From his fastnet in the City of London, Phillip Colebatch has been welding Credit Suisse Asset Management into its new shape. Wielding the arc torch has meant developing a very clear vision of where he wants the asset management arm, now one of the CS group’s four operating divisions, to go. As the former group chief fi-nancial officer who moved across to the asset management side, Colebatch says his financial objectiv-es are simple: We want to double our business organically over the next two years.” Acquisitions on the way are not ruled out.
The group is determined to become global, but with a difference. “We start from a different point which gives us a strategic advantage. About 30% of our assets are managed in New York in US asset classes, a similar figure for Switz-erland, and though the proportion is similar for London, it handles mainly cross-border assets being sold internationally, rather than domestically.” The clincher for him is that on average only 13% of as-sets are invested outside domestic borders, so why only play in that? “We want to be a player in the 87% and we want to build those domestic businesses.”
The markets in Europe were put through a sieve to see where would be most feasible to build up this domestic franchise, with the initial concentration on Germany, France, Spain, Italy and the UK. Ultimately, assets will be managed on a localised basis in Zurich, New York, Tokyo, Sidney, and one oth-er place in Europe. This need not be London. “This depends on the xenophobia of euroland versus non-euro Europe and whether the UK joins Emu or not.”
In product mix, Colebatch wants to shift from the predominantly fix-ed income bias (70% in 1997) to 50% equities over the next three years, not least because of the higher fees on offer. “We are now around 35%.” The equity pressure is market-led, particularly in continental Europe, due to Emu and the pensions funding issues will reinforce this longer term.
The most fundamental trend in Europe is the “broad disintermediation” as banks no longer act as the investors of deposits. Mutual funds will be the main beneficiary here, as they will be used in the drive to defined contribution (DC) in Europe. In his view, DC will have more of an institutional overlay in Europe than in the US. Tax advantaged savings for pensions will have dramatic results. Of the discretionary funds CSAM manages, 32% are retail and this proportion is scheduled to rise to 50% over three years, he says.
A real opportunity he perceives is the shift to credit risk in fixed interest in euroland, though he expects real differences to remain within local bond markets. CSAM in New York has a “key franchise” here and this expertise is being disseminated to London. “We have taken a hard look at what we call portfolio services and administration. We feel there are buried in there two mission critical things: One is product control and the other is client servicing, while the rest is settlements and calculation. All these functions are geographically independent. Our technology strategy is built around the functions, so there will be a single set of systems to support each of these seven or eight functions worldwide.”
The objective of product control is to reassure the investor that the product they bought is what they are getting, he explains. It includes simple things, checking on pre-trade basis that the investment was within the guidelines, verifying the investment style, and seeing that the investment manager is following his process.
“The easiest new money to get is to keep the money you have,” he quips, so client servicing is the key here and the objective is to eliminate surprises on either side.
Colebatch thinks it is very easy to go for scale and not achieve any advantages. “You can’t get value from scale with the geographic functions operating independently of each other.” But scale is necessary to build and maintain a brand.
“This is the challenge, if you have this strategic objective as we do then there is a great challenge as to how you organise and motivate people without getting lost in the cost of complexity and still getting the value of scale out of the business. But that is getting into new ground as to how you organise a global asset management business.” Fennell Betson”
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