Global Asset Management

Our vision

Our global asset management business provides investment management solutions directly to our private, institutional and corporate clients and through financial intermediaries. We aim to deliver superior investment performance to clients through the management of their investments, across and within all major asset classes and through a number of investment approaches. The strength of our global asset management business lies in its globally integrated investment organization and processes, as well as in the quality of its client service.

Business

The diverse range of our specialized investment capabilities enables us to offer innovative solutions in nearly every asset class. Our approach combines the global expertise of our investment professionals with sophisticated risk management processes and systems, helping us provide clients with products and services that meet their needs.

Invested assets totaled CHF 765 billion on 31 December 2005, making us one of the largest global institutional asset managers, the second largest mutual fund manager in Europe, and the largest mutual fund manager in Switzerland.

The traditional investments business offers equities and fixed income, asset allocation and currency capabilities, and risk management. The central investment approach in traditional investments is based on rigorous fundamental analysis to identify intrinsic value. In addition, our separate Growth Investors capability focuses on investing in securities with strong growth characteristics.

The alternative and quantitative investments business has two distinct offerings: a multi-manager or funds of hedge funds business and a single manager business, which operates its own hedge funds. The multi-manager business constructs portfolios of hedge funds (operated by third-party managers) to give clients diversified exposure to a range of hedge fund strategies. The single manager business includes O’Connor, a hedge fund specialist, and DSI, a provider of enhanced equity index and quantitatively-based hedge fund products.

The real estate business invests in properties in the US, Europe and Japan and in publicly traded real estate securities worldwide. It actively manages investments in property, including office, industrial, retail, multi-family residential, hotel and farmland real estate.

We also have a global fund administration business providing services to both internal and external client bases.

Reporting structure and local organization

Our main offices are in Chicago, Frankfurt, Hong Kong, London, New York, Sydney, Tokyo and Zurich. We have some 3,000 employees located in 20 countries.

We report revenues and key performance indicators according to our two principal asset management client segments of institutional and wholesale intermediary clients.

Competitors

We have a range of competitors in traditional investments that extend from firms organized on a global basis – such as Fidelity Investments, Alliance Bernstein and Merrill Lynch Investment Managers – to firms organized on a regional or local basis and those that specialize in a particular asset class. In real estate and alternative investment, our competitors tend to be far more specialized and likely to be organized on a regional or local basis.

Clients and distribution

We aim to provide our clients with the most appropriate investment solutions for their needs through our combination of investment expertise, risk management, and local delivery.

We place great importance on maintaining an ongoing dialogue with our clients. As well as the advisory and reporting aspects of our client relationships, we aim to keep clients informed of the latest investment and business issues through a range of publications, events and training.

Institutional

The institutional business has a diverse worldwide set of clients that includes:

– corporate and public pension plans

– endowments, municipalities, charities and private foundations

– insurance companies

– governments and their central banks; and

– supranationals.

In consultant-driven markets, such as the US and UK, we rely on developing and maintaining strong relationships with the major consultants that advise corporations and public pension plans. We also dedicate resources to generating new business directly with clients.

Wholesale intermediary

The wholesale intermediary business offers some 400 investment funds, exchange traded funds and other investment vehicles, across all asset classes in diverse country, regional and industry sectors.

Our investment funds are overwhelmingly distributed using financial intermediaries and selected third parties including the Global Wealth Management & Business Banking Business Group.

Products and services

Investment management products and services are offered in the form of segregated, pooled and advisory mandates and a range of registered investment funds.

In response to a changed investment environment featuring lowered projected returns for equities and increased market volatility, we have developed a number of innovative investment solutions to meet the needs of wholesale and institutional clients. These include value-added services such as absolute return and dynamic alpha products. We can also combine traditional and alternative investments and services into integrated packages.

With demand for outsourcing and administration services set to increase, we are well positioned to benefit by providing a range of professional services from legal fund set-up to full reporting and distribution support.

Investment performance

Equity markets rose in 2005, although progress varied by region. The US made modest gains, while Japan saw a 40% rise on increased optimism about the economic outlook. The global energy and materials sector soared on the back of rising commodity prices and robust demand from China. Our strategies that were underinvested in these areas underperformed during the year. Regional equity strategies were mostly ahead of benchmarks, with particularly strong performance in US and Asian equities, due to excellent stock selection.

In US equities, our Growth Investors team generated solid returns. In particular, the large capitalization growth strategies significantly outperformed benchmarks again in 2005. With the addition of a team specializing in mid-sized growth companies we were able to round out our investment coverage of the US growth equity market.

Global bonds performed strongly in the first half of 2005, with yields in several markets reaching record low levels. Some of this was retraced in fourth quarter when it became clear that the momentum of economic growth was proving resilient despite the rise in energy prices and tighter monetary policy in the US. Bonds with long maturity dates saw the largest declines in yield, reflecting investors’ confidence about the outlook for inflation, allowing several governments to issue 50-year maturity bonds. Credit markets failed to provide the returns seen in preceding years as yield spreads diminished and due to growing concern over the deteriorating outlook in several sectors (e.g. autos). Our active interest rate strategies had mixed results in 2005.

Global balanced strategies finished above benchmarks for the year, mainly due to asset allocation decisions that favored equities.

In alternative and quantitative investments, performance was strong in 2005 despite difficult market conditions for most hedge fund strategies in the first half of the year. Overall, industry returns in the second half of the year were generally positive, resulting in good risk-adjusted returns for the year. Our core multi-strategy and proprietary hedge fund strategies produced very good relative performance, with equities performing exceptionally well. Additionally, the core broad-based multi-manager funds generated positive returns.

Our real estate offering was strengthened this year with the launch of additional institutional private real estate funds in the euro zone and the acquisition of 51% of the Siemens Real Estate business. The global real estate securities capability continued to deliver strong investment performance and corresponding growth in assets. These developments, along with overall strong return figures and increasing investor demand for high-quality real estate, led to a significant increase in assets on a global basis in 2005.

Strategic opportunities

Our business performance in recent years has shown the soundness of our strategy of offering a wide range of investment products and solutions to various major markets and distribution channels. We remain focused on the effective execution of our strategy, ensuring that our initiatives deliver both revenue and profit growth.

Demand for alternative investments and for high value-adding products continues to grow strongly. We have a number of initiatives underway that address these client needs. The formation of Dillon Read Capital Management is one example. The transfer of the Investment Bank’s Principal Finance and Commercial Real Estate business to Global Asset Management will enable a select number of long-term clients to co-invest with UBS in these trading strategies. It will provide UBS with a new stream of fees and a new alternative investment management business. The investments in our European real estate business and our Growth Investors capability are further examples of this business diversification.

Access to a wide span of investment capabilities also supports the development of holistic investment solutions that address trends such as the increasing emphasis on liability-driven investments and on retirement products.

At the same time, we aim to strengthen our distribution power and have seen very strong momentum in a number of mature markets, such as the German and UK wholesale markets. We also see great growth potential in our joint venture in China and in the various other opportunities we are exploring in emerging markets.

While business growth continues to be a priority, we recognize the importance of a robust risk and compliance culture to the sustainability of our business. Managing operational risk continues to be a key focus. In 2005, we conducted a comprehensive recruitment and training program to ensure that our people, processes and systems can deal appropriately with all types of risk.