A little innovation can reap rewards

Across Europe, factories, banks and retailers are laying off staff, with some countries such as Spain – where unemployment is forecast to peak at 16 per cent - particularly badly hit. Germany, widely seen as one of the most important markets by foreign fund groups, is expecting its economy to shrink by up to 3 per cent this year. But the chieftans of the Continent’s wealth management industry and its fund houses are not taking things lying down. While there was a three-month public moratorium on creating new products and anything vaguely innovative was avoided like the plague, the financial laboratories of London, Paris, Geneva, Zurich and Frankfurt have been carrying on behind closed doors and are beginning to slowly crank up production. Despite Man Group, one of the largest hedge players, losing $14bn (E11bn) of its assets during the final quarter of 2008, and many private clients of Swiss and Austrian banks burning their fingers in the Madoff scandal, a queue of new alternative funds with seeding from family offices is coming to the market. Equity-biased funds such as Oyster, a unit run by Banqye Syz & Co in Geneva have seen huge shrinkage of assets. But ten minutes down the road, its re-invented rival Pictet is hoovering up cash from clients of other banks into a newly launched suite of liquidity funds, offering sovereign-only paper in Euro, Swiss Franc and US dollar share classes. Private clients buying money market funds from rival Swiss banks – is this really happening? Yes it is, and it shows the importance of simple product innovation. Latest data from the Lipper Feri consultancy, which has calculated that November saw net fund inflows of E10bn in Europe, mainly to money market and exchange traded funds, also sees clients bringing assets back to Swiss banks. This has happened after much soul-searching from the largest wealth managers. UBS board member Juerg Zeltner addressed PWM’s invited audience of private bankers before Christmas, admitting the industry was guilty of mis-selling incorrectly hedged structured products and other vehicles and predicted much smaller margins for wealth managers. But even more shocking was the revelation that UBS, shorn of much of its top management, would be offering new asset allocation models for wealthy clients, allowing them to have a home bias or be globally diversified; and to have core indexed modules, with satellite strategies to generate alpha. Mr Zeltner must be applauded for his candid approach and his desire to give the client more emphasis than the product production line. If private banks have not been offering these types of services until now, what on earth have they been doing?