Portfolio manager industry: 360° market view

Portfolio managers in Switzerland are now required to have a licence from the Swiss financial market supervisory authority (FINMA). Where does the industry stand one year after the application deadline expired? What are the key trends to expect going forward?

We’re delighted to present our market update to answer these questions and provide you with a 360° view of the industry, covering:

• An evaluation of the impact of the licensing requirement on the size of the industry, endeavours to navigate regulatory waters, and key trends in strategic considerations
• Interview with elected industry experts, from the Swiss Association of Wealth Managers, portfolio managers, asset managers and custodian banks through to compliance outsourcing companies, to give you insights into the outlook, challenges and opportunities.

Number of portfolio managers over time

Compared with 2020, the first wave of impact of the regulation led to an overall decline of 26% in the number of portfolio managers to 1,578 as of October 2023, but also welcomed new entrants.

^{_{* Sources: PwC analysis, data retrieved from https://www.finma.ch}}

Whilst around 650 portfolio managers decided not to apply for the licence, over 40 newly founded portfolio managers companies embarked on the entrepreneurial journey. In our view, going forward the industry will continue to attract entrepreneurs, and provided their business model and operations are efficiently set up and scalable for growth, licensing will not represent a major barrier to entry.

Currently, 66% or 1,043 of the 1,578 PMs are licensed. The licence is a seal of quality providing transparency in an industry that was previously opaque, as well as allowing stricter regulation that increases investor protection. According to FINMA, the total AuM of the 898 licensed portfolio managers as of June 2023 (latest statistics available) comes to as much as CHF 177bn (the regulator has, however, not disclosed the total industry AuM). The median AuM amounts to CHF 61m, meaning that 50% of the licensed portfolio managers manage less than CHF 61m, albeit with a large spread from one institution to another. In terms of company size, the median number of full-time equivalents (FTEs) of the licensed PMs is three.

Estimated market segmentation by AuM size bucket and number of PMs as of October 2023

^{_{* Sources: PwC analysis}}

Obtaining the portfolio manager licence is an achievement. The regulatory costs are expected to increase thereafter. There are numerous multiple business model setups of PMs, in particular to meet the requirements for compliance and risk management (e.g. outsourcing or in-house). This depends on factors such as the nature of the activities, size of the PM and risk profile. Key will be to have both the adequate setup and processes to comply with regulatory requirements and operational platform scalability to grow in order to address the increasing compliance costs. 

In 2023, there were 11 publicly announced M&A transactions. However, the actual volume of transactions could be higher, as most small cap deals are not disclosed publicly. In the next two to three years (2026-27), we expect a moderate consolidation in the range of 10-25% in the number of portfolio managers.

It has often been speculated whether the entry into force of the licensing requirement would trigger a significant consolidation of the industry. In reality, up to the end of the transitional period the consolidation was relatively limited, but we are observing a tide change across all size clusters of the market which, based on our experience, we expect to accelerate in the next two to three years.

The primary drivers of this accelerated trend in M&A activity and strategic considerations are, for example:

• Smaller PMs experiencing, for instance, challenges when undergoing their first regulatory audits after obtaining the licence and searching for opportunities to merge with other PMs to gain economies of scale
• Succession planning considerations as founders look ahead to their retirement
• Large players acting as consolidators on the market
• Several private-equity-backed PMs actively pursuing a buy-and-build strategy
• Strategic alliances and partnerships being concluded to realise synergies

The challenge remains for PMs to find the “right” partner in terms of cultural fit and chemistry in a relatively fragmented market.

The new era for portfolio managers also sets the scene for opportunities within the entire ecosystem of portfolio managers, managers of collective assets, custodian banks and compliance outsourcing companies.

From the 13 expert interviews we conducted, some of the key success factors to remaining competitive in the future are:

This site contains just some of the findings of our study of the Swiss portfolio manager industry. For more details, please download the full study below. Feel free to contact us if you’d like to discuss the findings or any other topics related to portfolio management with us in person.