Mr. Zürcher, are we seeing any new trends in the fund management industry?
Everyone is aware that the market situation reflects low interest rates, geopolitical uncertainties and of course over the last few weeks and months the COVID-19 pandemic. The extreme volatility this has triggered on the markets has naturally had an impact on investor behavior, and hence directly on products. Inflows into passive funds and money market funds have been correspondingly significant recently. But at UBS White Labelling Solutions we also sense strong demand from our clients for products with ESG (Environmental, Social, Governance) features and for alternative investment themes like private markets and infrastructure. Gold as an investment theme has also become attractive again, especially with physical backing, and interest has risen accordingly.
Our clients mainly include asset managers, banks, pension funds and asset owners such as family offices. In our experience the latter in particular have been showing greater interest in regulated investment solutions. So the trend is moving away from traditional offshore Cayman Islands or BVI structures towards onshore structures in a recognized fund center like Luxembourg or Ireland. Asset owners, especially family offices, tend to act very opportunistically, so it's important to select regulated fund structures that are suitable for implementing their extensive needs. As far as the investment management company is concerned, such opportunistic fund structures, often with a very broad investment remit, aren't always easy to administer from a risk and governance perspective.
How much has the COVID-19 crisis slowed down your business overall?
Obviously, the pandemic and its impact have been making our clients react more slowly. Everyone in the market had to adjust to the new situation when the lockdown came. UBS was no different. For sure, the first few weeks were very hectic, with very high client trading activity driven by extreme market volatility, which meant that trading and back office functions were working flat out. But in spite of the slowdown just mentioned, in our view interest in white-labelling structures remains firm. Of course, given the uncertain situation with the coronavirus some projects have been temporarily suspended or put off to a later date. But overall, it’s fair to say that clients have stuck with their projects. Also, despite the coronavirus crisis, we've been in the fortunate position of gaining several new clients with significant volumes for our white labelling platform. This is no mean feat, and is at least partly due to the very close cooperation across divisions within UBS. We've noticed too that many market players made active use of the coronavirus period to carry out a critical review of their business model, so we assume there will definitely be more opportunities in the market as a result. All the more so as we're moving back to normality much quicker than originally expected, apart from the restrictions related to the coronavirus pandemic.
Which financial centers are you using right now to structure the largest number of funds?
UBS was originally a Swiss firm and naturally has a very strong Swiss client base, so for them of course the platform in Switzerland is the main one used for structuring funds. Given the political situation and the fact that Switzerland isn't a member of the EU, we chiefly use our Luxembourg platform for all other cases, i.e. where there is little or no connection with Switzerland. In our view, Luxembourg offers the greatest flexibility as a fund domicile in terms of the legal investment regime and fund structures available to allow clients to structure the most suitable fund vehicle in accordance with the applicable legal framework. In that sense, the Luxembourg platform at UBS White Labelling Solutions is the central element of our growth strategy outside Switzerland, so we're hiring a large number of staff at present. Our investment management company in Luxembourg has 45 full-time staff (and rising) just now, making it one of the largest in the market. But if necessary, in order to be able to respond to client wishes and needs (and I'm largely thinking here of alternative investment structures, redomiciliations of offshore fund locations and passive fund products), we also offer our Irish platform; this benefits significantly from the passporting of our Luxembourg investment management company.
How is the pipeline looking for the next few months?
Our current project pipeline for setting up new structures is so full that we're essentially fully booked in implementing new fund structures until the middle of the fourth quarter 2020 and beyond. Good planning and strict control of individual projects are crucial in making the right use of resources and reacting to changes at short notice. And the pipeline of prospects representing our efforts to win new clients for our white labeling platform is also looking very good. The work we've put in over the last three years in the target markets defined by us as strategic in central Europe and the Nordics, the UK and Southern Europe (Italy and Spain) seems to be bearing fruit. In other words, we're involved in discussions with lots of potential clients across all segments; some are at an early stage, but some are very advanced and in the final phase. It’s a very tough market with a large number of competitors, but we're rising to the challenge and our successes confirm that we're on the right track.
What are the fund structures that make your work most exciting?
Basically, working with and structuring all funds and types of funds is exciting. The clients’ wishes and needs mean no two funds are the same, so every case has something different to make it interesting. Obviously fund structures that pursue alternative strategies such as a limited partnership in the context of a Luxembourg RAIF to invest in private equity are much more complex as far as the processes involved and the whole implementation are concerned, which makes them more exciting than a European equity fund. But working on any fund structure is fun, regardless of how complex it is. And I can honestly say that no one objects to setting up a plain vanilla equity fund, even if it does sound a little less exciting.