Vontobel Holding AG (VONN) Earnings Call Transcript & Summary

Good morning, everybody. A warm welcome, together with Thomas Heinzl, our CFO, on behalf of Vontobel for the livestream and update on our half year results 2021 -- thanks for your interest. Welcome to those of you who join on the live stream, and a warm welcome also to those of you who joined through the telephone conference. As usually, I will kick off with a few highlights and an update on strategy. Then Thomas, our CFO, will guide us through the numbers, and then I will be back with the outlook. After that, we are happy to take your questions and have a live discussions, you can post and lock questions either through the chat function or then also speak up on the telephone conference. So let's kick off. We present a strong set of results for the first half year of 2021. We are very happy that the numbers prove that we could further strengthen the trust clients put into Vontobel. We have a solid, robust net new money growth at the upper end of our own target range coming in at around 6% annualized growth rate with CHF 6.6 billion of net new money. We also continue to build market share and further trust with our clients who come in through digital channels. Our advised client assets reached a new record high of CHF 274.5 billion. We have used the first 6 months of this year also to achieve significant strategic progress in a number of areas. We have continued to make progress in the ultra high net worth segment with a strictly investment-led approach, different to the usual lending-led approach that we see with many of our competitors in the industry. And we have proof points that the broader access to all the capabilities of our investment boutiques leads to success with ultra high net worth clients. We have continued to expand the range of our ESG offering, launching even an impact fund out of the liquid investment space. And we made the accelerated full acquisition of 30% of the 40% in 24%. We deliver operating income that is up by 25% year-over-year coming from all areas, asset management contributing with 17% growth, platforms and services as the other institutional client group coming in at 32%. And even wealth management, who obviously had to compare to the intense trading period a year ago, comes in at plus 9%. Again, self-guided investors through our digital investing offering increased the most with 86% revenue growth. This leads to group net profit up by around 50%, up to CHF 191.8 million. The strong profitability in combination with an unchanged controlled risk appetite translates into very solid balance sheet number with a CET1 ratio of 14.5% and a total capital ratio of 25%. Page 4 gives you the overview of the key numbers. In addition, you also see the return on equity, which comes in as a very strong 18.7%, which is an increase of 5.3 percentage points and which compares nicely against the estimated costs of capital. We have executed this first 6 months on the back and supported by a very strong setting in terms of strategy and in terms of long-term orientation. We are committed to our Lighthouse goals. We believe and are confident that the 4 levers of our strategic journey: client centricity, being investment-led, technology-enabled and powered by people, are the right levers for the environment and for the future success of Vontobel. And we have put our whole firm on one collaborative organizational model that starts to prove itself in a very demanding environment. A few further updates on strategic progress on top of the things I already mentioned, and I will also get back in a bit more detail just after the next slides. So in terms of Vontobel experience, in terms of brand recognition, we made it to the top 20 in the European fund business in terms of brand awareness, brand recognition, brand trust, which is quite an achievement for us given the fact that more than 1,400 companies compete in this market. The strong international footprint also translates in a strong reputation in our home market, Switzerland, as our home market still accounts for 40% of our business and our clients' money. We have just been voted strongest Swiss banking brand and the only financial brand in the top 10 Swiss brands. While we do not consider ourselves primarily as a bank, as the saying goes, it's always okay to be #1. A few updates, things to mention on our tipping points for future growth. We make progress in Asia, also in combination with the platform strategies, where we had increasing collaborations with local banks in Asia, also a strategic cooperation with Avaloq for deritrade, and our cosmofunding platform was breaking through the variance of 10 billion traded volumes. In terms of using data and technology to make us a better partner for our clients, we made progress in one analytical platform rolled out globally, and we keep pushing with vault into newer client segments where we offer convincing digital touch points to give the opportunity also to these client groups to harvest the potential of investing as the new form of saving. We're also very proud about the development of our partners here at Vontobel of our teams. We have become more international, more diverse as we continue to make progress on this journey. We regularly ask for feedback because we think feedback is a key success factor in a collaborative company. And the feedback we are getting makes us very proud. Over 95% of our people are fully committed to the strategy and are proud to working for Vontobel. On the journey of this strategic progress, we also keep learning. We keep adopting and we keep improving to deliver the best we can in order to offer to our clients. And in this context, we also came to the conclusion that the synergies are the overlap in needs from ultra high net worth clients, multifamily offices and independent asset managers are so convincing that it makes sense to bring the client-facing activities of these 2 channels closer together, which led us to the decision to move the successful platforms and service unit, which has grown by 32% and delivered an organic growth rate on an annualized basis of 10% into the broader wealth management setting. We will execute this as of August 1. Three points on TwentyFour. We became majority shareholder in 2015. The cooperation, the partnership has overdelivered on all the targets we have announced in 2015. We have now found and agreed on a partnership approach going forward that aligns all the interest that led the partners and the teams of TwentyFour focus on what they do best, which is delivering added value to their clients, and which will add 2 percentage points additional uptick to the return on equity for Vontobel shareholders. We see this full buyout as a milestone on a journey that can lead much further as the demand for sophisticated fixed income solutions remains very big. TwentyFour has outstanding investment capabilities, Vontobel brings the global footprint to the table, and we tap into very large and very fast-growing asset pools. This leads us to the core capability of any investment firm, which is the ability to navigate the wealth of our clients in demanding and choppy markets. Here the usual update. Key message, 73% of the money in all our funds is ranked 4 or 5 stars. So we have a robust and solid footing in terms of performance quality. I gave you an update in February on the end year numbers in terms of fixed income, where we stood at 54% first and second quartile as we still were digesting the massive downturn from last March. As you see now, as I indicated in February, the fixed income strategies have recovered fully. We're back to 90% 4- and 5-star ranking over 1, 3 and 5 years. We also have very strong multi-asset class numbers over 3 and 5 years. Our mandates have been doing even better than the funds that are listed here. When we look at our equity products, all our core equity products are quality style, bottom-up, highly concentrated portfolios. They are generally challenged as the whole investment approach is in this market, which also has tendencies to leap into hyper growth or leap into momentum phases in the markets. However, we will remain true to our investment beliefs. And I think the net new money we could gather in the first 6 months proofs that we match our convictions with the long-term lenses of the clients who put their trust in us. ESG is a topic we have been engaging on for years. We keep moving forward. We have integrated ESG respectively, sustainability criteria now in the absolute majority of all of our investment strategies. We have launched a number of additional sustainable/ESG investment strategies with a sustainable emerging market debt fund or the already mentioned Global Impact Fund, which claims to prove an additional social impact out of liquid investing, which is a very promising approach from our point of view. We believe ESG will mainstream, that's the direction in which we are working, and we will keep you updated on our progress in this journey. These were my key highlights on the achievements and the results for H1 '21. With that, I gladly hand over to Thomas, our CFO, who will lead us through the numbers in more detail.

