Global scope spurs on strong AUM gains
The world’s top wealth managers continued to see strong growth in their assets under management (AUM) during the first half of 2005. An examination of the 25 biggest wealth management firms shows that assets for this group increased by an average of 7.29 per cent in base currency terms. This is nearly equal to the 7.59 per cent average full-year performance for the 58 organisations that we at the Scorpio Partnership covered in our 2004 year-end Private Banking Benchmark.
Profits for the first six months were up an average of 2.10 per cent compared with the same period last year. Meanwhile, net new money shot up by 17.08 per cent compared with the first-half of 2004.
Net new money was thus a significant factor behind the strong AUM performance. However, most banks ascribe their gains primarily to strength in the equity markets. What is of interest is that these substantial gains in AUM were achieved in an environment where the equity markets performed nowhere near as well as in 2004. For example, the MSCI World index was up a paltry 3 per cent in the first six months of 2005, compared with a full-year gain in 2004 of 9 per cent.
In part, some of the AUM gains were due to currency movements, with the dollar strengthening some 12.5 per cent against both the euro and Swiss franc. This benefited international portfolios with US dollar exposure. Other factors are likely to have included growing M&A activity as well as wealth management strategies that increasingly focus on investment alpha.
Another notable trend for the 2005 half-year was the ascendancy of the larger Swiss banks. Four of the top five largest gainers among banks reviewed in terms of base currency increases in AUM were Swiss, suggesting Swiss
private banking continues to have a strong position on the international stage and that the onshore strategies of a number of Swiss banks in foreign markets are bearing fruit.
This was certainly underlined by another observation – there was a clear correlation between global expansion initiatives and strong gains in AUM. The increasing affluence in the Far East as well as in a number of developing markets is underlining the advantages enjoyed by wealth management players that possess an effective global reach. Here, Swiss banks were in the vanguard.
The upshot of all this is an increased likelihood that growth in private banking AUM will be more sustainable through the current economic cycle than in the late-1990s, when asset growth suddenly ground to a halt. This time around, the clever banks are betting that a focus on quality assets gathered from a geographic diversity of clients will establish wealth management as the jewel in the global banking crown. Ted Wilson is a consultant at wealth management strategy think- tank Scorpio Partnership
