What is a discretionary mandate?

Discretionary mandate is an investment service characteristic of Private Banking, by which the clients delegate all or part of their assets to a team of professionals. This team then manages their assets within a certain framework of action and with a specific of risk and investment objective. Normally, the framework of action includes limits to the distribution and allocation of the client's investments, such as the percentage in certain types of assets that define the risk assumed by the investor, or in the time horizon of the investment, which is usually a period of around two or three years.

Why are these types of portfolios relevant in the current environment?

The current strong economic imbalances, such as high debt and structural problems, coupled with low interest rates in most economies, make the investment environment more complex than ever. In this situation, conservative investors face serious difficulties if they want to ensure their assets give them a good return in the future. High levels of debt will cause interest rates to remain close to zero or negative for many years, so more conservative assets such as government bonds or bank deposits will pay a return of close to zero in the best of cases. On the other hand, investors who keep their assets in current accounts as a structural strategy face a significant loss of purchasing power due to the effect of inflation. Other less conservative investors may think that high-coupon bonds from emerging countries or high-yield companies are a possible solution to this problem. In that case, they face a complicated situation because many of these bonds may not pay out as expected as a result of default or restructuring, due to the high levels of debt faced by their issuers. The most risk-tolerant investors can point to the stock market as a valid solution, relying on the famous saying that the stock market always goes up over the long term. This is a valid statement in some markets, such as the United States, but over very long periods of time. Reality indicates that stock markets are widely overvalued, so the long-term returns they will offer are extremely low in historical terms. Taking into account all these circumstances and a very complex economic scenario in the future due to the consequences of the Covid-19 crisis, managing assets today requires more dedication than in other boom periods. A dynamic in-depth analysis of the situation has to be carried out, applying objective criteria when choosing the assets to invest in. The final objective must be to extract the maximum value from the assets, making the investments profitable and diversifying risk in the best possible way.

Who are these portfolios advisable for?

Getting support from experts for important matters is always a good recommendation in any area of life. It therefore seems very reasonable while managing assets. Discretionary portfolios are suitable for any type of client and risk profile. There are several types of profile that adapt to the objectives of most investors. The BBVA in Switzerland team has extensive professional experience in investment management in a variety of contexts. It provides key input for clients to be more successful investing and obtain positive returns, above all with a strict control of the risk of investments. At BBVA in Switzerland, we have successfully managed these types of portfolios for many years, allowing our clients to dedicate their time to what matters most to them. We have a philosophy of capital protection and a long-term focus, without forgetting the opportunities that the short term may offer, depending on the client's risk profile. Do you want to discover more about our discretionary mandate solutions? Check out the FAQ section or contact your Relationship Manager.