Thank you very much. A warm welcome from me as well. Advised client assets have been on a record CHF 274.5 billion, a growth versus year-end of 10.6%. And assets under management have also grown slightly more by 11.2% to almost CHF 0.25 trillion, CHF 244.2 billion. If you look at where this is coming from, you see performance has contributed 13 billion to the growth net new money is 6.6 million. And important compared to last year, FX effects have contributed CHF 5.1 billion of growth as opposed to last year, where we had quite some headwind. We have tailwind from the FX markets in this half year. Net new money, CHF 6.6 billion or 6% annualized growth. Positive contributions from all the client units and all the asset classes. Wealth Management has grown CHF 2.2 billion. That is 7% of annualized growth rate. We're very happy with this. This is driven by 2 important remarks. And this, first of all, it is broad-based. All the units of asset management have contributed. And secondly, 83% of these inflows were in products with recurring revenues. Platforms & Services, CHF 0.8 billion. That's a 9% growth, very strong half year. And in Asset Management, CHF 2.9 billion, a strong spurt in the second quarter of this year up to 4.3%. Please don't forget that we had to book out a very low fee-bearing advisory mandate of CHF 1.5 billion, which has also affected the CHF 2.9 billion growth significantly. If you look at the income and profit development, operating income up 25%, costs up 17%. That combined with a tax rate of 17.8% has led to a group net profit growth of 48% from CHF 129.2 million to CHF 191.8 million in the first half of 2021. The cost development includes one-off charges of CHF 9.1 million, which are IFRS personnel costs that has to do with the share-based plan that we have introduced for TwentyFour Asset Management acquisition, which is booked in the personnel costs with a minus of CHF 24.6 million and adjustments in the pension plan, which was a write-up of credit of CHF 15.5 million in total, roughly CHF 9 million cost development one-offs. If you look at the cost -- at the revenue growth, that was CHF 157 million. The costs grew CHF 74 million. That is a marginal cost income ratio, if you may, of 47%, which is, of course, driven by the higher revenues, but also of our -- shows that our first efforts cost containment are gaining traction. That leads to a cost income ratio of 69.6% or if we adjusted for the one-offs, at 68.4%. Operating income has grown significantly. If you look at the asset-based businesses, Asset Management, which is the largest block year-over-year has grown by 17%. Platform & Services, we mentioned already, very strong half year, 32%. And Wealth Management has grown by 9%. I'll come to that in a second what the drivers are, but it's difficult to compare it to the first half of 2020 when we had -- when it was different corona situation, and the trading revenues and net interest income was in a different place. Strong growth has been seen in digital investing sales direct-to-digital clients, 86% growth. That is obviously driven by a benign market environment, but there's also a couple of structural reasons behind it. First of all, what we have seen is retail clients coming back to the market. It's not only that we see these, also our partner, through all of the channels, see that. For example, many brokers have record high account openings in the first half of this year. Secondly, we've broadened our product range and we have gained market share. And in particular, we have gained significant market share and grown quite strongly in Asia. And lastly, the hedging costs have decreased versus the last year. The return on assets, not a lot to say about Asset Management. In Wealth Management, what you see year-on-year, it is minus 7 basis points, those are driven in essence by 4 factors. Number one, we started growing. According to an analysis that we did, if we -- if money in Wealth Management is funded until everything is invested and we are at a full return on asset, that takes roughly 9 to 12 months. That is something that we see. Secondly, we have some traction on the ultra high business as a strategic and initiative. Zeno mentioned this earlier. That also contributed a decline of 1.5 basis points. And lastly, as I mentioned, net interest income in Wealth Management was down by 25%. That is basically driven by the U.S. dollar. And then trading, of course, was significantly below the trading fees in the first half of last year. So that explains the difference. The pretax profit growth was CHF 93 million, or 58%, if adjusted for one-off items and FX movement. What you see here, the FX movement is negative, that is still driven by the second half of last year when we had the dollar catering versus the Swiss franc. This half year, we had a slight tailwind, as I mentioned earlier, U.S. dollar was basically, on average, the same as in the second half of last year and euro and pound, we gained. So for this half, the FX was slightly positive. But on a year-on-year, it is still a negative contribution of CHF 11 million that you can see here. That overall has led to a very solid and resilient balance sheet and capital ratios. The equity -- total equity has gone up by CHF 68 million to CHF 1.96 billion in total. That despite CHF 127 million charge from the TwentyFour acquisition, and that has led to the CET1 capital increase by 5.3%. Since we haven't increased our risks, the risk-weighted assets are basically unchanged. That leads to a higher CET1 ratio of 14.5% and higher total capital ratio of 20.5%. Leverage ratio has come slightly down. What I want to mention here, that gives us further capacity for any organic or inorganic growth initiatives on our balance sheet. Value creation was very strong in the first half. We have an ROE of 18.7% versus a cost -- estimated cost of equity of roughly 9%. And return on tangible equity is at 25.9%. Anybody looking at the return on CET1 ratio, that would be north of 33%. What is important on this chart is to show that the trend of increasing value creation is continuing, and the momentum is still there. With that, I already come to the summary of the business KPIs. Net new money growth, the CHF 6.6 billion, 6% is on the top range of our targets. All the other ratios are above target. Operating income growth, 25%, which is over the 4% to 6% range. Pretax profit growth, net profit growth, just shy of 50%. Cost/income ratio, below 70%, so it's also below our target of 72%. CET1 ratio is 2.5%, above our target. Total capital ratio, 4.5%. And return on equity at 18.7% is also significantly above our objective. So all in all, if I can sum this up, we had a very strong first half of 2021. With that, I would hand back to Zeno for the outlook.

