At the end of March and according to data from Lipper, the total assets under management in Swiss domestic and Luxembourg domiciled funds amounted to Sfr439bn (E290bn), representing a decline of Sfr9.5bn of the figure recorded in the previous quarter.
Luxembourg has proved to be the favourite destination for Swiss fund promoters with Luxembourg-domiciled funds accounting for 70% of the total Swiss industry, accumulating assets of Sfr306.1bn at the end of March.
On the equity side, market volatility has caused a decrease in the number of assets invested in this asset class, and the first three months of the year saw as reduction of equity funds assets of 10% compared to the previous quarter. According to Lipper, both Swiss domestic and Luxembourg domiciled equity funds recorded negative average returns during the first quarter of -8.1% and -9.1% respectively. The last time that positive returns were achieved by this sector was in the first quarter of 1999, with 5.7% and 10.1% respectively.
On the fixed income side, turbulence in the equity markets has helped bond funds to increase the number of assets under management that amounted to Sfr 103.2bn in March, representing a 24% market share of the Swiss fund management industr y.
Bond funds also achieved positive performance of Sfr3.3% for Swiss and Sfr4.1% for Luxembourg domiciled funds.
The beginning of the year also brought changes in regulation that have affected promoters and investors. The new rule established that trade in Swiss shares abroad and trade by foreign institutional investors and Swiss mutual funds is exempt from stamp duty. The new law has been welcome by asset managers that have been asking the government to change these measures. “The aim of this new regulation was to make the Swiss based fund management industry more competitive,” says Olivier Dumuid, head of institutional marketing at UBP Gestion Institutionnelle in Geneva. “Significant flows of money were going abroad instead staying in Switzerland to avoid paying this stamp duty so both the banks and the stock market asked the government to ease of reduce this duty.”
However, Swiss pension funds and other institutional investors are still liable to pay the stamp duty. Before the legislation Swiss banks and pension funds had to pay stamp duty if they made the transactions in Switzerland but not if they did this outside the country through a foreign bank. “But now those who,for instance, have a portfolio in London managed by a bank also have to pay the stamp duty, so in general for Swiss pension funds this new rule has not been very positive,” Dumuid says.
In general, Swiss pension funds have always been keen on using investment as part of their investment strategies, although the proportion of total assets invested through fund vehicles is still small but slowly increasing.
“The use of investment funds by pension funds is growing depending on the sector we are talking about,” says Dumuid. “Of course in the alternative investment area the use of funds is increasing because is a very specific sector that needs to be diversified through this type of vehicles, but in areas such as Swiss or foreign equities we are not seeing major changes regarding funds presence in institutional portfolios.”
The equity market performance has also affected to the growth of the leaders in the Swiss fund management industry. According to Lipper the decrease of Sfr5.4bn for the top groups by size of assets is a reflection of the overall drop in the industry assets.
However, little changes have been seen in terms of market share with UBS still controlling around 45.8%, followed by Credit Suisse with 21.6% and Swissca with 8.1% of the industry’s total assets.
In terms of distribution, open architecture and third party arrangements have entered the marker. “This trends is first finding its way in the private and retail market and slowly coming into the institutional area,” says Laurent Bachmann, executive vice president at Lombard Odier in Geneva. “ In particular the large banks that have recently suffered from adverse performance and have a big client base have been trying to diversify risk by including funds from others providers in their own product range while keeping their distribution expertise,” he says.
Funds of funds are also increasing their presence in the institutional arena, especially in the alternative classes: “The big asset management firms have the resources and expertise to manage their own alternative asset classes, but we feel more comfortable by using funds of funds vehicles to give our clients a better diversification,” says Urs Baltensweiler, member of the management committee at Julius Baer in Zurich.
Although the degree of openness towards other providers funds varies among the different asset management houses, third party distribution strategies are helping foreign players to increase their presence in the Swiss market. In terms of direct penetration, German groups still dominate among the international houses present in Swiss fund management industry. According to Lipper , at the end of March the three leading foreign groups directly operating in the domestic market are Deutsche Bank through Deutsche Asset Management Schweiz with 14 funds and Sfr 3bn, American Internationl Group through AIG Fund Management (Switzerland) with 16 funds andSFr 958m and Bayerische Hypo-und Vereingsbank Ag through Von Ernst Fund Management with 2 funds and Sfr666m.
In terms of the new products coming into the market, during the first quarter of the year, equity funds were the most popular choice amongst fund managers, accounting for 51% of new launches.
At State Street in Zurich, Urban Müller comments: “As long as the equity markets start moving again there will new inflows of money into funds and I think that overall the amount of pension fund assets invested through funds will increase in the next year or so.”