Asset management complements the Swiss financial center with a differentiating value proposition and contributes to its diversification. While the absolute volume of assets under management (AuM) is still larger in private banking, the asset management industry manages substantially more assets per full-time equivalent (FTE). More specifically, the study of the Lucerne University of Applied Sciences and Arts and the Asset Management Association Switzerland shows that the AuM per FTE in asset management (AuM of CHF 271 million per FTE) are about three times higher than in private banking (AuM of 94 million per FTE). “Asset management stimulates long-term economic growth by providing an investment channel between financial markets and the real economy and contributes to the sustainability of the pensions system by generating returns on the savings of millions of people in Switzerland and abroad” says Jürg Fausch, economist and lead-author of the study at Lucerne University of Applied Sciences and Arts.
Switzerland: competitive but with potential for improvement
In Europe, Switzerland competes on eye level with London and Frankfurt. In the “talent” category, Switzerland is a leader and benefits from a solid domestic talent pool and a high attractiveness for foreign professionals. The Swiss hub also demonstrates a strong innovation spirit. The location's greatest weakness is regulation, which is related to the fact that Switzerland, as a non-EU country, is subject to regulatory disadvantages. These disadvantages have a spillover effect on the ranking of the Swiss hub in sustainability. To remain successful in the future, Switzerland must focus intensely on sustainability and innovations in the FinTech and digital assets sector. These are the most significant growth markets and the battleground on which the future of the asset management industry will be decided.
“The Swiss asset management hub is proving its ground being highly competitive even more so in pursuing its strategy becoming a leading hub for sustainable finance”, says Adrian Schatzmann, CEO of the Asset Management Association Switzerland (AMAS). “We will continue the path of sustainability and of innovation to secure the future of this important part of the Swiss financial industry.”
Asset management is an “export industry”
Switzerland is a global asset management hub, servicing domestic and foreign institutional clients. Since 2017 the share of AuM managed on behalf of clients abroad increased considerably from about 25 to 33 percent (see figure 1). This implies that of the CHF 3.30 trillion AuM managed in Switzerland by the end of 2021, about CHF 1.09 trillion are managed for clients abroad. “This volume of export illustrates the high demand for Swiss asset management products and reflects the internationally recognized expertise of Swiss-based asset management firms” comments Jürg Fausch. “Moreover, due to a highly competitive and saturated domestic market, the Swiss asset management industry is very dependent on clients abroad to achieve further growth. In this context compliance with major international regulatory standards are a prerequisite for non-discriminatory international market access” Fausch continues.
Figure 1: Share of AuM managed on behalf of domestic and foreign institutional clients from 2017 to 2021
A new record in domestically managed assets
The Swiss asset management industry recorded another year of strong growth, reaching a new high in domestically managed assets of CHF 3.30 trillion, corresponding to a year-on-year growth rate of 18.3 percent (see figure 2). A decomposition of this estimated growth rate in net new asset flows and performance reveals that 3.9 percentage points (+ CHF 108 billion) are due to net new assets and thus organic growth while the remaining 14.4 percentage points (+ CHF 402 billion) are attributable to investment performance.
Figure 2: AuM managed in Switzerland for institutional clients and CIS from 2016 to 2021, in CHF billion
The asset management industry in Switzerland stays on a growth path but faces headwinds in the near future
Since 2016, the Swiss asset management industry has seen sound growth. For the period 2016 to 2021, the AuM managed in Switzerland for domestic and foreign clients grew at a compound annual growth rate (CAGR) of 10.8 percent (see figure 3). Decomposing this CAGR implies that about 3.0 percent are due to net new assets and about 7.8 percent to investment performance. The median profit margin is estimated to be 15.0 basis points of assets under management while the median cost-income ratio is about 70 percent. In this context, high margin alternative asset classes are an important contributor to profitability.
Figure 3: Decomposition of growth in AuM in net new assets growth and investment performance from 2017 to 2021
The total net revenues of the Swiss asset management industry are estimated to be about CHF 16.49 billion and total profits are about CHF 4.95 billion. Furthermore, the researchers' estimates suggest that approximately 10’500 jobs are directly related to the asset management industry and 48’200 people are indirectly employed in services associated with asset management. “Substantial geopolitical tensions, high inflation and volatile financial markets lead to a more uncertain market outlook for the industry in the near future” says Jürg Fausch.
Almost 90 percent of asset managers rate sustainable investments as important
Sustainable investment has definitely entered center stage and is evaluated as the most important opportunity by the asset management industry in Switzerland. Our survey data reveal that almost 90 percent of the responding asset managers rate sustainable investments as fairly or very important in their investment management and about 40 percent of the firms indicate to have completely integrated ESG criteria in their investment process. In this context, the alignment of investment strategies with the long-term interests of clients as part of the asset managers’ fiduciary duty is the main driver for ESG integration. The biggest barriers to ESG integration are seen in the lack of clear standards on sustainable investing, followed by challenges around data comparability among ESG data providers including conflicting ESG ratings as well as issues regarding general quality and availability of ESG data and analytics.
“In Sustainable finance we observe a very high market dynamic and international competition. That is why the Swiss financial centre, and its asset management industry has launched a series of sector initiatives designed to progressively enhance Switzerland’s status as a leading location for sustainable finance”, says Adrian Schatzmann of AMAS. “The latest initiative, the Swiss Climate Scores, provides transparency to investors on a set of six comprehensive climate indicators.”