Thank you very much, Thomas, for this overview on the numbers. Let me turn to the last piece of our presentations in this environment and obviously, also after now many, many years of bull markets, both on the equity as well as on the fixed income side, one of the questions that come up with -- in discussions with investors is, obviously, the question of timing. And I just wanted to share a little piece of research that we have done, which looked at what made sense over the last 20 years and what made sense over the last 20 years actually to be invested at all times. And I would claim that also going forward, forward putting capital to work in a systematic fashion makes a lot of sense. So what you see here in black is how a 50%-50% strategy has performed over 20 years. when you just let it run completely unchanged in markets, it would have delivered an annual excess over the riskless rate of 3.3%. And if you have had started to time in the wrong way and missed the top 10 days or the top 20 days or even the top 40 days, your annualized return would have been strongly reduced. If we add to that what we claim to as an active manager is that we added to that the tactical asset allocation signals that come out of our Wesco quantitative modeling, and you see that actually then trying to navigate markets add value if it's done in a systematic and robust fashion and also the added value is pretty robust through time. So we think it's another proof point for truth. We already know very well. To have added value for investors, you need to be on a common journey in the long term, which means that clients and investment firms need to be partners, need to understand and trust each other, be transparent about expectations and investment outcomes, and then the results can be very handsome for everybody involved. And this is what we are committed to. This is everything we do, trying to help investors build better futures. Let's move to the outlook. We think that the environment remains helpful to what we do best. We see and witness a strong and on growing demand for professional investment advice. We see that the distinctive quality-driven content-driven strategy is rewarded by trust, by flows, but also by stable margins. We believe that adding technology, investing in technology, investing into people will continue to add value going forward. So we see momentum. We see also a strong upside in terms of the possibilities we have from the investment side, from the opportunities on the distribution side. We will remain very prudent when it comes to sizing our risk appetite. We will continue to invest. How did we get off into H2? We had a good start into H2. We have -- we see robust revenues so far. But obviously, let me remind you again that there is some history -- history has shown that there is some cyclicality in our business. And July, August and December happened in H2 on a very regular basis. However, we came off the blocks nicely for H2 and obviously, the strengths of our strategy and the strengths of our capital position gives us ample optionality going forward. That was it from our side with the overview. We are happy to take your questions now.

