UBS GAM OFFERS FULL FORCE TO FEWER OUTLETS

As head of wholesale and institutional European business at Zurich-based UBS Global Asset Management, Michael Strobaek is an eternal optimist. But that is no surprise. He talks with the luxury of a man who always has an internal distribution channel to fall back on.

He even has rosy memories of 2004 – “a good year for UBS GAM”. He is right in one way. Total assets are up from SFr574bn (e372bn) to more than SFr600bn, but wholesale intermediary assets are down from SFr261bn to SFr257bn. Like everybody, UBS GAM suffered substantial outflows of money market funds due to low interest rates. Mr Strobaek rightly claims a positive net inflow of funds last year. The closest he comes to dropping his guard is admitting to a “mixed pattern of asset development”.

Best clients

Mr Strobaek’s best external clients have to date been found in Germany, Holland and Austria. PWM understands that UBS funds are distributed by institutions including Deutsche Bank and Commerzbank in Germany and Bankhaus Carl Spaengler in Austria.

He talks about good inflows into innovative group products, such as the absolute return bond fund (SFr2.8bn), the global tactical asset allocation funds (SFr2.3bn) and products designed in tandem with his private client sister unit, UBS Wealth Management.

The latter has an Investment Solutions unit, which aims to supply the best market products to private clients. But most large institutions have some bias towards internally manufactured strategies, particularly on the fixed income side. Having an internal distribution channel during icy markets is probably the clearest advantage any mass manufacturing house can have. “For mutual funds, our best development has been in new products in Switzerland, coming from co-operation with our Wealth Management colleagues,” admits Mr Strobaek.

Yet he knows it would be shortsighted to rely on an internal banking channel, with private clients increasingly pushing for across-the-board open architecture solutions. Like compatriots Merrill and CSAM, UBS GAM concentrates on banks that screen the manager universe and then partner with eight to 10 big brand groups.

“Guided architecture has become the chosen distribution model for several leading financial institutions,” states Mr Strobaek. “If open architecture is carried out to the full extent, it takes a tremendous amount of resource to screen and analyse managers. “The guided architecture strategy seems to be a good modus operandi and we approach distribution providers with this in mind. We want to be one of their preferred providers in a B2B relationship, and we can provide our full service capabilities for that purpose.”

However, some distributors need much proof of a commercial benefit from putting external funds in their shop window. “Some of our partners may be very closed in the way they distribute third-party funds into their network,” says Mr Strobaek. But banks who want a more closed model, pumping out a greater proportion of in-house product to a captive clientele are however still entertained by his sales team. He figures that if they just choose one or two providers, rather than a broad palate, his brand must be among their choices.

Preferred provider

“Our strategy still works with banks who are more selective in their approach towards open architecture, for instance in cases where they might only be open in certain of their channels,” says Mr Strobaek. “But we want to be one of their preferred providers of investment products.”

In Mr Strobaek’s ideal model, the big clients, such as Deutsche Bank – which included UBS GAM on its list of eight preferred providers in May 2003 – are clearly given the red carpet treatment. “With our largest, most preferred clients, we will bring our full force to bear with our services and capabilities,” stresses Mr Strobaek. He is talking about the manifest resources of product development, research and marketing associated with the UBS brand.

The latest thinking accepted in European distribution circles is to team up with smaller numbers of banks, but to include as much as you can into that deal.

“We are focussing our resources on those distributors where we can add value to them and their clients. We actively aim to have a manageable number of very successful and close partnerships with clients who have a strong commitment to open architecture for their multiple distribution channels.”

On Mr Strobaek’s current agenda is the development of meaningful, long-term, standardised contracts of collaboration. In Germany, currently UBS GAM’s premier market outside Switzerland, these partners are more likely to be banks than independent financial advisers, although the UBS Wealth Management arm does work closely with IFAs and Mr Strobaek does also have IFA clients.

Despite the fact that assets of most German savers are held with smaller regional banks, Mr Strobaek will continue to concentrate on partnership with the likes of Deutsche and Commerz. “In Germany, the larger banks have only a limited share, with savings spread out enormously,“ says Mr Strobaek. “But they are not spread out in fund products, they are mainly in savings accounts. The platforms which distribute mutual funds are controlled predominantly by the Landesbanken and Sparkassen, but that is not principally where we get our demand or where our focus is.”

The players that UBS is most interested in are the cross-border banks, those whom Mr Strobaek’s team meets in more than one country. “We will treat these banks as cross-border entities, so they receive more central co-ordination. We have a global agreements team for them in Zurich. Other banks in Italy and Germany are still important for us. We are targeting both types of institution, but our resource application is necessarily different.”

From the top

The general strategy at UBS GAM is to contact the top two addresses in any country, although Germany and Holland are being increasingly viewed as one segment. “We offer the same type of service model to these banks, as they are quite similar in the way they operate,” says Mr Strobaek.

Italy is the odd one out on the European map. “Italy is more domestically focused. You have to have a good local presence in Italy to be able to service banks. They do differ from servicing more private banking cross-border operators,” says Mr Strobaek. “They are concentrating on the local market, rather than broad European distribution.”

This necessitates “some adjustments” in the level of service when tackling Italian banks, as opposed to the Northern European retail giants such as ING and ABN Amro. “This does not mean we cannot have a successful relationship with Italian banks,” says Mr Strobaek. “But banks are different in Italy, and we have to service them differently.”

In fact UBS GAM works with Fineco, Pioneer, Bipiemme Gestioni and BNL Gestioni. Crucially, these are fund groups owned by retail banks, wholesale buyers of UBS products in their funds of funds, rather than off the shelf sales through branch networks.

“Italy is an attractive wholesale market for us, and we have not seen huge outflows there. There is much attractive potential there for UBS GAM and UBS to distribute mutual fund products. It will continue to be a key market for us in Europe,” says Mr Strobaek.

Concentrated market

Spain, dominated by the distribution power of BSCH and BBVA, is a different kettle of fish. UBS funds are sold off the shelf at BSCH private banking arm SCH-Banca Privada Internacional and through the branches of retail bank Inversis, according to PWM research.

“Spain is a strongly concentrated market, and if you want to do meaningful business, you need to be closely co-operating with the key players,” says Mr Strobaek. “We do co-operate with as many banks as we can in Spain, but we are not going too broadly in terms of agreements, as we have more limited resources there.”

In terms of product development, UBS GAM already has a prototype hedge fund, with a retail launch strongly possible after the usual institutional try-out. This will build on the success of the UBS Global Alpha Strategy fund of hedge funds, already sold through French private banks and wealth managers. A version is also sold in Switzerland.

“We are looking at it, but retail hedge funds have not been a huge success in the market. We are happy that we are taking a slow look at how things progress. We are not in any hurry,” claims Mr Strobaek.

“But I don’t think anybody will be too surprised if we come out with a retail product, given our group has a large hedge fund operation. We don’t feel we have missed a large opportunity yet.”