Everyone knows Switzerland as the world's leading center for offshore banking. The hundreds of billions being managed by foreign professional investors are far less well-known.
You frequently get an earful about the strength of the franc when talking to Swiss exporters. But the same goes for domestic asset managers, as figures from the Asset Management Association at a news conference on Monday show. Reading between the lines, the country's currency is weighing on the returns of funds holding foreign securities.
A Third from Abroad
If not for the franc, the level of assets under management (AUM) would have risen by far more. Still, according to them, AUM for the entire Swiss asset management market (including discretionary mandates) was expected to be 3.02 trillion francs ($3.5 trillion) in 2023. That is 142 billion francs more than a year earlier.
A third of that volume comes from foreign institutional investors, as AMAS president Iwan Deplazes indicates, with retirement funds, insurers, and banks from abroad entrusted Swiss finance with about 1 trillion francs in assets.
Ahead of Germany
This makes the domestic market a major European power. According to 2022 statistics from the European fund association EFAMA cited by AMAS, that puts Switzerland with roughly 2.8 trillion in assets euros ahead of one of the most important markets in Continental Europe – Germany.
The only countries managing more assets than Switzerland are the UK (by far the leader with 10 trillion euros in AUM) and France, the latter of which handles 4.5 trillion.
Not as Sexy
That is a number that can stand in good stead when compared against the 2.9 trillion francs managed by 73 Swiss private banks at the end of 2022, as data from KPMG indicates. It also goes to show not that only the export of Swiss banking services is a trillions-large business, but that asset management, which is not seen as being quite as sexy, is as well.
In recent years, both sectors have grown to roughly the same size.
Structural Challenges
But it is not all sunshine and rainbows. Swiss private banking has been coping with slow growth rates for years and has had to deal with a massive expansion in worldwide sanctions following Russia's invasion of Ukraine in 2022. Asset management, on the other hand, faces deep structural challenges.
The main ones include the widespread shift from high-margin security funds into less lucrative money market products as well as a continued long-term trend out of active investment management towards passive products with lower fees.
Growing Pie
These changes have recently prompted prominent overseas players, such as Blackrock in the US and UK's Abrdn, to cut hundreds of jobs.
According to the association, the situation in Switzerland is a bit friendlier. The pie being managed by domestic players continues to grow and the trend towards more complex products requiring higher levels of manpower to manage has not stopped. «We are currently looking for employees», AMAS CEO Adrian Schatzmann describes the situation in the labor market.
Run on UK Clients?
Swiss asset managers can also look forward to an even bigger pie. Many of them expect to be able to market their services more easily with UK-based institutions under the financial services agreement signed between the UK and Switzerland at the end of 2023.
But the starting gun, and the run for clients, will only go off when legislators in both countries ratify the deal. But when that happens, the number one and number three in the European fund business will be in a position to join hands.