Jürgen Kob on global and Swiss Asset & Wealth Management
By Paweł Sobotkowski
In times of uncertainty, trust is the only currency that ever goes up. For industries, which thrive because of their reliability, it is crucial to find ways to navigate difficult times without losing their customers’ trust, which would then take years to recover. Asset & Wealth Management is one of the industries, where traditional stability and excellent reputation are extremely important, but their role is significantly changing, as innovation takes the lead, transforming the long-established Asset & Wealth Management systems and practices.
The market is currently at crosswords, as technological innovation is likely to completely reshape the entire industry, but according to PWC’s forecasts, Asset & Wealth Management’s future is promising. The industry is projected to hit 145.4 trillion US dollars by 2025 worldwide, a significant increase from 111.2 trillion US dollars forecasted for 2020. From a European perspective, things are looking great, too: the Asset & Wealth Management market is set to steadily grow, going from 30.2 trillion US dollars in 2020 to 35.7 trillion US dollars in 2025.
In Switzerland, where banks and trust play a far more important role than anywhere else, two leading asset managers, UBS Asset Management and Credit Suisse Asset Management managed respectively 681.78 billion euros and 344.36 billion euros of assets back in 2019.
Interestingly, not only is Switzerland the center of booming banking activity but also a tech-friendly hub of innovation, where blockchain is embraced by tech enthusiasts and government alike.
How is the Swiss Asset & Wealth Management industry adapting to the new digital reality, powered by blockchain and cryptocurrencies?
Can new technologies transform the entire industry or is the tech revolution in Asset & Wealth Management still in the making?
Let us explore Asset & Wealth Management both in Switzerland and worldwide with the help of experienced asset manager, Jürgen Kob, currently working at Friends & Finance.
Jürgen has years of asset management experience under his belt in numerous countries, from Germany to Luxembourg, and Switzerland.
As he closely works with companies in Crypto Valley Zug, he has extensive knowledge of tech innovation for asset management purposes.
He will guide us through the Asset & Wealth Management industry, discussing investment in uncertain times, and technology’s impact on the industry.
Is it the right time to invest in cryptocurrencies?
Jürgen Kob: Personally, I would not take a single event like COVID-19 at the moment as an opportunity to make a considered and sustainable investment decision. Due to the continued massive fluctuations in Bitcoin & Co, an investor will never find the perfect entry point.
Therefore, it makes absolute sense to divide his crypto investments into pieces and thus to be active on the market over a longer period of time. In plain language: the so-called “cost average effect” also works in the crypto market. Due to the high volatilities even better than with shares! If prices fall, I buy more coins or tokens with a constant and regular investment amount; if prices rise massively, I buy fewer pieces.
On average, investors generally achieve a better performance than with a one-off investment. From this point of view, the question of timing is no longer a criterion for a sustainably successful investment decision.
When you invest, “timing is rather a secondary success factor”
In Jürgen’s opinion, investors should not look for a universally “good” time to invest, but examine their own situations and act accordingly.
For example, he believes that “young people at the beginning of their career can invest significantly longer and thus take greater fluctuation risks”, whereas “older investors should really only invest that part of their assets in crypto that they can, in the worst case, completely do without due to a total loss”.
Although he admits that the global pandemic is not a perfect moment to “make a considered and sustainable investment decision”, he points out that there is no perfect entry point for investors because of “continued massive fluctuations in Bitcoin & Co”. His proposed solution? Dividing crypto investments into pieces to be active on the market over a longer period of time.
His personal strategy is to “buy more coins or tokens with a constant and regular investment amount” and simply buy fewer pieces when prices rise massively.
Diversify your portfolio with crypto investments, but not exclusively through Bitcoin
Jürgen agrees that crypto investments can be a great way to diversify an existing portfolio, adding although there are no long term studies yet, “a certain amount of crypto-currencies in a portfolio can reduce the risk of fluctuation”. His recipe for successful portfolio diversification is simple: “if you believe in a golden crypto future, then 6% of the entire portfolio should be invested in Bitcoin & Co.” If you are less optimistic about the crypto-powered future, he recommends “a share of about 4%”.
In his opinion, even crypto-skeptics should invest a little — at least 1% of their total assets — in crypto assets “for diversification reasons”. Nevertheless, such a process of portfolio diversification should never take place exclusively through Bitcoin. He advises against such investment decisions, saying to “never put all your eggs in one basket” but to diversify your crypto engagements.
His recommendation? “Take a look at the Top 10 or Top 20 on sites such as www.coinmarketcap.com and choose a healthy mix (5-10 coins/tokens)”. Nevertheless, he emphasizes that the largest portion of investment “should still be held in Bitcoin”.
