Current and Former UBS Global Asset Management Heads Go Head To Head

The troubles at UBS are well documented, but most public discussion has been about the Investment Banking (formerly Warburg) and Wealth Management (formerly Paine Webber) divisions. The Global Asset Management division (formerly Brinson Partners) was mostly under news radar as the business side of the division slowly took over the investment side during the past decade. The result has been the the complete turnover of the heads of Fixed Income, Equities, Asset Allocation, Real Estate and Alternatives as well as analysts and portfolio managers that ran those funds. This news finally broke in a Pensions & Investments cover story this week.

Current CEO John Fraser, career asset management business and marketing executive, defends the firm and it’s current direction:

Executives at UBS Global shook up portfolio management teams to fix the performance of some traditional equity and fixed-income strategies, while continuing to diversify beyond the value investing focus of the firm’s Brinson Partners core. There have been successes [as well], Mr. Fraser said. Because of UBS Global’s efforts to diversify its product lineup, including its latest push into infrastructure, almost half of its profits are now coming from alternatives, he said.

Then Gary Brinson founder of Brinson Partners, the firm that sold to Swiss Bank in 1994 then merged with Union Bank of Switzerland in 1998 to form UBS Global Asset Management, questioned the broad-based strategy:

It’s “very hard to provide any substantial value added when you’re trying to do everything for everyone,” [Brinson] said in an interview. Mr. Brinson called the loss of a number of strong professionals at the firm a sign that investment people aren’t in the saddle there. “Investment people should run an investment organization,” and Mr. Fraser — a marketing and business veteran — “is not an investment person,” he said.

A UBS spokesperson said: “The numbers speak for themselves. The When we acquired Brinson their assets under management in 1995 were $36 billion — today we manage over $770 billion.” This information excludes the broader context: that the Global Asset Management division was formulated (and asset totals counted) by the merger of Brinson Partners in the US, Phillips & Drew in London, UBS Investment Funds in Europe, Pactual in Brazil as well as a multitude of other tiny acquisitions and joint ventures in Asia.

The firm’s uncompetitive investment performance and investment team losses started after the full integration of Paine Webber began in 2001 (following the 2000 acquisition), and business interests took precedence over investment performance. The goal was to re-package investment capabilities for wealthy Paine Webber clients–this process strips out alpha, as does adding too many new capabilities and launching funds that chase performance rather than being core to the firm’s approach. A recent example of this is a multi-billion dollar Brazilian equity fund launch being sold to investors in Asia. We discussed this back in June when the news broke that Lazard was hired to evaluate UBS and the main rumor was that the Wealth Management might be sold.

At the time we suggested that maybe the Global Asset Management division should be sold instead. Paine Webber brokers want to sell whatever fits their clients the best rather than be forced to sell proprietary products that the Global Asset Management division is forced to create.

It also would enable the Global Asset Management division to achieve an appropriate valuation multiple and be run by investment people, not marketing people, which would help them re-focus on performance. Then the numbers would legitimately speak for themselves.