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On Investor’s Day tomorrow, Credit Suisse will provide information on its plans in the fund business. There is one complication after another. What is needed now is the breakthrough forward.
Tomorrow, on Credit Suisse (CS) Investor Day, Tuesday also Eric Varvel (Picture below) an apparition. The American, who has headed the big bank’s asset management (CSAM) for a good four years, will report to the bank’s boss on the “strategic review.” Thomas gottstein decreed by the unit last September.
This could reveal the new direction in asset management for the second largest Swiss bank for the first time. There are two questions in the room: The first is about the correct legal form, now that professional investors are pushing more and more for the independence of asset managers.
Growth instead of separation
Second, the bank has to decide where it wants to focus operationally: the current 439 billion Swiss francs in assets managed by CSAM are mainly distributed among so-called top investments in index funds, stocks, bonds and real estate, as well as investment vehicles. multiple assets. About 30 percent of assets are also invested in alternative investments such as hedge funds, private market positions and specialties.
The new path cannot be traced overnight; It can be assumed that this will be determined in at least six months. On the other hand, there is currently little indication that CS will soon fully divest its fund business.
Sand in machinery
It seems more plausible that the big bank is driving growth in the scalable areas in particular. The rate has been high since Varvel started: in the last four years, the unit has generated around 70 billion francs of new money, of which more than 9 billion francs in Corona 2020.
Yet CSAM’s machinery has been stuttering since last fall, at least when viewed from the outside. In the area of alternative systems, complication followed complication. Recently, for example, the unit announced the gradual liquidation of two reinsurers that were traded with capital from CS funds. The invested volume: 1.4 billion Swiss francs.
Fourth trimester overwhelmed
The bank now hopes that this money will flow to other financial products and not be lost. This is in contrast to the $ 450 million value adjustment CSAM had to make last November on a stake in US hedge fund investor York. The cancellation will affect the fourth quarter of the unit after asset management had to report a drop in earnings in the third quarter of the year.
Not so expensive, but a prestigious coup was the merger of the Swiss company Simag with another CS fund company. The bank drew the consequences last October after the ETH professor Didier sornette and former UBS banker David solo The jointly developed investment algorithms had been thwarted by the collapse of the crown.
Long place in
At first glance, the three setbacks have little to do with each other, each taking place in completely different markets. What they have in common is the allocation to the area of alternative investments and, therefore, the advance towards a niche. In the investment environment characterized by bull markets and ultra-low interest rates, this has long been proven to be successful: niche strategies brought in a lot of new money and brought CS comparatively high margins.
But with crown cherries and temporary waning liquidity in financial markets, this path has suddenly become difficult. In this environment, easily tradable passive products such as exchange-traded index funds (ETFs) made the biggest difference. Major suppliers, such as the US funds houses Blackrock and Vanguard, once again expanded their market power.
CSAM has been offering indexed products for a long time, but only got back into the ETF business this past February. Since then, it has attracted around 4 billion Swiss francs.
Damn mess
Another problem that only becomes apparent in difficult times is integration, sometimes considerable, into the business with alternative investments. A variety of close relationships are required to build complex products and access rare expertise.
In the case of CS’s supply chain funds, which made headlines last summer due to investments from controversial Japanese tech company Softbank, the ties were like a ball of wool. Softbank has since withdrawn from the fund.
The downside of entanglement was also evident in the case of York. Apparently, the CS made a lot of money participating in the Wall Street company. That may also have prompted the bank to hang on to the investment when the York signs were already on the wall.
Loans with Qatar
The decisions at Simag and York show that the bank has already begun to restructure alternative investments. However, even after the most recent setbacks, an exit from the alternatives business is unlikely.
Investments in credit derivatives under John popp they are the flagship products of CSAM. The new corporate lending platform, which the bank launched last October together with the state fund of the Emirate of Qatar, is also under Popp. The Next strategy, which is involved in tech startups, is also welcomed.
Meanwhile, CS is likely to want to take advantage of growth in two other areas. In Switzerland and Europe, the institute has created a number of scalable funds. Consider future technology themed equity funds, as well as real estate and bond strategies.
Aladdin and CSX
Then there is digitization. Meanwhile, more than 350 billion Swiss francs in fund assets have been transferred to the Aladdin technology platform of US fund house Blackrocks. This enables extensive automation and standardization of processes. This, in turn, makes it easier for CSAM to sell fund offerings digitally directly to private investors; The CSX banking app launched in Switzerland at the end of October is just one possible channel for this.
There is no shortage of options to go on the offensive in the fund business. However, the setbacks of the past few months have made one thing clear: it won’t be a walk in the park for asset management, which has been used with success to date.
