UBS Global Asset Management (UBS GAM) is likely to emerge intact even as its parent company is battling serious shareholder activism challenges to its integrated business model, analysts and other industry experts said. “The asset management business … has critical mass, with the prestige factor … it’s a mammoth player, and I don’t believe that UBS would sell a jewel of its business,” said Elizabeth Nesvold, founder of investment banking boutique Silver Lane Advisors.
Luqman Arnold, former UBS president, is leading a campaign to separate the company’s investment banking and global wealth management and business banking units to maximise share value. Such a breakup could claim the asset management division, which is run separately from global wealth management, as one of its victims.
Arnold, chairman of London-based activist asset manager Olivant, also is suggesting the parent company might raise capital by selling the asset management unit. The unit — with US$885 billion in worldwide assets at end 2007 — could be worth US$9 billion to US$11 billion, several analysts estimated. It generates about 11 per cent of the company’s total pretax profits, according to analysts.
Arnold’s campaign stems from UBS’ exposure to the U.S. subprime debacle. UBS has had to write-down a total of US$37.7 billion, the largest amount of any investment bank so far. John Fraser, London-based chief executive officer of UBS GAM, based in London: “We’re going to continue expanding as one the three key businesses integrated within UBS. There are terrific synergies [for asset management] by being a part of UBS. I don’t see that changing.”
Ben Phillips, managing director at New York-based investment bank Putnam Lovell, agreed the next few months will determine whether financial institutions in general are forced to sell non-core assets in order to raise capital if the credit crisis deepens. “UBS is one of many firms that may find themselves faced with breakup debates in the coming months,” Phillips added, “and asset management — given its relatively high valuation — will play a central role in such discussions.” But other observers are confident that the worst of the write-downs is behind UBS.
Georg Sanders, a banking analyst at WestLB AG, believes a sale of UBS’ asset management is unlikely. “Clients are more and more demanding. They want very complex products,” Sanders said. “In many cases, [these products] can only be arranged with an investment bank. In this respect, asset management benefits from the synergies with investment banking.”
But recent weak performance in some of UBS AM’s strategies might leave parts of the division more vulnerable to a sale, banking analysts said. In 2007, institutional asset outflows totalled 16.3 billion Swiss francs, partly because of weak performance across a range of strategies, including certain core/value equity, fixed-income and multiasset strategies, according to the company’s annual report. About 60 per cent of UBS GAM’s assets under management are institutional.
UBS’ Fraser said: “We’re clearly paying the price for some underperformance, and I stress it’s only in certain strategies within equities and fixed income.” A management overhaul that began in 2006 addressed the performance issues as well as “regenerated the leadership group” to help diversify investment capabilities, Fraser added.