For the next 20 years, Asia will remain the region with the greatest wealth creation

Asia will certainly still be where the greatest wealth is created over the next 20 years. From an Asian perspective, Singapore is a much more attractive location than Hong Kong. Why? Because Hong Kong is suffering greatly as a result of China's increasing influence. In addition to market growth, regulation plays a key role in who gains and who loses market share. The US, for example, has a simpler regulatory environment than the Europeans. America does not participate in an automatic exchange of information, although it has imposed this on the rest of the world. This brings more growth, but in highly problematic customer service sectors.

In asset management, I would say no. I think Brexit—and now the upcoming changes to tax rules, like non-resident and non-domiciled status—have caused great uncertainty. The fact that the UK elected a Labour government is also unsettling because it calls into question London as an asset management center. So it looks like Brexit might be an obstacle in the long term.

We are simply prone to perfection. While we’re often guided by international standards, we tend to take things one step further. The way private asset management is regulated—and these regulations are implemented—here is like no other country in the world. Regulation is guaranteed to have a positive impact on the industry’s professionalization. However, our attempt at regulation has also triggered an absolutely superfluous and unnecessary push for bureaucratization that many private asset managers cannot afford.

Our laws governing financial market regulation are relatively broad. This has created scope for FINMA’s bureaucrats to regulate everything, from the possible to the impossible, via ordinances and circulars. For example, modern regulation and compliance involves a risk-based approach. In other words, closely regulating the major risk issues, while skipping over the minor risks. We do the opposite. Bureaucratic controls are smothering hundreds of asset managers, and so they are closing down. Bureaucratic costs lead to higher barriers to market entry. As a result, the competition, which should actually strengthen us, is declining. FINMA, on the other hand, has clearly not got a grasp of the major risks. Even Credit Suisse is gone. It’s a disaster.

I’m not pessimistic—I don’t want to believe this will happen. The political developments in recent years are a help to us. Offshore asset management for private individuals, i.e. asset management in a location other than the domestic country, has become much more attractive once again. This is due to the significant decrease in legal certainty regarding a person’s domestic country. This applies to a whole series of rather autocratic states where a lot of wealth is created—but it also applies to democratic industrialized nations. For example, we are seeing how the US has become a legally uncertain place. On top of this, there are still big differences between each location’s level of competence. I don’t see the UK, for example, as being incredibly attractive. In the future, the race will essentially be between Singapore and Switzerland. With the market growing rapidly due to the global increase in assets, I personally would not even consider the loss of the top spot to be a problem—Switzerland can still grow.

When it comes to foreign assets, the proportion of funds held in the currency of the private bank’s location is relatively small. Currency is more of an expression of state sovereignty. This, in turn, is required in order for booking center diversification to be worthwhile. In other words, you can assume that you will be exposed to different risks in the various countries where your assets are managed. This diversification makes much more sense in an uncertain world. After all, nobody knows whether they will get their money back from America tomorrow.

Many are still waiting. Asset management is a slow process. But I think it would be wrong to assume that Donald Trump is an isolated phenomenon. America has been shifting towards isolationism for several presidencies. After all, Joe Biden did not reverse all the trade policy measures Donald Trump introduced during his first term in office. In defining the US' relationship with China, Biden went even further than Trump. The next American president is highly unlikely to be someone who believes in multilateralism and strong institutions. To think that everything will be fine immediately after four years of Trump… very few wealthy individuals are that naive.

I think we are currently doing very well in terms of what is feasible in an interconnected, global world. We certainly have one or two advantages in terms of technology. In terms of the government, we are actually pretty open to innovation. We have made very clear efforts to be open to blockchain technology rather than closing ourselves off from it. Perhaps even more encouraging: Switzerland has emerged as a top tech hub—within Europe, at least. Virtually all the important major companies focusing on artificial intelligence are here. Given that EPFL and ETH Zurich are also based here, our hopes are that this is only the beginning. We have managed to create an attractive environment for people wanting to innovate in Switzerland.

I’m not sure whether state subsidies are really helping tech development at the moment. Innovation is still all about vision and entrepreneurship, and we have plenty of both in this country. On the other hand, writing funding applications takes time and requires management resources. It can also lead to a corporate culture becoming detached from the market. These are all competitive disadvantages. The state can help much more if it cuts regulation and barriers to market entry. Anyone wanting to try out a modern asset management concept today encounters great difficulties in setting up their business in Switzerland and Europe. Why? Because half of all the initial costs are based on regulatory aspects. We should be concerned about this. 

A brief note about our business: We are business consultants. We help professionals investing other people’s money to do it better. We are process consultants. We design everything from the product ranges to the communication about our clients' products and investment solutions. And our clients include banks, family offices and insurance companies. We have spent years doing the programming behind this, including in analysis, where pattern recognition has been a hot topic since before it was even called AI. But also in creating investment communications so that every customer can have a tailored product. LLM development is now playing an important role here. So we are actually a technology company, if I may be so bold as to say so. We don’t hire analysts if they can’t program. Today, AI helps us to create better solutions for our customers. We are AI optimists. At the same time, we are concerned by what we see on the market. By understanding the basic principles of the statistical methods behind AI, we can see that some of the things people are now attempting cannot be solved professionally with AI. There will be many unnecessary disappointments. Having said that, we believe banks and asset managers are still in the very beginning stages of this development. And those start-ups that are already innovating today are still incredibly small. They mostly dream of an unregulated world. But unfortunately it no longer exists. It is difficult to say how this will all turn out. That’s why the question about image is a very good one, but one that cannot be answered today.

We think there are two exciting aspects relating to technology. The first is all the attempts to increase productivity. Naturally, we will see that the large providers will experience the greatest impacts here. We already have a very fragmented value chain, which is likely to become even more fragmented. Today, small asset managers have to do relatively little themselves—they can outsource many production steps. For example, if you have an investment portfolio and you have to buy securities, you need to be smart about the ones you select so that the portfolio behaves as you thought it would. It is not enough to say: ‘I’ll take 50 percent shares and 50 percent bonds and now I'll buy something.’ It is—or should be—a professional process. And if you don’t do it professionally, you can and will get left behind on performance. We will see incredible progress in portfolio construction. Both at the small outfits and the large providers. Think of a company like UBS that still employs hundreds of people in portfolio construction. These are all jobs that we will soon no longer see. Job profiles will be eliminated—or at least greatly reduced to a few expert roles that will process AI suggestions. This will advance productivity. Secondly and even more important, however, is the issue of AI’s potential to change the market. From our perspective, practically nobody is analyzing what AI does to customers. Nobody knows whether there will still be demand for existing products in 20 years’ time. Customers have the opportunity to use suitable AI systems to shape their investment process differently. This is likely to lead to a completely different demand and completely different products and services. The industry is still in its infancy. And, quite honestly, we are looking for people who are willing to think about these things at all. We have some initial thoughts about what will happen, but the asset management industry is a relatively sluggish beast.