For Credit Suisse’s SFr411bn (E280bn) asset management department, once the toast of pension schemes and insurance companies all over the world, the new clients of choice are becoming the private banks and family offices.
The Swiss funds house has seen so many changes of direction that it is difficult to keep track, with institutional clients reluctant to allocate to an organisation in a state of flux. But one constant presence in the group’s history has been vice-chairman Bob Parker, founder of the funds house and a key proponent of the asset allocation philosophy now central to the product offering.
The latest rejig has seen a swap of SFr70bn worth of long-only equity and bond assets with Aberdeen Asset Management, in return for up to 25 per cent in shares of the colourful Scottish group. Having offloaded this loss-making Global Investors division, Mr Parker has helped engineer the restructure to boost his two relatively healthy remaining units. These are the SFr146bn Alternative Investments department, which manages strategies including hedge funds, private equity, real estate and niche, high-alpha bond investments; and the recently boosted SFr265bn Multi Asset Class Solutions (Macs) business, fast becoming the group’s key unit.
Macs is driven by the Credit Suisse investment committee, which makes top-down calls and translates them into multi-asset class products. The biggest user of Macs is Credit Suisse’s Swiss-based private banking arm. It has been Mr Parker’s role for the last 4 years – since the Zurich-led ‘One Bank’ review - to pool resources between private banking and asset management, to drive investment decisions for private clients and to make sure internal investment capabilities get as much of the private banking cake as is fair and possible.
“This is the biggest challenge which the private bank is facing. It is critical for them to determine: what is the client allocation to alternatives, equity and fixed income? This is a far bigger decision than stock selection,” he says.
While current balanced portfolios are equally allocated between equities and bonds, much of the fixed income portion has moved from government to corporate bonds, with some positions in leveraged loans. The balance of the portfolio is in high-dividend paying defensive equity, with the exception of several themes. These include emerging market equities – namely investments in Brazil and China, plus thematic plays on infrastructure and energy companies.
Credit Suisse has been a long-term advocate of the home or foreign bias in portfolio structuring and core-satellite allocation systems, which other competitors are beginning to adopt. Yet Mr Parker is keen to move on into new territory. “These are rather tired – they belong to yesterday’s approach,” he says. “Today’s approach is the risk approach.”
Several large asset management groups, including Schroders and Invesco, have blamed private banks, for poor allocation skills and have taken their own industry to task for not taking a lead in multi-asset class solutions. This is a view partly shared by Mr Parker. “Over the last few years, a lot of the industry has been driven by marketing guys, not asset management people. Clients want good asset allocation advice, then a good product consistent with that advice. What they don’t want is some guy saying: ‘OK, this is Monday, I’ve got this great new product and you should buy it.’”
Industry not in crisis
Despite these problems, Mr Parker refuses to admit asset management is in crisis. “The industry is under threat, but not in crisis. The winners in asset management and also in private banking, will be those who are successful in providing advice and multi-asset products that can fit in with that advice. The industry was stressed last year, and one of the reasons was that it was too marketing led.”
Rather than admitting, like many competitors, that mass affluent Continental European customers have lost trust in their fund providers – Credit Suisse’s funds arm lost SFr100bn of assets in the last 3 months of 2009 due to market movements and customers withdrawing savings – Mr Parker blames the financial crisis and the actions of Europe’s banking networks.
“I think mutual fund flows will come back,” he believes. “Client disillusionment is due to their experience in the markets, not dissatisfaction with the asset management industry. In addition, banks are scavenging for cash in Europe, encouraging clients into deposits rather than mutual funds. Now that deposit rates are so low, the argument for clients to be on deposit in a bank is very weak. Progressively, we will see a switch back into mutual funds investing in corporate bonds, defensive equity and some movement to good emerging markets, like China.”
