Recent antics in the investment industry have included banks swapping capital markets chiefs for fund bosses, merging asset managing capabilities and holding last-ditch summits with distributors to stem outflows.
But the recent swap of assets for equity by Credit Suisse has been one of the boldest moves seen so far. By offloading its $65bn (€52bn) long-only Global Investors business, in return for up to 25 per cent of shares in the new owner, Aberdeen Asset Management, Credit Suisse has plotted the route along which it sees its investment interests developing.
Long-term watchers of the company’s vice-chairman and founder of asset management, Bob Parker, will not be too surprised, as he has been ruminating about the future of the business for many years. Key to his forecasts has been the idea of two heavy weights, passive and high-alpha capacities, squeezing out the middle ground of traditional fund management. It is that once core, traditional business, which Credit Suisse has now finally waved goodbye to.
That leaves two, reasonably healthy divisions, within the Swiss bank’s asset management armoury. One offers ‘Alternatives’ solutions in classes including hedge funds, private equity, real estate and enhanced indexation, totalling $138.5bn. The other increasingly important ‘Multi Asset Class’ or Macs unit allocates between different fund families to provide solutions for clients and is likely to double its managed assets from $120bn to $240bn after the restructure.
Mr Parker has been finding the long-only Global Investors business something of a drain on resources and its teams, fixed income for instance, have had their work duplicated by almost identical set-ups within Macs. Because asset allocation is the fashionable area, and long-only funds are yesterday’s toy, it seems the Macs teams always held sway internally.
In its glory days, Credit Suisse was well known for bonds expertise. But with limited demand for fixed income, and niche, high-performing credit areas already represented in the alternatives division, management has been questioning if this was really a growth business and whether it had sufficient scale.
The problem for the company has been one of too many restructures and changes of direction. Just two years ago, a hiring spree led to recruitment of major bond players from ABN Amro and Axa. The fixed income surge followed the Zurich-led ‘One Bank’ review, which finally gave Mr Parker’s reshaped asset management unit its own, full departmental status, against a backdrop of a revolving door in the senior management suite.
The last serious rejig saw active US equities replaced by a quant process and absorbed into the alternatives division, leading to 400 job losses.
While most bond staff will move to Aberdeen, further major layoffs are expected in this latest funds-for-shares contra, particularly in equity investments. Yet Mr Parker refuses to admit the industry is in crisis, unlike his peers at Schroders and Invesco, who talk about re-shaping business models before they fizzle out altogether.
“A large part of the industry over the last few years has been driven by marketing guys, not asset management people,” says Mr Parker. “Our industry is now under threat, but not in crisis. The winners will be those who can successfully provide multi-asset advice and then fit products in with that advice.”
With sovereign wealth fund growth reversing and Credit Suisse exiting from the fixed income and LDI business, which has been the mainstay of its offer for many pension schemes, private banks and family offices are now the new incarnation of the institutional target client. Credit Suisse’s private banking division far and away the largest client for Macs and with Swiss banks refocusing on asset allocation, it is likely to stay that way.
The challenge for Aberdeen is to keep the clients, which Credit Suisse previously nurtured. Private banking also features in this roll-call. “The more plain vanilla type of asset management may essentially prove very critical for banks in order to transfer assets that are currently held in deposits or Treasuries into higher margin products when the crisis comes to an end,” says Christian Edelman of consultancy Oliver Wyman in Zurich, commenting on the deal.
It is hugely in Mr Parker’s interests to ease this transition, as a higher share price will help boost profits for the Swiss bank, now Aberdeen’s largest shareholder.That’s why the next few months will see many joint visits with Martin Gilbert, Aberdeen’s CEO, to convince nervous clients to stay invested. When you need a couple of crafty, experienced hands to steer you through a sticky patch, it’s difficult to top the Parker-Gilbert combo.