Harvard Transformation
The transformation at UBS is akin to that of Harvard Management Co., which runs the university’s endowment. Since losing 27 percent on investments after Lehman Brothers Holdings Inc.’s 2008 bankruptcy, Harvard, the world’s wealthiest college, added staff and expanded the proportion of funds it manages internally to boost returns. The endowment lost 0.05 percent on investments in the 12 months through June 2012, cutting assets to $30.7 billion, after gaining 21 percent in the previous year and 11 percent in fiscal 2010.
Zeltner said the revamp is already paying off, though the lever to profitability won’t become evident until clients’ risk appetite increases. At the end of 2012, advisory clients still held 29 percent of their assets in cash, according to UBS. Assets under management rose by 71 billion francs ($76 billion) to 821 billion francs last year, thanks to net new money of 26.3 billion francs and returns achieved on existing assets.
In 2011, invested assets fell by 18 billion francs as negative equity-market performance and the decline of the euro against the franc more than offset net new funds and positive returns on bonds.
Money that UBS manages in 80,000 portfolios at its discretion on behalf of clients, based on pre-selected product types and risk appetite, returned as much as 16.9 percent last year, according to the bank. Most popular discretionary mandates within the conservative and moderate risk brackets returned between 6 percent and 10.2 percent in 2012 after taxes and before fees, depending on the currency of the portfolio, the bank said. UBS didn’t provide performance data for previous years, saying figures wouldn’t have been comparable.
Recommendations to buy U.S. junk bonds and U.S. stocks were among the most successful last year and were viewed as risky when made, according to Friedman. Calls to overweight sovereign bonds in emerging markets until the end of September and bets on Western companies that get at least 20 percent of sales or earnings from emerging markets also boosted performance.
The Pimco Total Return Fund, the world’s biggest mutual fund with $289 billion in assets and at least 65 percent allocated to investment-grade fixed-income instruments, returned 10.4 percent in 2012 and the Vanguard Balanced Index fund, which tracks U.S. stocks with 60 percent of its assets and bonds with the rest, gained 11.3 percent. Those returns are after fees.
Gates Foundation
Being better known for its investment decisions globally should help UBS compete with local firms, Zeltner said. He plans to expand business in Europe, his biggest market, where the bank is already profitable in every country except for two including Germany, and invest in hiring and technology in Asia and emerging markets, where he doesn’t exclude acquisitions.
“Over a three-year period, I’m pretty confident that we’ll see Europe contribute strongly to the profit and grow again,” Zeltner said.