By Jeremy Katzeff, head of buy-side solutions, GoldenSource
It has been an historic few weeks in the financial markets. Over one weekend the financial services landscape changed drastically. Many questions remain after the fire sale of Credit Suisse to UBS and it will be months, if not years, before the dust fully settles. One thing is certain: the new combined asset management business now becomes one of the largest in Europe with nearly $1.5trn (£1.2trn) assets under management (AUM).
This acquisition was by no means part of UBS’s long-term strategy, but the UBS chair has suggested it will take three to four years to fully integrate Credit Suisse on to the UBS platform. One side effect is further consolidation within the asset management industry. Combining the two asset management units adds a layer of complexity to this project but will surely be an important priority for the UBS board.
There are opportunities to be had with this seismic shift. Thinking about the specific challenges for asset management businesses today, undoubtedly the leading one is fee pressure. The pressure is being driven by changing investor preferences that favour low-fee products like index funds and model-driven strategies, in addition to the challenging market environment for achieving returns.
In most cases during the M&A cycle over the last decade, a combination of asset management businesses has provided the scale to overcome the downward pressure on fees, both through sheer scale in asset growth as well as being able to leverage a much bigger pool of data to inform investment decision making. But while consolidation is additive to earnings and provides lots of data to utilise for the creation of new products and strategies, moving to a data-first operating model becomes a big challenge.
Profitability for the new Swiss investment management giant will require more than just size and operational efficiency. The new firm will have to deal with the data explosion that is occurring across the industry and is expected to continue well into the future. Organisational discipline and a data-centric approach to investing and operations is essential. This data explosion encompasses all parts of the organization, including front, middle, and back-office teams, who need on-demand access to these high-quality data sets to help make investment decisions, launch new products, manage relationships and meet regulatory requirements.
Traditionally, asset management has been slightly behind the curve compared to its sell-side cousins on the deployment and use of quantitative data, whether for trading, research or regulatory compliance. This has changed, and now data is the heart of the asset management operating model.
Sales and marketing teams have been the leaders in a data-driven approach, using numerical insights to monitor and assess the success of the fund’s product promotion. Until recently, the front office has lagged behind, clinging to qualitative investment processes that use the portfolio manager’s ‘secret sauce’ that cannot scale with a growing organisation.
Innovative managers have been adopting new technologies that allow them to take full advantage of a data-first culture. By using data to drive decisions from risk management to asset allocation, trading and product management, clients will have better investment outcomes that meet their long-term investment objectives.
Onboarding new asset management businesses will naturally introduce data silos across different parts of the combined entity. With a combination such as UBS and Credit Suisse, both of which operate their asset management businesses globally, there will be a requirement to audit the widespread depositing of data across the many offices and file systems. For this data to be used across the different parts of the firm, it needs to be pulled from the many systems that will naturally exist in isolation.
Ultimately the goal for asset managers of all sizes is the same – to effectively integrate data into their research and remain competitive in this fast-changing market. The somewhat unwanted consolidation and creation of this Swiss giant may provide opportunities for UBS to increase fee-earning potential, but it is crucial they approach this integration with a data-centric approach utilising centralised cloud-based data management systems. If so the different parts of the asset management arm can work together to offer their unique insight and generate more returns.