Correlation between traditional assets and crypto-assets is not as low as expected
As crypto-assets were becoming increasingly popular, people hoped they would be immune to market fluctuation, which always has an impact on traditional assets, but numbers proved that everything is connected and correlated, even if only to a certain degree. Jürgen explains that “the correlation between the traditional asset classes and ‘crypto’ is not as low as many have suspected or hoped”, so “many investors suffered more painful losses with their crypto investments than with shares of Nestlé, Roche or Swisscom”.
On the other side, he sees opportunities in different areas, pointing out “an increased uncorrelated development between Bitcoin, Altoins and (new) DeFi”. He explains that “DeFi tokens literally explode”, when “established cryptocurrencies collapse”, which is interesting from the investment perspective. When asked if traditional investment approaches can be used with cryptosystems, he says it is important to “differentiate between passive and rule-based investment strategies”.
For active investors, he highlights the importance of “a clearly structured investment selection process”. When it comes to passive investors, his advice is to take a look at providers offering “ETF's, ETP's and other structured products in a basket of different crypto-currencies”. He recommends “ETF's or certificates, which successfully combine the advantages of the active and passive strategy to one product”. For rule-based investing, Jürgen’s first thought was the XBTATQ — Tracker Certificate from Leonteq Securities.
The introduction of blockchain-powered solutions is a win-win situation for all involved parties
Jürgen is “deeply convinced that blockchain technology will have a massive impact on the fund industry worldwide”, and “providers who ignore blockchain could disappear from the scene in a few years“. For that very reason, many companies start to consider blockchain implementation within their structures.
Jürgen mentions Calastone Ltd, one of the largest global networks for fund transactions, as one of the companies, which decided to implement blockchain solutions early on. He explains that the company “handles all fund trading (with 1,700 partners in 40 global markets) via a specially created blockchain”.
The list of benefits is long: from sustainably optimized processes, increased efficiency, and transparency to reduced operational risks and significantly lower costs for fund managers and investors.
In Jürgen’s view, it is “a win-win situation for all parties involved”. He goes on to add another example of a blockchain-powered company — FundsDLT, saying that it “developed as early as 2016 through cooperation between Clearstream, German Stock Exchange, Natixis, and the Luxembourg Stock Exchange”.
Banks have already turned towards Blockchain: products from the “old financial world” will no longer attract new customers
As blockchain disturbs numerous industries, Jürgen is sure that it “will be a challenge for the financial industry in two respects; not only in Switzerland but globally”, but companies have no option but to jump on board the innovation train. In fact, he explains that “most of the big institutions have already realized this some time ago and have started their own blockchain projects”.
Will blockchain-powered solutions be enough to keep them afloat in the brand-new financial reality? Jürgen is not so sure, as “another threat is approaching the financial world in the form of Bitcoin, Libra, or generally digital assets” and “SEBA and SYGNUM, the first ‘crypto-banks’ are now successfully active in Switzerland”.
He states that the new investment trends are reshaping the entire industry, citing the “tokenization of assets such as company shares, real estate, cars or works of art” as an example.
In Jürgen’s opinion, companies “offering only cash accounts, shares, bonds or structured products from the ‘old financial world’ will no longer attract new customers”, so they will have to adapt to the new investment realty.
DeFi could be “the next big thing”
What could be the next revolutionary movement in the financial world? Jürgen believes in the potential of ‘Decentralized Finance’ or ‘DeFi’, stating that it could be “the next big thing”. In the world of ‘Decentralized Finance’, “central institutions such as banks, etc. are completely eliminated and financial transactions are presented completely independently and decentrally on a blockchain”. In such a case, “the bank acting as ‘middleman’ would thus be completely unnecessary”.
As much as he highlights the technology’s potential, he also cautions against scams, which are quite frequent, and predicting that “probably 95% of the projects/platforms will disappear from the market again”. Jürgen’s final advice is to explore the subject in “an open, unbiased, but always critical way”, as even exciting new possibilities can be dangerous: “with completely decentralized DeFi platforms, it would be difficult to prevent financial bets on the death of certain people, for example”.
Jürgen’s final comments
Jürgen Kob: As exciting as the new possibilities are, as dangerous they are: «Decentralization» has not only advantages: With completely decentralized DeFi platforms, it would be difficult to prevent financial bets on the death of certain people, for example.
I think it is undisputed that the new digital/decentralized crypto world also has disadvantages and dangers. And that's exactly why I would like to encourage all readers and members of the Swiss-Polish Blockchain Association to deal with these topics in the future in an open, unbiased, but always critical way. A good possibility for this is certainly your website of the SPBA.
At the end of the day, innovation has always fueled the world, and as much as we might oppose it, technological revolutions can be delayed, but rarely stopped. Global spending on blockchain solutions is forecasted to go from billion US dollars in 2020 to 17,9 billion US dollars in 2024, and the finance world is set to be one of the first industries to embrace blockchain-powered solutions within all its segments. As our expert, Jürgen Kob stated the industry simply cannot afford to ignore blockchain innovation if it wants to thrive in the new financial era.