Warren Enskat Group

Theory and practice… theory suggests mastery of today’s increasing business complexities as a prerequisite for success, while the reality of business success often lies in getting the basics right (and I mean baaaaaasics).

Don’t believe it?

– Consider the view of some of the most prestigious wealth managers and private banks in the world in response to how they weathered the credit crisis? Returning phone calls.

– In one of our early studies on wealth management, a U.S. fund manager had inadvertently sent out statements to their clients showing zero balances. Priceless.

– Among the key criteria to being a preferred provider for professional fund buyers? Don’t call all the time, but do get back immediately with tailored information when specifics are requested – i.e. call back.

Basics.

Of course, Asia is a mystery to most non-Asian financial institutions and our trips, meetings and discussions have enlightened us mightily over the years (needless to say it’s still pretty dark regardless).

A few interesting anecdotes on getting the basics right in China:

– When invited to dinner by a client, bring a gift such as wine or tea (not rocket science, polite and universal); but never bring “four” items of anything… “four” (四; sì) in mandarin sounds like “death” (死; sǐ)- also the reason why you won’t find a fourth floor in any building. Also don’t bring any kind of time pieces (no Lange & Soehne, pls) since the words “give clock” are very similar to the words “attend someone’s funeral”.

– Then again, if you have enough money double the four and bring eight items and you are in luck. Eight (八; bā) sounds like “prosper” or “wealth” ((发 – short for “发财”; fā) – even in regional dialects the words for “eight” and “fortune” are similar. Which is, by the way, why someone in Chengdu paid close to $300,000 for a telephone number with only digits of 8 in it.

Certainly, by now you think I am exaggerating and this is not important in the financial services industry. Maybe, but companies that have been in the region for a while are very much focusing on those details:

– Companies with a long history in the region have traditional Chinese names that carry positive connotations, e.g. Citibank and HSBC.

CITIBANK, 花旗銀行, 花旗 (Hua Chi) – “colorful flag”
HSBC, 匯豐銀行, 匯豐 (Hui Fong) – “flourish, rich”

– International fund managers, such as Fidelity or Allianz, use names similar to their Western names but which also have specific positive investment connotations:

FIDELITY 富達 (Fu Da) – “rich, prominent”
DRESDNER ALLIANZ 德盛安聯, (De Sheng An Lian) – “virtue, flourish, safe, joint”

Getting the basics right. Not a guarantee for success, but it sure as hell makes life easier at dinner.

There is no wave without wind – reviewing some of the most common Chinese proverbs for the new year always helps put things in perspective, especially with all the noise in the market and our industry these days.

Following some eighty in-depth conference calls with leading distributors in Europe and around the world, today more than ever it is important to look beyond the ‘mot du jour’ and distributors are looking to asset managers to do just that. I will share with you the most common feedback and complaints later this week, but here are the top two:

1. Be a gentleman (woman) – don’t call me all the time, don’t just chase assets and – most importantly – don’t stop calling during a time of crisis.

2. Help us do our job – most companies still make the mistake of just talking about themselves, instead of providing thought leadership.

Thus, yes, it’s nice to start a conversation with “newcits” or “PIIGS” (unlike BRICs not a good accronym, aka Portugal, Italy, Ireland, Greece and Spain), but it’s more important to offer thought leadership (and research) around the themes that matter for the next decade.

Here they are, the global metatrends that matter to build your business in the next ten years as the investment management industry goes from $100 trillion to $150 trillion+

• Back to basics: despite the difficult decade, mutual funds overall gathered $7.3 trillion in net flows in the last ten years. Post-subprime and Madoff, we expect the back to basics theme to benefit mutual funds, if positioned correctly in the context of each specific target region and market.

• Global middle class as mutual fund growth driver: An investing middle class is the foundation of success for mutual funds worldwide (along with retirement incentives such as 401k or superannuation, which accelerates growth). The global middle class will grow from 450 million people today to almost 2 billion in the next ten years, overwhelmingly in emerging markets – is your firm culturally ready to cater to them?

• Darwin: Only firms able to adapt to and balance global, regional and local market requirements will be successful. Changing information needs and tailored content delivery and marketing messages in addition to performance leads to accelerating turnover of industry leadership (two thirds of the current top 50 globally will disappear in the next ten years, and vice versa).

• West-to-East (…and East-to-West): The trend from west to east is well documented. But now we also see a growing trend from east to west, as Asian firms are expanding in Europe and the US, especially Chinese firms. Companies able to leverage existing and build new business partnerships can benefit (Eastern SWFs call it a “once in a lifetime opportunity” and are registering offshore vehicles to sell in the West).

• New Normal in Europe: $750 billion came out of long-term funds in Europe from the major distributors in 2008 during the subprime-crisis, half of that from Europe equity, Europe fixed-income and Absolute Return, i.e. the bread and butter of European firms. While some $150 billion came back to those categories last year, the inflows benefit independent fund firms and we expect the same trend to continue in 2010 (who will get to the $14 trillion in cash earning zero across Europe first?).

