Discretionary service

• We are an accomplished global wealth manager with over £38bn of assets under management (as at 31 December 2009), with clients from the UK, Europe, Middle East and Asia
• Our investment products and services are at the forefront of private client investing and have a proven track record
• Our presence in many of the world’s key financial centres provides us with a local perspective on important global issues enabling us to service your needs from a range of locations
• We provide a genuinely personal service, actively looking after your wealth and tailoring our solutions to your needs
• You have the reassurance of the Coutts name, trusted for its integrity, discipline and expertise.

Investing is a challenging and intensive exercise.

The Coutts Discretionary Investment Management Service is designed to make managing your wealth as effortless and efficient for you as we can. We take responsibility for managing your portfolio and while this is just one service in our extensive range, it is fundamental to many of our clients’ wealth plans, with each client portfolio being managed to achieve a very clear purpose.

As with all Coutts investment products, we apply extensive research to managing your portfolio, incorporating investment strategies typically only employed by institutional investors. Our global economics and research team are continually monitoring the markets, taking advantage of the most appropriate opportunities. We will report our progress to you on a quarterly basis, and periodically conduct reviews with you to ensure that your investment portfolio remains optimally structured to meet your investment objective.

The Coutts Investment Principles

We believe in four key principles, which govern our overall approach to investment management:

• Clarity of investment purpose for each client is critical to successful investing
• Asset allocation is the key driver of investment performance
• Innovative ways of accessing markets, and high performance products are essential to maximising returns
• Investment risk is multi-dimensional and requires skilled management.

We consider these four principles as fundamental to managing your investments and we refer to them throughout our relationship with you.

Our first principle covers the fundamental need to understand your goals and establish appropriate investment objectives.

How long is your investment horizon and when will you need access to your funds? Do you require a regular income? Is capital growth important? How much risk can you afford to take?

As your needs and circumstances change you will require your wealth to perform in different ways. A wealth strategy must be flexible enough to take this into account.

We look at wealth as serving one of three distinct ‘purposes’:

• Wealth Preservation: Protecting the value of your capital while providing an attractive and reasonably stable source of income.
• Wealth Enhancement: Growing your wealth in real terms but not taking too much risk with your capital.
• Wealth Generation: Building future wealth by investing for substantial capital growth, with commensurately higher risk.

By first being clear on your objectives, we are able to build a portfolio to fit your purpose.

The second principle of our approach to investment management is asset allocation. We focus on asset allocation as the primary driver of portfolio returns.

A study of the top 5% US pension fund results found that asset allocation was responsible for 77.5% of returns.

Source: Hoernemann, Junkans, and Zarate - Journal of Wealth Management 2005

We believe this study is relevant to our investment methodology and it confirms our view that the largest contributor to portfolio returns is the asset classes in which we choose to invest and the percentage allocation to each.

There are a wide range of asset classes across global markets. Equities, bonds, currencies, precious metals and property are some of the better known but there are many others. For example, we also look at different types of credit risk and more exotic investments in energy and other commodities.

The choice and composition of asset classes across the full range of global markets is the most important investment decision. Our global research and portfolio management teams focus their efforts on monitoring, analysing and modelling the various asset classes and markets to construct and manage portfolios that effectively meet our clients’ needs.

Our third principle relates to how we generate additional performance on top of that created by asset allocation, while ensuring that our clients receive value.

Our approach has been used extensively by institutional investors for some years but is yet to be widely adopted by private client wealth managers.

Our portfolios offer a carefully constructed blend of four core industry investment styles. Each style has its own distinct characteristics and makes an essential contribution to the portfolio’s performance and risk.

Your portfolio will be invested in a wide range of funds, many of which are built specifically for Coutts clients. Coutts has led the UK industry in developing the multi manager approach through our Coutts Investment Programmes. By adopting a multi manager approach we aim to select world leading investment managers within each asset class and market.

Active Management to enhance returns

Active management is an attractive strategy in markets that are less efficient such as those in developing or emerging markets.

Utilising the power of Hedge Funds

Hedge funds employ investment approaches designed to generate returns in a variety of market conditions. These funds can help to reduce the overall risk in a portfolio.

Selecting Specialist Funds

Our specialist funds are targeted to generate more exciting returns with moderately higher risk.

Passive Funds for efficient market exposure

The mature equity markets of the USA, Europe and UK are so highly researched that few managed funds are able to consistently outperform the market. Passive funds that invest in the whole market offer better value and are a natural complement to our actively managed funds.

Our final principle defines how we view and manage investment risk within your portfolio.

We believe there are three key investment risks that need to be managed:

• Volatility risk, the risk that large swings in asset prices may impact your portfolio value over the short term;
• Liquidity risk, the risk that you may not have access to your investment when you require it;
• Shortfall risk, the risk that your portfolio fails to meet your income and capital growth objectives within your chosen time frame.

Expertise and skill are essential in structuring each portfolio to effectively achieve the optimal balance between the management of investment risk and the need for required returns.

The Coutts Discretionary Investment Management Service is at the forefront of private client investment management. When we take on the responsibility for managing your portfolio we look for clarity of purpose, we maintain a focus on global asset allocation and innovative, performance oriented products, while also managing risk.

How it works in practice.

Once you and your private banker have agreed your goals and investment objectives, our investment team will build the most appropriate wealth portfolio for you. Your portfolio will be managed using the principles described.

We will advise you quarterly on how your portfolio is performing and periodically, we will review your circumstances so that we keep up to date with any changes to your needs.