

Marco Pabst also joined Arbion as its new chief investment officer this week, after spending three years as chief investment officer of UBP London Wealth Management.

He also served as a member of the asset allocation and global investment committees at the firm.

Signia Wealth rebranded as Arbion last week to accompany the firm’s restructuring, led by Smyth and his business partner Greg Malone.

Smyth said the overhaul would enable the business ‘to operate more effectively’.

In its most recent set of results for the 2021 calendar year, Signia reported a turnover 53% higher at £9.9m. It achieved a profit of £600,000.

Read the full Citywire article 

Arbion hires heavyweight to oversee business strategy.  Citywire reports.

Marco Pabst will take on the role of group chief investment officer at the firm, taking charge of Arbion's investment offering to clients.

- Christopher Johnson, Citywire Wealth Manager reports
- 24 October 2022

Arbion – formerly known as Signia Wealth – has hired Marco Pabst as it seeks to expand its asset management team.

Pabst, who joins as chief investment officer, spent three years at UBP London Wealth Management as its CIO. He also served as a member of the asset allocation and global investment committees at the firm.

Arbion chief executive Carnegie Smyth said Pabst’s appointment was the beginning of an expansion programme.

He added: ‘Marco [Pabst] is a major addition to Arbion and the appointment of such a high-calibre individual to this crucial role is a clear demonstration of our commitment to building a leading investment office.’

Pabst was previously the chief investment officer at ACPI Investments, where he spent more than 17 years. He also worked at Sal Oppenheim and UBS as an equity research analyst.

 to accompany the firm’s restructuring, led by Smyth and his business partner Greg Malone.

Smyth said the overhaul would enable the business ‘to operate more effectively’. In its most recent set of results, for the 2021 calendar year, Signia reported a turnover 53% higher at £9.9m, and a profit of £600,000 versus zero in the previous year.

Exclusive: Arbion taps senior private banker as investment boss - Citywire Reports

, discusses some potentially influential points of interest.


Last week, US 10-year government bond yields hit a peak of 4.88%, the highest level since 2007. Prices for corporate bonds dropped and yields rose accordingly to 6.56% for the ICE BofA BBB US Corporate Index, the highest level since 2009. Credit spreads also started widening more meaningfully for the first time since early 2023.

Furthermore, the US 10-year real yield is now at 2.5%, the highest level since 2008. This appears extraordinarily tight for an economy where leading indicators are slowing dramatically, spot inflation is declining quickly and financial stresses caused by the high-rate regime are becoming more visible.


US10-year real yields and bond market volatility.


The market’s reaction to Friday’s strong payroll data of +336k jobs (170k forecast) was telling as equities rebounded 2.7% from their intra-day lows, driven by high-beta sectors. There are several reasons why the headline picture looks stronger than the underlying reality. Firstly, month-on-month average hourly wage growth came in below expectations at +0.2% (versus a 0.3% consensus forecast). Secondly, the unemployment rate was higher than expected and, thirdly, we find an increasing deterioration in the composition of jobs. As per the BLS population survey, over the last three months, the US economy has lost full-time jobs each month and only added part-time jobs per the BLS population survey – the weakest streak of such dynamics since the outbreak of COVID.

These dynamics would imply that we are getting nearer a peak in bond market yields and as evidence of weakness becomes more tangible, we would also expect central banks to turn more dovish, signaling easier monetary policies going forward. This scenario is very similar to the way the yield curve un-inverted twice during the twin recessions in 1970 and 1974, as outlined in the October Viewpoints. The first move was driven by long-bond yields rising whilst the second leg was provided by policy rates being cut as the recessions already unfolded.

As a result, the risk/reward for fixed income has improved dramatically over the last few months. The total return in US BBB credit given a 100bps decline in rates is now over 10% whilst the expected loss given a further 100bps increase in yields is only 2% - the lowest downside risk since 2016. Should yields increase further, this positive risk/reward will improve accordingly and could possibly return to the pre-2010 situation where the expected total return from an investment would be positive even under a scenario of a 100bps increase in yields.

Whilst investors have to respect the strength of trends, and bonds are still in a bear market, there is also the reality of a certain yield ceiling where, once reached, central banks may begin to intervene. The Fed’s operation Twist in 2011/12 or the continued yield curve management of the Bank of Japan are a case in point.