• Independence, brand and communication: Independent asset managers are attracting larger amounts of inflows as some large institutions have lost the trust of the customer, less so in Asia/China than Europe/US. Beyond best-in-breed processes and performance, perceived brand and pro-active communication with professional fund buyers drives flows (stay tuned for a case study on this).

• Changing investor mindset(s): Retail funds continue to be sold, but selected adviser-led client segments are now sufficiently educated to use funds for their long-term retirement needs. IFA clients during the downturn redeemed less and will start to re-allocate investments towards equities in the second half of 2010. While transparency and safety remain key, education around equities and asset allocation will play a more important role this year.

Happy Chinese New Year (of the Tiger…. might want to rebrand that).

Banking as a broadly defined industry these days isn’t much fun, as isn’t being a small(ish) European country that just recently got over the success of “300” and Sparta and now is back in the unwanted non-Olympic limelight.

On the contrary, the investment management business globally according to proprietary Strategic Insight research surpassed $100 trillion in assets under management last year, and – for some – is actually a lot of fun. Footnote: these total AUM figures might actually be on the conservative side despite being adjusted for double counting.

Who is leading the pack? Wealth management and mutual funds.

The mutual fund industry with $27 trillion of total AUM is leading the way as an investment vehicle, but of course the big prize is wealth management/HNW investors, which approach $40 trillion in total assets.

This has a number of important strategic implications.

1. Growth is primarily in Asia, for funds and wealth management:

HSBC’s head of private banking is moving to HK (shortly – always follow your chairman), as is JP Morgan’s international private banking chief (moving trucks stopped by this week). Brady Dougan, Credit Suisse CEO, yesterday announced Q4 results and stated that one quarter of 2009 private banking net flows came from Asia (we have commented numerous times on the metatrends “West to East” and a growing “Global Middle Class” as growth drivers for the region).

2. Battlegrounds Private Banking (and Switzerland), fun for some:

Recent proprietary Strategic Insight distribution research showed that most private banks see growth primarily outside of Switzerland and with new client segments, but still private banking and wealth management in Switzerland (for on- and offshore investors) remains a core segment of the market (see graph below).

Credit Suisse clearly had fun this week announcing its 2009 results – since it attracted CHF35 billion in net inflows, while its rival UBS lost CHF90 billion in net redemptions. Some analysts now forecast that Credit Suisse will surpass UBS as Switzerland’s biggest bank in 2010. Definitely not fun for Oswald Gruebel, who ran Credit Suisse before he took over UBS. Still, despite the losses UBS is doing well across Asia, given that most investors there don’t care much about the issues Europe and the US are dealing with.

A few years ago listening to Singapore being described as the “Switzerland of the East” only caused a few polite smirks in Zurich and Geneva, but the trifecta of issues around subprime, taxes (Italy et al), and bank secrecy have caused a big divide in the country. Clearly, Singapore’s SWFs launching offshore UCIT vehicles for Europe distribution and their declaration in Davos of a ‘once in a lifetime’ opportunity for Asia to grab global market share didn’t result in smiles in the Alps either.

3. Secular shifts in distribution in Europe (and the US) are a big opportunity for independent firms:

As part of our broad based professional fund buyer survey across Europe (and the US) the theme of independence stood out, both as in independent financial advisors being a growth opportunity for non-proprietary fund distribution as well as independent money management firms helping private banks and other distributors re-establish their respective tarnished brands with angry customers.

Switzerlands of course remains dominated by private banking (no surprise here), but even there we see slow changes. Of course, much depends on the mood of the country, e.g. the UK has seen $225 billion in net new flows over the last five years across asset classes (happy), while Italy on the other hand suffered from $235 billion in combined net redemptions (not so happy).

But even in Italy the banks are not willing to pro-actively kill the attractive mutual fund business and are opening their doors again slightly, while promotori finanziari used the crisis to grab market share and sustain and develop relationships with their more educated client base and to introduce independent fund firms to investors in a variety of packages (white labeling, separated accounts, funds and wraps).

4. An owl? Transparency and safety looking for a suitable partner:

Lastly, investors collectively now hold $60 trillion in various forms of cash effectively earning zero, Europe with $14 trillion leading the way. Getting investors (retail of HNW) to shift even a small part of that total into investment vehicles is the big opportunity for mutual funds. Thus, the SFA in Switzerland currently is running a CHF1 million campaign promoting the transparency, diversification, liquidity and safety of mutual funds through a series of television and online ads featuring a savvy owl.

See for yourself, boring is the new black: http://www.myfund.ch (Fonds. Die kluge Anlage.)

BASo in Spain, Santiago de Compostela:

Volando entre tus brazos:

Opening showcase with Paloma Suanzes, Paradizo Dance and BASo:

We are continuing our work with Miss Universe and Miss USA.

Stay tuned for more footage, but 2010 promises to be as, if not more, exciting than last year.

Videos from the Official Miss USA YouTube Channel from 2009:

Part 1:

Part 2:

BASo Performance with Miss USA: