The move to consolidate independent asset managers stutters even after Finma drops a hint. But Ticino's Crossinvest is already looking at specific Zurich targets, Claudio Pedrett tells finews.ch.
«It is really surprising how few ripples Finma's recent hint has made in the sector»: says Claudio Pedrett (picture below), head of the Zurich office of Ticino asset manager Crossinvest.
In talking to finews.ch, he raises the elephant in the room facing about 2,400 independent asset managers. By the end of 2022, under the Financial Institutions Act (FinlA), they will have to apply for a Finma license.
Application Take Up at Only 7 Percent
Finma's recent wake-up call doesn't seem to have prompted much action. Currently, about 180 portfolio managers and trustees out of the estimated 2,400 registered with Finma who had been operating prior to 2020 have applied for a license. In order words, that is a woeful 7 percent given that the application procedure can take the better part of the year.
Time is ticking. Still, most independent asset managers are waiting even though the run they risk of not being able to keep working after 2022. Of course there are other ways. For one, they could simply give up their independence and join a large, licensed company. As a result, asset managers with more than 1 billion Swiss francs are jostling for position in the new regulatory environment, as finews.com has reported.
Known consolidators include Zurich's Acquila group and Corum. Cinerius has been active since March and they are supported by American investors Summit Partners. Some of the largest asset managers in the Alliance of Swiss Asset Managers (ASV) also seem to be interested in takeovers.
Crossinvest Zurich, which was recently awarded a Finma license, wants to play an active role in the market's consolidation. As Pedrett explains, he wants to target selected competitors starting in the next few weeks.
Internal Control Framework
The targets include 280 independent asset managers in Zurich that have not yet applied for Finma licenses and who have less than five employees. It is widely expected that the costs for applying a license and implementing the necessary requirements will be too onerous for them.
As part of that, the firms will have to set up an internal control framework that links client-facing staff with the trading desk, compliance and risk management. They will not be able to delegate this and outsourcing it, as Finma suggests for smaller companies, will not be free.
«They dropped their hint at a time we are seeing challenges in the financial markets, in the areas of digitalization, succession and pressure on margins,», Pedrett observes. «You could call it a perfect storm for independent asset managers.»
German example
He expects there will be a significant decline in the number of independent asset managers in the Swiss market over the next few months and years. He uses Germany as an example. The introduction of Mifid II a few years ago resulted in only 10 percent of the companies remaining even though the number of people employed overall did not fall much.
«We expect the number of independent asset managers to decline significantly in Switzerland soon», says Pedrett.
Smaller asset managers looking to stay above water have a number of different options. They can share costs, as Zurich's Sound Capital is doing. They can choose to outsource, a service Aquila Group is offering. Or they can be integrated in a new company and brand - the approach that Crossinvest is taking.
Partners or Employees
The independent asset managers can transfer their client asset to the Crossinvest platform and join the company as an employee or as a partner. They will remain relatively free related to their client advisory activities but they can use the entire product palette of Crossinvest. This includes the necessary licenses for the digital portfolio solution Assetmax as well as compliance and risk management support. «We also have alternative models in cases where they they plan to close out their business activities in clearly planned, transparent fashion», says the head of the Zurich office. That includes takeovers.
Crossinvest was founded about 30 years ago and it has offices in Lugano, Locarno and Zurich in the meantime. Each office is licensed as an individual company. It mainly grows by searching for asset managers and private bankers. In the meantime, the group has over 70 employees and it manages over 3 billion francs in client assets.
New Competition
If the sluggish sector does indeed start moving because of Finma, the Ticino companies won't be the only one looking for competitors.
Pedrett thinks the same: «The largest managers will be heavily competing for the most attractive independent asset managers.»