Long-dated bonds are now in their worst drawdown from peak, in-line with the sharpest corrections in other asset classes. Therefore, the entry level for bonds is now very favorable to investors, notwithstanding some further volatility.

Drawdowns from peak for major asset classes since 1992.

Arbion Observations - October 2023

Please click here for a downloadable version of our article titled: 

• Broadly speaking, the purpose of a family office is to manage the wealth and interests of families so that they can be successfully transferred to the next generation.


• Family offices typically provide a range of services, including investment management, legal services, tax planning, treasury functions, through to operational and cyber security functions. Family-owned businesses may also fall within the office’s scope, depending on the degree of involvement.


• Whilst single family offices (or “SFOs”) cater to clients with a significant amount of liquid assets ($100mn plus), multi-family offices can be an economical option for smaller families and perform a similar function.

Family offices are ubiquitous in the financial world. According to Mordor Intelligence, there are currently over 8,000 single family offices globally, with the number expected to increase in the forthcoming years (

). Considering the staggering scale of wealth creation globally over the past decades, it’s not surprising that their numbers have increased commensurably.


Oftentimes the establishment of a family office is precipitated by a large liquidity event, such as the sale of a family business or investment exit. It can be driven by the desire to consolidate and professionalise the management of a family’s assets and structures. The biggest reason, and this is highlighted in the UBS Global Family Office Report 2023, is that “most (63% [of family offices surveyed] say that they consider supporting the generational transfer of wealth their main purpose.”


In addition to investment management, they can also address governance issues, philanthropic endeavours, tax advice, legacy planning amidst other services. This can become increasingly complex especially when family members have different domiciles – the underlying structure and investments need to be appropriate for all members.

The strategic asset allocation of family office tends to have a greater flexibility than that of individual investors, particularly with respect to alternative investments and private markets (

If a family decides to engage in high-risk transactions, either on a direct or passive basis, due diligence will need to be conducted, along with ensuring the suitability and appropriateness for the family. Unless they had the knowledge or inclination to undertake this directly, families will often rely on the appropriate professional to conduct the requisite due diligence on their behalf. Bringing such experience in-house can be costly, as we see below.

The cost of running a family office, as a percentage of AUM, can vary significantly. According to the UBS Global Family Office 2023 survey, running costs for smaller family offices (ca. $100-250 million) can run at ca. 47bps per annum. For larger families ($251 million plus) the cost is slightly less at ca. 36-37bps per annum (

), this excludes extraneous costs for custody and asset management fees. Staff costs are expected to increase, commensurate with industry wage growth and the increasingly competitive nature of the industry as the number of family offices grows.

Ultimately, the total cost is subjective, relying on factors such as the size of the family, domicile, structures, types of investments, the number of custodians, staff, compliance functions (where applicable) etc. To properly determine risk, it is 

to have a holistic view of a family’s assets. This can require investments in portfolio management systems and can cost hundreds of thousands a year to implement, not to mention any servicing or back-office support staff, if required. 

To that end, it can be an exorbitantly expensive enterprise for families that require support but have less than $100 million, regardless of whether their investments, interests, and structures require additional support and oversight that may not be provided by a single-custodian model.

People often assume a causal link between asset size and complexity. Ultimately, the underlying structure will be determined by the complexity and breadth of a family’s financial and business interests. As such, smaller families (

 face can face similar challenges to those with a significantly larger quantity of assets – albeit costs will bear greater consideration.

Smaller families can benefit from outsourcing key functions to a set of trusted advisors. This is to help achieve a balance between present financial needs and establishing a basis for transferring whatever further capital is accumulated to the next generation.

Independent multi-family offices, like single family offices, can provide invaluable assistance managing the investments of a family. Moreover, they can provide a family with a holistic view of their assets and risks across multiple custodians. The overall strategic asset allocation can be tailored accordingly. Risks can be assessed and, importantly, concentration risks can be mitigated – certainly a consideration for those with family-owned businesses.

They can also source best of breed investments for their clients – tapping into a valuable network of banks, asset managers, and private transactions (

Multi-family offices can significantly reduce costs and overheads on multiple fronts, such as custody, if they have a negotiated fee arrangement, allowing clients to diversify assets across whatever jurisdictions best suit the circumstances and family structures without necessarily requiring the quantum to negotiate with banks directly.

