“Sustainable finance is a huge opportunity”

 

The asset management industry is one of the fastest growing segments in the Swiss financial center. Why are there currently more growth opportunities in institutional asset management than in private wealth management?

Well, it is true. We are growing. We have grown by 6.5 percent over the last six years. While a lot is performance, 3 percent every year is net new money, money that clients entrust us with. If I look at the drivers for this growth, I would say I see three areas. Obviously, we have a strong pension fund system, which keeps on growing. Sustainable finance is a huge opportunity. And third, exportability, managing assets on behalf of foreign investors.

 

Currently, one third – 33% or about one trillion Swiss francs – is from abroad. How do you see the growth potential in the international segment?

Well, if we want to grow here in Switzerland, we need to grow abroad. The asset management market is an attractive market, a highly competitive market, but there are size limits. And I would say we also see signs of saturation. So to grow abroad is imperative. And obviously, the number you mentioned, one third, is impressive. It tells us that despite some institutional constraints – remember, we still have no free market access, in particular not to Europe – despite these constraints, we see the strong standing of Swiss asset management. The reputation and the quality of asset management “made in Switzerland” is very attractive abroad.

 

Where do you see Switzerland's particular strengths in asset management compared to the international competition?

Probably many reasons, but I’ll name three. First, the proximity to the global leaders in wealth management. We have it here in Switzerland. If you cross the road, be it in Geneva or Zurich, you’re sitting in the office of a global leader. And this proximity is not only attractive from a placement, from a distribution perspective, but also as a source of innovation. A leading wealth manager constantly asks for unique, innovative products, and they must be among the best. Otherwise, you don't end up on the shelf. And what we learn here in Switzerland, I'm sure that can be exported for international asset managers or also to other locations. But we also have, secondly, a high quality of life. It's easy for us to attract talent. And number three, we obviously take advantage of the overall favorable conditions here in Switzerland: political and legal stability, efficient infrastructure and comparably low taxes.

 

You mentioned sustainable finance as a leading growth factor in the asset management industry. The Swiss government has recently published its sustainable finance strategy with the goal of establishing a leading sustainable finance center here in Switzerland. What contribution can the asset management industry make to this goal?

Let me first say that we very much appreciate and salute the Swiss government, and the State Secretariat for International Finance in particular, for all their efforts. We fully share their aspirations. We want Switzerland to become a leading hub for global sustainable finance. Now, in detail, how do we contribute? As an industry, we're convinced that hard-coded regulation would come too early for now. I mean, this topic is so dynamic. Terminology is still not – there's no consistency globally. There are new topics coming up. So, if you regulate today and set things in stone, you're going to regret it tomorrow because it's going to be outdated. So, what we very much stress is the importance that self-regulation can play. And we have contributed, for example last year, by publishing our self-regulation, which focuses on products, investment products and transparency to prevent greenwashing, but also sets certain standards to make sure that an institution, an asset manager offering sustainable investment products, fulfills certain standards.

 

The asset management industry, in its binding self-regulation, has recently established that the exclusion of certain industries such as oil from an investment universe is no longer sufficient to be sustainable. Why are you rejecting this exclusion approach?

Well, we are not rejecting exclusion. If a client requires the asset manager to exclude certain sectors, it's our fiduciary duty to do so. But what we are saying is that if you just exclude certain stocks like oil companies, the impact – the contribution to a more sustainable world – is close to zero. It's just not good enough.

 

Why?

Let me give you an example. If I, as a sustainable asset manager, if I sell off an oil company, it basically changes hands in the secondary markets – let's make this very tangible – from green hands to, almost by definition, less green hands: I care about sustainable investments, about certain standards, otherwise I wouldn't sell it, and the buyer typically pays less attention to this. But the target investment company, the oil company, is not deprived of any money. The impact is very limited. I just look a bit greener in my portfolio, but if you're realistic, we don't contribute at all.

 

What is your alternative then?

Well, in the primary market it's easy. You invest in a sustainable company, and you have direct, measurable, tangible impact. Most of our assets are invested in the secondary market, and there our credo is engagement over exclusion. And what that means is that we make use of our typically large holdings in companies, to use not only our voting rights, but to engage with the management of a company, to follow through with their net-zero plans as an example, to make sure that this gets implemented and followed up with investment actions which correspond to this goal. And to accelerate this in Switzerland, we are publishing together with Swiss Sustainable Finance pretty soon a Swiss stewardship code which covers not only asset managers but also asset owners. So, it covers all relevant actors here in Switzerland. And it may be just a first step, but it's an important step. We have to walk the talk. So, in short, engagement over exclusion.

 

Final question: With the acquisition of Credit Suisse, UBS has become one of the largest asset managers internationally. How will this change the Swiss asset management industry as a whole?

We obviously have a Swiss asset manager that in Europe will be among the top three and globally among the top 10, which is first and foremost good news. Domestically, I mean, if there's one important and esteemed asset manager less, capital demand, capital supply – it doesn't change. And if there was a gap, I'm pretty sure, we have a lot of innovative strong competitors who would just fill that gap for us. The key is that we can keep the assets, the management of the assets, here in Switzerland.

 

Adrian Schatzmann, thank you very much for talking to us.

Thank you very much.