Managing money for the wealthy -- once touted as a panacea for banks burned by investment banking’s cutthroat rivalry and lenders’ smothering capital requirements -- is proving to be anything but.
UBS Group AG, the world’s largest wealth manager, predicted lower revenue from its asset management and wealth divisions in coming weeks after seeing $13 billion yanked during the final months of 2018. Credit Suisse Group AG signaled that its assets under management were resilient during the recent equities meltdown, but warned it’s been a tough quarter.
The news surprised investors used to steady results from UBS, which was the first European bank to pivot away from volatile investment banking after the financial crisis, and toward the business of wealth management. The Swiss bank has since become a model for rivals lured by a steady business that allows them to put less of their capital at risk. But that promise has given way to the grim reality that they’re not immune to violent market swings.
Even before the market meltdown, the competition for managing fortunes had been fierce. The uber-wealthy are increasingly turning to family offices to manage their billions, while on the lower end of the spectrum, clients have turned to the same types of cheaper products that have chipped away at the profits of traditional money managers.
Prized Targets
Those shifts have made the richest clients the most prized targets. But while the pool of billionaires has roughly doubled from a decade ago to more than 2,000 worldwide in 2017, according to data from UBS and PwC Billionaires Insights reports, that swelling cohort is still a relatively small universe, adding to the rivalry between wealth managers.
The changing landscape is making it harder for financial firms in the business. “When I look at net new money dynamics -- make no mistake -- it’s a disappointing outcome,” UBS Chief Executive Officer Sergio Ermotti told reporters in Zurich on Tuesday.
Even the world’s biggest money manager hasn’t been insulated from changing investor preferences. Clients abandoned actively managed funds at BlackRock Inc., the world’s biggest money manager, and instead poured a record $81 billion into less expensive passive products at the iShares division during the market rout. The swing in fortunes appears to have prompted the New York-based firm to reevaluate its business: BlackRock last week announced plans to cut 3 percent of its workforce.
“Traditional asset management, in the equity space at least, has certainly not lived up to what it should deliver in terms of performance,” Philipp Hildebrand, vice chairman of BlackRock, said in an interview with Bloomberg Television’s Francine Lacqua in Davos. “That is why we are seeing a shift away into passive, and that is something that we have to manage.”
In the U.S., the world’s largest market for asset management, investors pulled $174 billion out of active equity funds last year as stock pickers struggled to outperform their benchmarks, extending a rout that saw $207 billion in withdrawals the previous year. Meanwhile passive mutual funds drew $207 billion in 2018, according to a Morningstar report last week.