A trusted advisor can also call upon their network of lawyers, accountants, fiduciary service providers and tax advisors to help ensure that the family meets their required objectives and ensure that the structures and portfolios are optimised according to their needs and domicile. They can also support a family’s philanthropic endeavours should they choose to establish a foundation or charity.

Whatever the solution or structure, clarity of purpose, alignment of interest and a solution-orientated focus are key to delivering successful outcomes.

https://www.mordorintelligence.com/industry-reports/global-family-offices-industry

 Given the private nature of the industry, many family offices are unlisted. As such, the true number may be higher.


2. By this we mean hedge funds, private equity, private debt, infrastructure, venture capital, Hedge Fund or something that has long lock-up periods and a high risk-tolerance.


3. UBS Global Family Office Report 2023, pg. 50 

https://www.ubs.com/global/en/family-office-uhnw/reports/global-family-office-report-2023/download.html

4. By smaller, it is relative to the ‘typical’ family office client (around $100 million plus). This would be for clients with investible assets between approximately $20-$100 million.

Family Office Services

We cannot stress enough the importance of choosing ‘value creators’ – optimal drivers of compounding returns that should help increase the purchasing power of your investment portfolio.

However, long term real growth has two natural detractors. The first is inflation, the second is one of life’s two certainties: taxes[1]. This article focuses on the latter.

This summary looks to highlight some areas where investors can avoid inefficiencies that can negatively impact investment returns. Given the breadth of the subject matter and its nuances, our aim is to approach the topic in broad strokes.

Investors often use funds[2] for their convenience, efficiency, and breadth of investment range. However, the taxation of funds can differ markedly depending on the nature of the underlying holdings, the vehicle type, and jurisdiction.

For example, a US taxpayer investing in a non-US collective investment fund may be subject to the Passive Foreign Investment Company (“PFIC”) rule. Given the tax treatment of PFICs, particularly with respect to gains and dividends, holding the non-US investment fund can erode a portfolio’s purchasing power. The negative impact can also rise disproportionately over time.

Similarly, UK investors face a similar issue. A UK taxpayer buying an offshore fund should seek clarification from HMRC that the fund itself is an 

, as the tax treatment of gains on offshore reporting funds differs from those that have reporting fund status.

In some instances, holding instruments directly versus in a fund vehicle can be more advantageous for investors. For example, a UK taxpayer may use a fund for exposure to Sterling-denominated fixed income instruments. However, if a UK taxpayer were to, for example, invest in a portfolio Qualifying Corporate Bonds, the investor can benefit from more favourable tax treatment given the capital gain exemption.

For example, let’s take a Sterling-denominated bond, which is bought at 95, maturing at 100. The bond pays a 6% annual coupon, pre-tax.

Assuming you are an additional rate taxpayer, the post-tax annual income of the coupon is around 3.3%. On top of that you pay 20% capital gains tax upon maturity upon maturity. The total yield to maturity will be severely reduced on a post-tax basis. Investors need to consider the type of instrument, and the pre- and post-tax income of the 

What holds true in both cases, is that the real return required by an inefficient investment would need to be 

 than had the investor chosen a more efficient vehicle in the first place, due to the difference in tax treatment.

Continuing with the theme of fixed income instruments, one key element which is sometimes not considered is withholding tax. Whilst double-tax treaties do exist between nations, being cognisant of exactly how countries implement withholding tax at source is an important consideration given the impact it can have on an instrument’s yield and overall return.

For example, if a bond pays an annual coupon of 3%, and a 26% withholding tax[3] applies, the net coupon received is ca. 2.2%. This is 

 that you then pay on the coupon, thereby severely reducing the income element. Some banks do offer tax reclaim services, but this can be costly and time consuming. It may seem like a negligible point, but when Eurobonds typically trade in minimum denominations of 100-200,000 nominal, the overall impact to returns can add up over time.

Understanding the impact of other countries’ rules, depending on the type of investments held in the portfolio, means that investors can look to re-allocate capital to instruments where this is non sequitur.

