Alternatives and passive products key to growth of UBS asset management unit

Sergio Ermotti has signalled increasing the alternatives platform and passive capabilities of the asset management unit of UBS, as the new chief executive spelled out his vision to the bank’s shareholders on Thursday evening.

Leaders of each of the main units of the Swiss bank took their turn to enunciate their plans, in an update after UBS’s board of directors and group executive board recently completed a joint strategic review.

The bank has been rocked recently by a trading scandal, and it faces the same pressure Western governments are putting on Swiss banks to divulge information on their European clients.

For the CHF 524bn Global Asset Management unit of UBS Ermotti and his senior colleagues signalled “expanding the alternatives platform and investing in fast-growing passive capabilities [and] continuing to grow third-party wholesale, building on established strengths in Asia Pacific and Switzerland.”

Some 64% of UBS Global Asset Management’s assets are already from third party channels, and its alternatives businesses including real estate and funds of hedge funds are already ranked second in the world.

Literature published by the group yesterday said: “Global Asset Management will continue to deliver investment services to clients through its diversified investment capabilities. It will grow its third party wholesale business, building on established strengths in Asia Pacific and in Switzerland and continue to build its services to clients of UBS’s wealth management businesses.”

The Global Asset Management unit has products focused on a wide range of asset classes from equities, fixed income, alternative and quantitative approaches, global real estate, infrastructure and private equity, and asset allocation, currency, manager research and risk management services.

UBS is targeting annual net new money growth of 3% to 5% for the unit, an annual gross margin of 32 to 38bps, and cost/income ratio of 60% to 70%.

As widely expected Ermotti also signalled a strong focus on UBS’s CHF 1.37trn wealth management businesses, which can also draw on the skills of the bank’s asset managers. To an extent the investment bank unit is being refocused to work more for UBS’s wealth management clients.

Of the wealth management unit under CEO Jürg Zeltner, Ermotti said: “We will continue to invest in products and geographies where we see opportunities to grow, particularly in our wealth management businesses. We plan to generate a greater share of our profits from businesses that deliver more consistent results and, together with a reduction in risk and tighter cost management, we aim to deliver more attractive returns to our shareholders.”

While asset and wealth management appear the winners of the group’s review, investment banking was not. It will lose 2,100 of its 18,000 staff by the end of 2013, and a further 500 by the end of 2016.

The group said this unit would be “less complex, carry fewer risk-weighted assets and require substantially less capital to produce sustainable returns for shareholders.

“Its client-centric strategy will focus on serving the needs of its core clients across wealth management, institutional, corporates, sovereigns and sponsors and investing in its leading advisory, capital markets, and client flow and solutions businesses.

“It will exit or significantly downsize several businesses [and] will work more closely with UBS’s wealth management businesses and increase its emphasis on the execution, advisory and research capabilities it provides to wealth management clients.”

Separately UBS said it would pay a dividend of CHF 0.10 per share for 2011, and engage in a “progressive capital return program” thereafter.

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