UBS Sells Alternative Fund Services Business, Will Enhance Focus On Wealth Management
UBS (NYSE:UBS) has signed a deal with Japan’s MUFG Investor Services to sell its Alternative Fund Services (AFS) business. [1] The move is the latest by the Swiss banking giant towards improving profitability by refocusing its business model around its cornerstone wealth management business. As a part of UBS’s Global Asset Management division, the AFS business provides professional services for hedge funds, funds of hedge funds, private equity and real estate structures.
While financial details of the deal were not revealed, the unit is rumored to be for as much as 30 billion yen ($240 million). [2] The sale, which is expected to close in the fourth quarter of this year, will also result in a reduction in UBS’s global workforce by 300.
The disposal does not have a material impact on our $23 price estimate for UBS’s stock, which is about 10% ahead of the current market price.
See our complete analysis of UBS here
UBS has implemented drastic changes to its business model since 2012 in a bid to achieve sustainable profits in the stricter regulatory environment seen worldwide. Notably, UBS was the first global banking giants to announce plans to substantially shrink its fixed-income trading business – slashing no less than 10,000 jobs in the process. With a long term strategy of focusing on its global wealth management operations in the future, UBS worked through a bulk of its balance sheet over 2013-2014. Having met most of the goals it set for itself as a part of the reorganization plan, and having strengthened itself sufficiently to be one of the world’s best capitalized banks, UBS has turned its attention towards its smaller, less profitable units over recent months.
This is where UBS’s decision to get rid of its Alternative Fund Services (AFS) business comes in. The unit is a part of the bank’s asset management division, and is a global fund administrator with offices in Canada, Cayman, Hong Kong, Ireland, Jersey, Singapore, U.K. and U.S. The sale was most likely prompted by the fact that margins for the fund administration business have been low over recent years due to the prevalent low interest environment worldwide. The unit employs around 300 people and has around $160 billion in assets under administration.
Notably, Mitsubishi UFG (MUFG) has been keen on growing this business over recent years, with the Japanese financial giant acquiring two fund administrators over recent years. [2] The recent deal with UBS will increase the size of MUFG’s assets under administration from roughly $100 billion now to more than $260 billion, and will also allow the latter to benefit from significant economies of scale. [3] As for UBS, we believe that the deal will potentially help improve overall profit margins for the bank’s asset management division over coming years. You can see how this benefits UBS’s share price by making changes to the chart below.
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- MUFG Investor Services to acquire UBS Global Asset Management’s Alternative Fund Services business, UBS Press Releases, Jun 18 2015 [↩]
- Mitsubishi UFJ to Acquire UBS Fund Unit for Up to 30 Billion Yen, Bloomberg, Jun 18 2015 [↩] [↩]
- About Mitsubishi UFJ Fund Services [↩]