Performance Measurement - July 20, 2007

Alpha League Table Switzerland

The reference rankings in Europe

Having ranked French, Italian, and Spanish asset management firms this year, the latest edition of the EuroPerformance EDHEC Alpha League Table is devoted to Switzerland. One of Geneva’s most renowned banks—private bankers Lombard Odier Darier Hentsch—holds the top spot in this year’s ranking of asset-management firms. Founded in 1796, Lombard Odier Darier Hentsch & Cie (LODH) is the oldest private bank in Geneva and one of the largest in Switzerland and in Europe. Second place is likewise held by a specialist establishment—Bank Sarasin & Cie.

This year yet again private banks dominate the rankings, occupying four of the top five spots. The exception—Swisscanto—highly ranked last year, moves into the top five at third place. Occupying spots in the bottom half of the top ten are large banking institutions: UBS, Crédit Suisse, and BCV. The rankings are dominated by world-renowned firms attracting high levels of asset inflows. As such, the rankings contain few surprises and—with eight holdovers from last year’s top ten—confirm the results of the previous edition.

Of the 48 firms eligible for the rankings, only the top ten—taking into account the number of funds analysed and the steady creation of alpha—have been ranked. The average score of the top ten firms in this ranking is 0.8%, a slight improvement over last year (0.6%). This improvement is the result of an increase in the frequency of “alpha” funds (from 27.4% last year to 33.6% this year) and of a 16-basis point fall in average alpha (from 2.56% in 2006 to 2.4% in 2007).

Once again, private bankers stand out, taking four of the top five spots in this year’s rankings. The winner of the 2007 edition is the Geneva private bank Lombard Odier Hentsch & Cie (1st place). With a 38.4% frequency of alpha and an average alpha rate of 3.8%, LODH & Cie has a score of 1.5%. Last year, LODH missed out on the top ten by a few tenths of a percentage point. This year, the Geneva bank has made a spectacular leap into first place, ahead of another specialised institution: Bank Sarasin (2nd place).

Bank Sarasin, in third place in 2006, climbs a spot on the strength of improvements in average alpha (from 2.9% last year to 3.1% this year) and in the frequency of “alpha” funds (from 31.9% to 43.4%). In third place, with average alpha of 3.5% and a frequency of 35.8% giving it a score of 1.2%, is Swisscanto, the joint venture for investment and pension services of the Swiss cantonal banks. Swisscanto, in seventh place last year, more than doubles its 2006 average alpha (1.3%) and maintains a high frequency of funds outperforming their benchmarks.

The joint winners of the 2006 edition, Vontobel (4th place) and Pictet & Cie (5th place), round out the top five. The Vontobel Group, a specialised private bank founded in 1924, is active in wealth management and investment banking. Pictet & Cie is considered one of the major independent wealth-management banks in Europe. The two banks have improved their scores but not as much as their main competitors, a circumstance that keeps them from repeating as champions. Pictet & Cie and Vontobel are still posting a noteworthy frequency of funds generating alpha—51% and 52.3% respectively. This rate is some twenty points above the average rate of the companies in the 2007 Alpha League Table. Average alpha, however, is slightly lower than that of the other top ten companies (1.9% for Pictet & Cie; 2.1% for Vontobel).

In 6th place is UBS. Ranked sixth last year as well, UBS confirms its leadership in the closed circle of banks with a Swiss network. Average alpha is 2.1% and the frequency of “alpha” funds is 27.6%. 7th place is taken by BCV. Founded in late 1845, BCV has expanded throughout the canton of Vaud and gradually diversified its business activities. Today, it is the second-largest cantonal bank and among the top-five full-service banks in the country. Last year, BCV was ineligible for the rankings, as the number of funds analysed was insufficient. In 2007, the funds of the company Gérifonds were absorbed by BCV Asset Management and, as a result, BCV qualified for the Alpha League Table and makes its entry at seventh place, with alpha of 1.7% and frequency of “alpha” funds at 35.1%.

Crédit Suisse is in 8th place with alpha of 3.2% and a 15.5% frequency of funds outperforming their benchmarks. Swiss Life takes 9th place in the 2007 rankings. It is the only insurance company in the top ten and was ranked ninth last year as well. Its average alpha is 1.3% and its frequency of “alpha” funds is 18.9%. Julius Baer, finally, is in 10th place. The 2007 rankings confirm those of 2006. Only AIG Private Banking, an affiliate of AIG, has fallen out of the rankings, as it did not have a sufficient number of funds generating alpha over twelve months.

The breakdown of “alpha” funds into investment zones shows a preponderance of funds invested internationally. Funds invested in Swiss equity represent slightly more than one quarter of the funds selected for their positive alpha. Sector funds—accounting for slightly more than eight percent of four and five-star funds, are also a significant source of alpha. At 5.9%, emerging markets (Eastern Europe and the rest of the world) are no longer a large source of excess returns. All the major investment zones are present: the USA, Asia, Japan, the Euro zone. Germany (5.2%) is a favoured zone, whereas France and Great Britain are somewhat neglected.

Specialists and private banks, with highly competitive management of sector funds and of European funds, take the top spots in our rankings. Commercial banks offer a range of products covering all markets and have high-scoring funds in all categories. UBS, for example, with more than twenty-five funds analysed for these rankings, posts an average rate of alpha of 2% over twelve monthly rankings. Its frequency of alpha is 27.6%, whereas private banks surpass 35%. Lower frequency therefore penalises commercial banks, which, over a very broad range, cannot manage to produce durable alpha in all “equity” categories. A narrower range of products allows private banks to generate—with greater frequency—returns greater than or equal to those of the fund benchmark.

Average rates of alpha vary from two to four percent—depending on investment zone. The strongest performances can be found in sector funds and in European markets. By contrast, it is more difficult to generate significant alpha with portfolios invested in emerging-market stocks. On average, alpha funds favour large caps; small caps are limited to 30% of portfolios. This proportion is the result of markets that are strongly associated with specific styles. In emerging markets or in Asia (with the exception of Japan), the notion of small caps is irrelevant and a style-based approach favours only the pricing of company stock (growth vs. value). In markets close to Switzerland, managers have better and more frequently updated knowledge of the economic environment, and the share of small caps tends to be greater.

This is especially the case for the Swiss and German funds, as well as for “Europe” portfolios in general, where the share of small and mid-cap stocks is often greater than fifty percent. By contrast, for the most geographically diversified funds—international funds—this share may fall below ten percent.

The firms in our rankings all have an international outlook and have always attracted a wealthy and demanding clientele. For this reason, Swiss bankers were quick to domicile their funds in Luxembourg, thereby establishing close links between Luxembourg and the financial marketplaces in Geneva and Zurich.

Nearly fifteen percent of the funds domiciled in Luxembourg come from Swiss asset-management firms. Funds governed by Swiss law represent about 38% of the funds marketed in Switzerland (source: SFA). This “off-shore” dimension of Swiss asset management is a significant advantage that makes “Swiss” products, in all likelihood, the most widely distributed in Europe.

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