Credit Suisse banks on alternatives

Date: Monday, January 26, 2009
Author: Pensions & Investments

Teams of specialists will assist 'stumped' institutional investors.

Credit Suisse Asset Management LLC is pinning the future of its asset management business on alternative investments.

While the Zurich-based Swiss bank is selling only a portion — about 13% of its total $515 billion in assets as of Sept. 30 — of its traditional asset management business to Aberdeen Asset Management, it is focusing most of its marketing efforts on developing its alternative investments, according to Mark Bourgeois, New York-based managing director and head of distribution for asset management.

Credit Suisse is expanding its investment management sales force to 28 from six and adding a team of “specialists” to support that effort. The idea is that investors are stumped as to what to do in this market and the Credit Suisse specialists will speak their language and offer investment research and portfolio modeling to help them out. The specialist team will be led by former chief investment officers of institutional investors — one based in New York and one in London — will be made up of seven to 10 people with a variety of academic backgrounds.

“They will be academics with degrees in science or portfolio management and will have been a CIO for a long period of time,” Mr. Bourgeois explained. They will be able to not only perform risk modeling and cash flow dynamics, but when out with sales staff can get into the intricacies of asset allocation theories that sales representatives could not.

“It's a unique capability to discuss our views,” Mr. Bourgeois said.

At the same time, Credit Suisse is broadening the definition of alternative investments, he said: “It includes everything from exchange-traded funds to quant funds like GTAA (global tactical asset allocation), commodities and infrastructure.”

This is not the first time Credit Suisse's asset management unit has been through a makeover. In 2006, the firm dumped its North American traditional investment business because it was not successful (Pensions & Investments, Aug. 7, 2006). At the time, firm executives indicated they would retain their existing commodities and money market fund businesses in the U.S. and expand strategies in North America such as enhanced index, quantitative strategies and structured products.

In the two years since those changes were made, the alternatives investment business has grown to the point that it comprises the lion's share of Credit Suisse's asset management business worldwide, said Suzanne Fleming, director, corporate communications in New York. (The money market business was unsuccessful and in December, the firm announced that it would exit that business as well.)

Now the firm is focusing its energies on expanding the alternative investments business even more. The various strategies are now combined into four business units: private equity; real estate; liquid alternatives, including hedge funds; and credit strategies.

“It helps to refocus the business,” said Karamvir Gosal, New York-based managing director at investment bank Jefferies Putnam Lovell, a division of Jefferies & Co Inc. “Asset management (at Credit Suisse) had historically been an aggregation of multiple platforms. It makes sense to refocus on alternatives. It's a higher margin business.”

“Alternatives may have been somewhat battered recently, but other than the inevitable shrinkage, the sector is not going away,” Mr. Gosal said. “The landscape will be different as to who will be left standing once the dust settles.”

Offering solutions

Credit Suisse also will be offering what Mr. Bourgeois calls investment management solutions.

“Take an LP (limited partner) who is overallocated to private equity so they don't need anything there; they're interested in real estate but don't know what to do there; want nothing to do with hedge funds; want an overall view of the economy and asset allocation and cash advice, depending on how much they put in the other asset classes. We take all that information and go back and model something for them,” Mr. Bourgeois explained in an e-mail.

But he added: “To be extremely clear, we have no intention to get into any type of consulting or advisory business.”

After the Aberdeen sale is complete, Credit Suisse will have about 180 billion Swiss francs ($156 billion ) in global investments under traditional asset management for institutions — mainly in Brazil and Switzerland — and $156 billion in alternative investments, according to data from the company's third-quarter 2008 report.

Credit Suisse already has a fairly strong alternative investment business, Mr. Gosal said.

For example, Global Infrastructure Partners, a joint venture between GE Infrastructure and Credit Suisse Group, closed a $5.64 billion infrastructure fund. Investors include the $28.8 billion Alaska Permanent Fund Corp. and $4 billion Chicago Policemen's Annuity and Benefit Fund as well as GE Asset Management and Credit Suisse Group.

Still, Credit Suisse's asset management division, which includes both institutional and retail assets, already was feeling the pain of the credit crisis in the third quarter last year, the most current data available. The unit suffered a loss before taxes of 58 million francs in the third quarter of 2008, compared with income before taxes of 45 million francs in the third quarter of 2007, according to its Sept. 30 earnings report.

Contact Arleen Jacobius at ajacobius@pionline.com