UBS’ slimline menu caters to appetite for US equities

UBS Global Asset Management (UBS GAM) – which for many years has had a strong institutional franchise, and enjoyed captive flows regularly pumped in from its private bank – is making a strategic push into the wholesale business under European distribution head Rob Lay, a veteran of big brand fund groups Fidelity, JP Morgan and Barings.

This is by no means a new business for the Swiss bank, which runs SFr569bn (€473bn) in its global funds arm, with products carried on many banking platforms, such as Deutsche’s guided architecture system in Frankfurt, but it has not previously been a strategic priority. “UBS was an institutional shop for years, with one of the biggest private banks in the world as its core internal client,” says Mr Lay. “This has to all intents defined the revenue model.”

Key asset management competitors such as BlackRock and Fidelity however, have developed a much deeper third party distribution footprint, boosting revenues and driving up margins. Strategists at the Swiss bank felt they had some catching up to do.

In order to give the business a much clearer focus, Mr Lay was charged with narrowing down a 270-fund family, one of Europe’s largest, into a crisp 20-product menu, with emphasis on US and Asian equities and bonds, yield and income generators, multi-asset products and thematic plays such as infrastructure, healthcare and energy.

This year’s most successful seller in Europe is US equity, says Mr Lay, with major fund selectors having reached their limits for cash, bonds and Asian equities. “What is left is Europe and the US. Because nobody will buy eurozone product, they are more interested in US equity.”

Currently, he believes, the major technical innovations emanate from US groups such as Apple, Facebook, Google and Yahoo. With the exception of Korea’s Samsung and one or two other Asian companies, the internet action is coming from the US.

“Twenty years ago, all of the most innovative companies were European and Japanese. But now they are all American. Look at Microsoft, Coca Cola, even the oil companies which were once absolute pariahs are now looking attractive,” he says. “The US has created this ethical, responsible model. They are no longer the polluters of the world or violators of child labour laws. They have changed their image and have a more robust approach.”

The concentrated 50-stock portfolio of UBS GAM’s US growth product, he claims, “captures all these trends in one place”. Amidst a huge rise in European allocations to passive, enhanced passive and exchange traded fund (ETF) products, Mr Lay also believes the number of top-drawer alpha-generating US managers has drastically reduced, further paving the way for his growth strategy.

“We have the fastest growing ETF platform in Europe, but clients are saying to me: ‘We need returns.’ Would you rather have 17 per cent pure alpha from actively-managed US equity, or 7 per cent beta from an ETF?”

Products in the UBS range are derived from various parts of an evolving organisation, the product of several corporate actions. “This is the first firm I have worked for which has seen a coming together of different businesses, including O’Connor, Phillips & Drew and French house CCR,” he says. “This is a large firm with a number of boutique businesses, compared to Fidelity, which has not had takeovers or mergers and grown purely organically.”

This has led to a welcome combination of different styles and approaches, says Mr Lay, although it appears that many have grown unchecked and unmanaged. “As head of distribution, my challenge is to find out which parts are world class, what the perception of clients is about our skill sets and highlight those pieces that are best of breed.”

The other funds in the range are still chugging quietly along, without being highlighted by distribution staff. “Let’s have an honest exchange of views with our clients and tell them: ‘We are incredibly good at this stuff over here, but not so good at this other stuff, which maybe Fidelity does well.’ This marks a huge culture shift.”

Mr Lay dismisses the notion that global asset managers should strategically ignore Europe for the time being, and concentrate on distributing products in Latin America and Asia until the economic situation improves.

The first quarter of the year saw the UBS funds house taking on record numbers of new clients in the €1m to €10m space from family offices, private and retail banks and financial adviser platforms.

“Let’s be very clear about this: the stack of money in Europe is huge and we have four of the world’s biggest economies here. We are even more engaged with European distributors than ever, but we need to be more innovative as an industry.”