Asset management: sustainable investments and product specialization as opportunities

Switzerland offers favorable conditions for asset managers. In particular, a stable and reliable political-legal environment and a strong education system with a highly qualified workforce are identified as key factors for success in asset management. "The Swiss financial center is one of the largest and most dynamic asset management centers in Europe. Swiss-based asset management firms play an important financing role by channeling savings into the real economy. In doing so, they create jobs and strengthen the economy," says Lorenz Arnet, CEO of Asset Management Platform Switzerland.

Total volume corresponds to three times Swiss GDP

In terms of market size, the total assets managed by banks, fund management companies, securities dealers and asset managers supervised by FINMA in Switzerland amounted to CHF 2,161 billion at the end of 2018. This is roughly three times the Swiss GDP and about twice the assets of Swiss pension funds. Of these assets managed by asset managers in Switzerland for domestic and foreign clients, CHF 1,243 billion were held in collective investment schemes and CHF 918 billion in institutional mandates. The total volume represents a slight decrease of 2% compared with the previous year (chart 1). This decline is mainly due to the sharp correction in global equity markets in the fourth quarter of 2018. The study authors' estimates show that the asset management industry directly employs around 9,900 highly skilled employees (a year-on-year growth of 3%), with an additional 45,600 or so people working indirectly in the industry.

Many regulations as a challenge

The authors of the study conducted a sentiment analysis among asset managers based in Switzerland. The survey shows that regulation is seen as the biggest challenge. Around 70 percent of respondents believe that the relationship between regulatory costs and regulatory benefits is unbalanced. A majority of the asset management firms surveyed consider regulatory costs to be high. Asset managers in Switzerland see potential for regulatory improvements in particular through the abolition of stamp duty and a reduction in withholding tax.

Great potential for sustainable investments

The greatest opportunities in asset management are in product specialization and sustainable investments, and the least in passive investments (chart 2). "To gain a competitive advantage in the asset management industry, it is important to choose a business model that focuses on either cost leadership or product specialization. Our survey results show that Swiss-based asset managers tend to focus on specialization with clearly defined core competencies," says Jürg Fausch, co-author of the study as well as an economist at the Lucerne University of Applied Sciences and Arts.

Active management dominates the business model

Around 70 percent of assets under management in Switzerland are managed actively and 30 percent passively. In discretionary management mandates, around two-thirds of assets are actively managed, while in collective investment schemes around 80 percent of assets under management are managed using an active approach. These figures confirm the finding from the sentiment analysis that Swiss-based asset managers are focusing on specialized, actively managed products to gain a competitive advantage. In addition, asset managers in Switzerland are heavily involved in alternative asset classes, most of which follow active portfolio management strategies.

Source: Lucerne University and Asset Management Platform Switzerland