We have seen a couple of examples where the tax treatment ascribed by country’s respective agencies can disproportionately impact returns. On the flipside, an investor’s domicile can be a factor for different tax treatment by a security’s issuing country.

If investments are undertaken through an investment vehicle which appears on a list such as the 

European Union’s list of non-cooperative jurisdictions for tax purposes

or that of an individual country’s ‘blacklist’, then specific restrictions may apply which can detrimentally impact returns. For example, France places a 75% level on gains made if the domicile of the holder appears on the country’s blacklist[4]. This includes individuals or companies domiciled in countries such as the BVI.

In Portugal, Cayman Islands is one of the countries where income derived from this location does not benefit from the favourable income tax treatment of the non-habitual resident scheme. Therefore, any issuer domiciled in the Cayman Islands would be inefficient for those looking to optimise their portfolios under this regime. As a point of comparison, France does not include the Cayman Islands on their list.

Being aware of the domicile and the impact it can have on returns can lead to a smarter allocation of capital by investors.

All in all, there are myriad of factors to consider in terms of efficient allocation. The compounding effect can see inefficiencies detract a significant portion from a portfolio’s performance over time. The effects can be mitigated provided are aware of how their individual circumstances should be taken into consideration or seek professional advice where possible.

As a caveat, this article is not intended to give advice on any specific issues nor is it exhaustive or should be construed as giving advice. Please seek professional advice before action is either taken or refrained from because of information contained in this article.

1) A reference to an extract from a letter written by Benjamin Franklin to Jean-Baptiste Le Roy, November 13th, 1789: “…in this world nothing can be said to be certain, except death and taxes.” Sparks, Jared, 1856

2) This is a generic reference to Exchange Traded Funds, UCITS vehicles, OEICs, Mutual Funds etc. Each vehicle and their suitability should be considered individually. Investors should refer to the relevant regulatory documentation or speak with a qualified financial advisor before purchasing.

https://taxsummaries.pwc.com/italy/corporate/withholding-taxes#:~:text=A%2026%25%20base%20standard%20withholding,and%20non%2DItalian%20resident%20investors

https://www.bdo.gg/en-gb/insights/french-tax-insights/french-blacklist-and-tax-impact

Impact of Tax on Returns

, provides Arbion’s Macro Outlook and Investment Strategy for September 2023.


- The US still exhibits robust nominal growth and solid job markets while parts of Europe and China are in recessionary environments

- Consumers are still spending their pandemic excess savings and enjoy rising wages

- Inflationary pressures are receding across the board

- Revenue and earnings growth is coming off its highs

- With stimulus measures coming to an end in the US and job markets moderating, growth could slow in the US

- Bond markets are not pricing structural inflation at the long end yet but seem to be waking up to the risks as term premia are rising

- Markets expect steep rates cuts in 2024

- Equity market performance this year was purely driven by higher valuations instead of earnings growth

- In equities, we prefer low-duration names, i.e., stocks in sectors with high shareholder yields trading at attractive valuations and defensive attributes

- In fixed income, our focus is similarly on short to medium duration investment-grade names that can withstand a backup of yields on the long end

Macro Outlook & Investment Strategy - September 2023

, provides Arbion’s Investment Viewpoints for June 2023.

- The current rate and business cycle is coming to an end, but it is too early to place bets on the new cycle.

- Performance concentration of a narrow group of mega caps has been at an extreme this year.

- There is strong evidence that the US might face much lower real growth over the next few quarters.

- The Chinese economy is not in a healthy state and requires targeted support – likely more volatility ahead.

- Focusing on areas with a favourable risk/reward remains critical as does stringent risk management.

Arbion CIO Viewpoints June 2023

Our fixed income team reviews the building market stresses in the global banking sector that have culminated in the recent forced acquisition of Credit Suisse by Swiss rival UBS.

Arbion Talking Points for March 2023

, provides Arbion’s Investment Viewpoints for March 2023.  

- Quickly climbing rates are beginning to expose weak actors in the system.

- As liquidity is receding and real rates are rising, investors should keep their focus on strong short-duration assets.

- The market’s response to the current crisis suggests we are nearer to the end of the rate hike cycle.

- Higher rates and inflation are putting pressure on valuations and the absence of earnings growth does not help.

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