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Hedge your bets to avoid inflation risk

2012-03-08 15:26

Choosing where and how to hold your cash is no longer a question of simply looking for the best bank deposit rate. Recently, leading equity and hedge fund manager Lee Robinson has been giving considerable thought to the twin demons of inflation and credit risk, the combination of which is particularly significant for investors.

Here he introduces his new fund, as well as offering his expert advice on alternative investments.

A reliable fund for the future

Inflation is the worst of all problems for High Net Worth Individuals. It's true that deflation can lower asset values, but this is compensated for by the cost of living; and over time those asset values can recover, as wage deflation is difficult to maintain longer term.

However, inflation can spiral out of control, as government policies engage in something akin to organized theft from the rich and successful, channelling funds to the exchequer and effectively destroying a lifetime of earned wealth in a short space of time - a few years, or even months. The costs of food, energy and clothing increase - and wage inflation follows.

For all of us, inflation takes two forms: a reduction in supply of goods drives the price of those goods higher, or the more money is printed, causing the value of goods to rise to compensate, the latter policy being pursued by major western governments.  

To take advantage of this phenomenon and to avoid exposure to banks, I have hired a manager to create a fund - running since last October - to invest in short-dated bonds of the highest quality sovereigns including Norway, Switzerland and Australia with an allocation to gold options for disaster scenarios. The added bonus is that these bonds yield much more than the 0.25% return investors currently receive in dollars.

This fund is far safer than leaving money in the bank. It remains liquid and diversifies money away from the reserve currencies of the dollar, euro, yen and pound sterling, which will all devalue in the coming years in our opinion, due to the excessive debt on their balance sheets.

The new fund is backed by substantial personal investment. If you would like more details, please contact Nerissa.Ventamilla@altanawealth.com

Tracking credit ratings - an early warning system

Notwithstanding my fears, there are clearly some banks that are stronger than others, and the credit protection market tracks this position in real time. For example JP Morgan costs 0.88% per annum to insure yet Royal Bank of Scotland is nearer to 3.50%. In order to keep on top of this I have set up an early warning system, to track these risks and automatically alert changes above  pre-set levels. This will be available free for all fund investors.

Diamonds are forever

I've recently been asked what I think about gold and diamonds as an inflation and disaster hedge. One of the members of our Trafalgar Think Tank has contacts in the industry and sources diamonds at a discount to wholesale prices. These are then sent to the Gemology Institute for verification and laser inscription. The process is incredibly cheap at between $40 and $60 per diamond. I have trialled the system and can recommend the process as secure. Again I can furnish more details on request.

More about Lee Robinson

Australian-born Lee Robinson is a Cambridge mathematics graduate. Formerly a top-performing merger specialist at Tudor Capital, he co-founded Trafalgar Asset Managers in 2001, a well known.hedge fund which has been running successfully since that time.

Mr Robinson has also created the Trafalgar Monaco Think Tank which meets twice a year to discuss the winners and losers from key events. 45 attendees debate subjects ranging from the survival of the Eurozone to Wikileaks, accompanied by at least one guest speaker.

Lee Robinson is editor of the highly influential set of essays The Gathering Storm, which brings together impressions, opinions and proposed solutions to the current economic crisis from a number of noteworthy financial sources. All proceeds from the book go to the Altana Charitable Trust and more details of the book can be found here. But if you'd like a copy, please hurry - only a few copies are left!