Swiss bank fuelled by raw materialism

Philipp Vorndran, senior investment strategist at Credit Suisse, and the institution’s best known asset allocation adviser, has seen a huge change in the way various parts of the company work together since the “one bank” restructuring which began almost two years ago. For the asset management side of the group, things have looked rosier since the shake-up. They have been handed nearly ?50bn of assets, previously managed within the private banking division. Also, alternative assets handled in the investment bank have now been handed over to Mr Vorndran’s asset management unit. Funds are now nudging e400bn. In fact this unit, once a backwater and part of the Credit Suisse First Boston operation, where it played second string as a loss reducer to investment banking, is now a fully fledged division of the Swiss bank. There are likely to be 300 job losses in once core equity classes in the US, as the operation moves further into alternatives and high alpha products. There is also much less emphasis on servicing defined benefit pension schemes. The areas highlighted by the board are insurance companies, sub-advisory and product distribution, with channels serving private clients once more in vogue. While some dissenting voices in southern Europe may claim that there is friction between private banking and asset management staff forced into a new structure, the widely held view is that the two divisions are working together for mutual benefit. As one senior Credit Suisse executive put it “our private bank only presses the open architecture button” – opening the menu up to non-group products “if our internally produced funds are not good enough.” Economic know-how “What has changed, in a quite dramatic way, is that we are working together more intelligently,” says Mr Vorndran, a cultured, sophisticated performer in front of international client audiences, yet loyal to his his provincial German roots. “We now share all the economic know-how within Credit Suisse, so we have a much clearer idea of what the private client and institutional people are thinking about. We are moving our investment process up into a different kind of orbit. “There is so much talent in the company, and now we are able to leverage that. In retrospect, sure, we have not done that before.” Despite the previously, highly factionalised nature of the Swiss bank, Mr Vorndran is conscious that the view of clients has not changed. When they saw a fund managed by Credit Suisse Asset Management, or were called by an investment banker from CSFB trying to sell them derivatives, or a wealth adviser from Credit Suisse Private Banking, they would just see them as different people all calling from the same place. In fact, many would be surprised at the overlap, and bewildered that different people within an organisation did not talk to each other. “Our clients always regarded us as Credit Suisse, full stop,” believes Mr Vorndran. Now the bank has at last caught up with client expectations and perceptions. “We have finally found a way to serve our clients as one bank.” Mr Vorndran is one of the best-placed operators within the Zurich-based bank’s asset allocation committee, as he travels frequently to all the group’s operations in Europe, the US and Asia, while always returning at weekends to family in his beloved Würzburg in Bavaria. During his travels, he has been trying to recommend allocations to commodities for the past five years, although this has often been an uphill struggle. But he believes private clients have been much quicker to embrace the concept of natural resources than institutions. “Private clients are clearly far ahead of institutions in terms of investing in raw materials, because they are much less regulated,” says Mr Vorndran, minutes after putting his travelling bag down on the carpeted office floor of Credit Suisse’s Zurich asset management headquarters. “The private investor – that is you and I – is able to make his own asset allocation. We don’t have to ask a board or regulator for permission to buy commodities. This is a very different proposition to the vast majority of institutional investors, who only started in 2004 to invest in commodities, and still have a very limited asset allocation.” But private clients still do not have enough of their investments allocated to commodities, he reckons. “Both groups have not yet reached levels of commodity utilisation, which makes sense of risk return utilisation. Closer to 10 per cent, than the current 3 per cent, would be the ideal level.” Retail and private clients now have access to more instruments allowing them to take advantage of this, his favoured asset class, says Mr Vorndran. The “obvious” route he recommends, is buying an index investment, through a mutual fund or structured product. In fact, Credit Suisse Private Banking was one of the first wealth managers to start structuring products on commodity instruments, under the supervision of product overlord Burkhard Varnholt. For those who don’t have the possibility to invest directly in commodities, commodity related currencies, such as Canadian dollars or Russian roubles, could also be an option. Mr Vorndran works closely with product creation departments, gently yet frequently cajoling them into considering his economic opinions. “I am the strategist, here to provide ideas for good products,” says Mr Vorndran. “I am constantly moving around the offices, trying to convince people this is a good idea. I help on the intellectual side, what they get from that is their own business.” Clear cut ideas Yet he gives short shrift to any suggestion – often levelled at investment strategists in other organisations – that his economic ideas can be too complex to translate into viable products. “The views and ideas I have are always so clear cut, that there is never any need to put them into a more simple language or structure,” states Mr Vorndran, who is indeed refreshingly plain speaking, compared to many economists and fund managers. “I tell them ‘go along with this, and it will work.’ In fact it is the regulator who will often make things more complicated. But we have our professionals, who know how to make things appropriate,” he adds knowingly. He is however positive about the impact of European Union Ucits III regulations, allowing a broader range of investment instruments to be used by fund managers, although he thinks it should go hand in hand with financial education in schools and colleges. In fact he spends time visiting European schools to share his knowledge. “Ucits III is in principle very positive. However, we have firstly to improve the know-how of our citizens when it comes to using capital markets,” says Mr Vorndran. “In schools, we learn about the skeleton of a cat, and who is the most important composer, but most people do not have a clue about capital markets and how to save and invest in them. Having gained an enlarged set of instruments in which we can invest, it would also be helpful to enlarge the financial know-how of our citizens.”

Vorndran: private clients have been quicker to embrace commodities