UBS AG is transforming the way it advises wealthy clients by getting ideas from across the bank and external experts and speeding decision making, Chief Investment Officer Alexander Friedman said.
Friedman, who joined UBS in March, compares Switzerland’s biggest bank to Airbus SAS’s A380 double-decker plane: “big, complicated, with a lot of people on board.” His job is to make it more agile for the benefit of clients who entrusted the bank with 748 billion Swiss francs ($914 billion) of invested assets, as well as for UBS itself, which aims to boost earnings after record losses in the credit crisis.
“We’re transforming that A380,” Friedman, 40, said in an interview in Zurich yesterday. “I don’t think it’ll take as long as everybody expects. We’re already starting to see the ability to navigate relatively quickly, like a fighter jet, just over the past month.”
Turning UBS, the world’s third-biggest manager of money for the rich after Bank of America Corp. and Morgan Stanley, from an asset gatherer into a more active investment adviser will help the bank regain the trust of its clients, Juerg Zeltner, the head of wealth management excluding the Americas, told analysts in November. Customers pulled a net 198.7 billion francs in assets from the business in nine quarters through June 2010.
Friedman, who was a mergers and acquisitions banker at Lazard Ltd. before he was hired as the chief financial officer of the Bill & Melinda Gates Foundation in 2007, spent the past six months meeting UBS bankers around the world and investment officers of some of the biggest firms to revamp investment management at UBS. He found the organization was designed for a different kind of environment, where markets are rising and financial groups produce returns for clients by purely leveraging up investments.
“Investment over the next 20 years is going to be very different from the last 20 years,” he said.
Instead of relying on proposals thought up by analysts sitting at the headquarters, the bank is in the process of hiring five main regional chief investment officers to come up with local investment ideas. He is also bringing in the two best investors from each UBS division onto his global investment committee, which will have its first formal meeting in October.
In a memo to staff today, Friedman also announced that investment management, a part of UBS’s investment products and services unit, will report to him in the future to ensure a better alignment. The IPS unit will be responsible for matching products to the views developed by the global investment committee, as well as for distribution and follow-on support, the memo said. The CIO investment office, led by former hedge-fund manager Mark Haefele, as well as the wealth management research and values-based investing units will also report to Friedman.
The investment-management decision process will take five days in the future, rather than three weeks, and the investment committee will also gather input from a group of “very smart out-of-the-box external thinkers” as well as UBS’s own clients, Friedman said.
“We have this fantastic resource, which is pretty unique compared to any of our other investment management peers, and that is that we have thousands of clients that are some of the most successful business people in the world,” he said. “They probably have better insights into what is compelling in their region from an investment perspective than most of us sitting here do.”
Havens Not Safe?
Original investment ideas will be the differentiator among wealth managers as volatility and uncertainty dominates markets, pushing customers to either stick with cash or go into safe-haven assets such as gold, the Swiss franc or U.S. Treasuries, he said. In the long term, cash investments won’t “do you any good,” and the so-called safe-haven assets may turn into bubbles themselves, proving “not so safe in that regard,” he added.
About 22 percent of UBS’s wealth management assets, excluding the Americas, were in cash holdings at the end of 2010. Convincing clients to invest the money would also help UBS boost earnings from the division, which contributed 34 percent to the group’s pretax profits in the first half of this year.
“Very good solid industry-leading companies with strong balance sheets that pay high dividends and are good cashflow generators is a very logical and safe way to invest at this period in time,” Friedman said. “There will be a lot of continued volatility, but over a longer-term timeframe you can weather that and can find some decent bargains even today.”