Why Switzerland will be a focal point in the future of asset management

_13.04.2022

The latest Swiss Asset Management study shows that assets under management in
Switzerland grew by over 10 percent in 2020 to a record 2.79 trillion Swiss francs. So what
makes Switzerland an attractive place for asset management? Christel Rendu de Lint, the
deputy head of investments and member of the global executive board at Vontobel, explains
why—and what the future may hold.

 

Christel Rendu de Lint is member of the Board of Directors of the Asset Management Association Switzerland (AMAS)

 

What’s the market share of the Swiss asset management industry compared to other
regions?

Switzerland ranks fourth in Europe behind the U.K., France, and Germany with a market
share of slightly less than 10 percent. And Europe as a whole is about 25 percent of assets
managed worldwide.

And how many of the assets under management are actually allocated into traditional
versus alternative asset managers?

Interestingly, the lion’s share still goes into traditional assets. So if you define that quite
restrictively with bonds, equities, and multi-assets, you have about three-quarters of the
assets that go to this category, which we could call traditional. The other quarter is
alternative assets.

And what about the key players?

The key players are the largest banks in Switzerland: UBS and Credit Suisse. Then you
have Swisscanto, Pictet Asset Management, and then Partners Group and Vontobel.

 

There are three trends in the asset management industry: growth of passive
investing; big data in the investment process; and robo-advisors in wealth
management. Can you elaborate on the current state of these trends in Switzerland?

Passive investment is a trend that is well-established, worldwide as well as in Switzerland. If
you look globally, passive assets have been growing at about twice the rate from active
assets, meaning that they’re gaining market share. In Switzerland, we’ve gone from about 25
percent passive investment in 2017 to now slightly over 30 percent. That is a
well-established and observable trend.

I think big data and machine learning are really an opportunity for Switzerland. Digitalization
in a broader sense is one priority that we’ve identified at the Asset Management Association.
And I think it presents a lot of possibilities to leverage and enhance investment processes.
You can, for instance, test your investment beliefs. If you believe that for one reason or
another, this type of approach will outperform another, machine learning and big data give
you the opportunity to test it and have it as an ongoing test. It gives you the opportunity to
make more educated analyses because we know that machines are better at analyzing a lot
of data as opposed to the human brain. So it’s not one versus the other: It’s really one at the
service of the other, but I think we have a lot of opportunities on this front in Switzerland.
We also have talent here, and we have big technical universities that are world renowned. In
terms of robo-advisory, there again it’s an opportunity. I think it’s still in its infancy. What we
observe is that we’re still very much either a physical advisor or it’s 100 percent digital. And
yet studies show that probably the target audience would like something hybrid. Where you
can—if you want—do everything digital, but you can also have access to an advisor to ask
questions.

So a combination.

Correct. And I would actually point to another trend and opportunity that also figures
prominently for us at the Asset Management Association and that is sustainability. Right now
we see strong demand with 25 percent of net new money going to sustainable or ethical
solutions whereby only 5 percent of the assets at the moment are ethical or sustainable. So
we really have that ratio of 1-to-5, which tells you that this is a trend worth looking at.

 

On a global scale, you see the share of assets under management in active
management declining, you actually just mentioned that. Is it because of the difficulty
of generating ex-ante alpha?

I don’t think it’s that. I think there is an aspect of cost, there is an aspect of convenience,
transparency. Because passive investments are not represented in the same fashion across
segments. Take the U.S. stock market, which is the broadest, deepest, and allegedly most
liquid market in the world. There you have 50 percent invested passively. If you take
high-yield, for instance, you go down to 13 percent. And indeed you can question whether it
is as optimal in high-yield as you could think it to be for a market like U.S. stocks. The trend
would extend very strongly if all portfolios were only U.S. stocks, but they are not. Then if
you think about alternative assets, private markets inherently cannot be invested passively.
Even in terms of performance, when you look at ETFs, they tend to rank second to third
quartile over five to three years, so in the bottom half. You really do find a lot of active
managers who outperform passive, but it’s about finding them, having the access to this
information. And I think with digitalization you might actually give more access also to
investors to make those informed decisions. So I definitely think both will continue to coexist
because they fill different needs, and it depends on where and what you want to invest in.

 

You already mentioned what the advantages are of being in Switzerland. But how do
the offerings of the Swiss asset management industry differentiate from other
locations?

I think this is key actually to be present in that game, is to differentiate. Either you can
differentiate with a type of product, a type of approach, or a type of distribution channel, or if
you can’t differentiate and you’re mainstream, which works as well, you have to differentiate
with performance and investment excellence. Asset management is inherently quite a
transparent industry—you have access to performance data on a daily basis. But we have
reasons to be here in Switzerland: We can see that we are a strong market, that we have
access to talent. So we have our cards in this game, for sure.