"Sustainability has not progressed far enough"
ESG (Environmental, Social, and Governance) and sustainability have become mainstream in the financial industry. When an institutional investor is looking for an asset manager, ESG considerations are now a standard part of every questionnaire. "As an asset manager, you need to be transparent about the type of ESG approach you choose," says Nicolas Faller, Co-CEO responsible for asset management at the Swiss private bank UBP. On the other hand, he is also realistic, noting, "Sustainability has not yet made significant progress in the realm of private clients."
According to Faller, the development in the field of sustainability is progressing slower than one might have expected. "Customers need to have a better understanding of the details; they need to be brought on board," he emphasizes. Additionally, ESG stocks have not shown particularly strong performance over the past two years, which has made it difficult to engage customers with the topic.
Faller, who has been working at UBP in Zurich since 2010, also notes that many banks that have advocated for sustainable investments have expressed disappointment regarding inflows into the ESG sector, including those at the forefront of this movement.
One significant challenge in the ESG landscape is the differing implementation of EU sustainability regulations in individual countries. Faller points out, "Even when launching a product that clearly fits into Article 8, it can still encounter approval issues in some countries."
"ESG is not about investors being able to look in the mirror in the morning with a clear conscience," says Faller, pointing out its far-reaching economic significance. "Sustainability is definitely better received by the younger generation. The older generation still looks at returns first," says Faller, who worked at BNP Paribas for a long time.
The manager levels criticism at advisors, noting that they haven't been pushing the topic as much as would have been possible. This is evident in the fact that online surveys on sustainability preferences yield significantly higher values compared to in-person discussions with advisors.
On a positive note, Faller observes that the new generation is investing differently from the traditional approach. "The old-fashioned approach, like the 50:50 stock-to-bond ratio, is being questioned by younger people. They want a more unconventional strategy, such as alternative investments like hedge funds."
Sector under pressure
It is also noticeable that private customers are now reallocating their wealth much more according to their investment goals and horizons. "Many people today are aware that they will not be able to generate returns in the future in the same way as they did in the past." This change in customer behavior has repercussions on the industry, which is facing significant challenges.
Faller notes that it's not the most favorable industry to work in at the moment. There is high pressure from all sides, including regulation and customer demands. "In these days, as an asset manager, you must be highly agile and continually reevaluate yourself. You need to adapt if you want to maintain profitability," he adds. For his unit, being part of a privately held bank and not being listed on the stock exchange is advantageous. "I believe that many publicly listed companies would deliver better results if they weren't listed on the stock exchange."
According to Faller, there are numerous asset managers that can excel in only a few asset classes but still offer a wide range of products. This situation is unlikely to persist, and these companies will need to focus more narrowly. "That was also the reason why we separated from the product of European equities. The quality was okay, but we couldn't offer real added value in the overcrowded market segment." With average products, you are unlikely to attract assets and have no chance to grow. Faller adds, "I have never understood why large providers offer all asset classes. They will have to accept the need to reduce the product offering."
He sees no particular competitive advantages for Swiss asset managers. "It's not better per se to be based in Switzerland." It is a global business, he adds. But one factor, he says, is the workforce. "The talent pool in the U.K. and to some extent in France is larger than in Switzerland." At least, he observes, more and more well-educated workers are leaving the U.K. in favor of Zurich and Geneva as well, as a result of Brexit.