Again, a quick reminder. There are 2 channels for the questions, either the check function on the live stream system or the queue on the telephone conference. I will try to combine the 2 channels in no particular order. Let's start with nice -- with an easy one to start off. We have a question from [ Peter Stent ] over the chat function. Thomas, I would hand that to you. There is a question regarding a comment on Page 9. How is the increase in return of equity of 2 percentage points calculated? Thomas, can you take that?

Happy to share the details on this one. In essence, it is equity is going down from the charges. The return is going up because we have no more minority that we will have to pay out. So the return attributable to shareholders is going up. And we did the calculation based on the end of May numbers. That explains how this is. And -- but we're happy to share this how exactly the calculation has been done.

Thank you, Thomas. Then we would move on to the phone channel. And the first question comes from Nicholas from Citigroup.

Can you hear me okay?

Yes, there is some background noise. So -- but you're audible. Let's give it a try. And if we have problems, we will just ask some questions back.

Congratulations on a very strong set of numbers today. So the first, basically, the questions are, one, on targets; two, on asset management and finally, on [ transaction, please ]. Targets, you are already well ahead of your targets in terms of, let's say, cost income. You've got a tailwind from positive markets at the end of the first half as well. Is it fair to say that your targets, let's say, 72% lower cost income is now looking a little unambitious? That's question number one. Question number two is on private markets. This is something we've discussed before. I know you said this is not an area of interest for you. And equally, I know that your share of public market securities is tiny, and you just had a very strong sets of net new money. But even so, given that private markets and alternatives have the best outlook for fees and growth, is it now a discussion at Board level? And just curious, how do you weigh up the potential for growing in a shrinking market like traditional asset management versus growing in a high-growth market like private markets because clearly, the market also signs a premium those that operate in high-growth markets? So just curious on your thoughts there. The second one on Asset Management is on ESG. We've seen a big increase in sustainable ESG funds. I think that, that number has been flattish for the last 18 months or so. So curious what's changed there. And if you could help us -- if you could disclose your ESG flows this half, that would be helpful. And finally, just on the transaction. Revenues are pretty stellar. You mentioned that there is some structural elements here. And I'm curious if you could just provide a bit more context or color on how much of this you think is repeatable not only in digital investing but also platforms and services. I guess is that -- and just is there any change in the approach of how this business is being run, for example, you referenced lower hedging costs compared to last year. That's it.

Thank you very much, Nicholas, for your questions. I'll kick off with 1 and 2, and then Thomas will comment on the transactional revenues and the more repeatable aspects of them. So targets, they may look easy to reach from the current position. But for the time being, we will stick to them. We have this planning our ambition reason that says us, "Okay, we want to move in this 10-year Lighthouse direction." And then we have rolling targets for -- on a 2-year basis. So we will revisit the target spectrum by June next year. And for that time period, we intend to stick with what we have currently out there as targets. As you have seen, we are okay with exceeding our own targets, and there are no incentive schemes linked internally for us to reach targets where the incentive schemes are only linked to absolute numbers. So there is no -- nothing in the system that would create incentives to move slower just because we have reached certain targets. But we intend to keep the strategic planning at the sensible rhythm of this 2-year rhythm, first. And second, we're also -- I mean, we're in a quite benign environment right now and let's look how the whole year then pulls out. And then we have a very solid basis to review this in H1 next year. Then in terms of private markets, I confirm almost everything what you have said. I mean we are committed to liquid markets. And in the liquid space, we are still a very, very, very tiny fish and this pond is huge. Just look at the multi-strat fixed income world, for example. We compete there, among other products, predominantly with the Strategic Income Fund of TwentyFour million. This strategy accounts for the CHF 12 billion. If you look at the 5 biggest fund in the multi-sector area, the 5 biggest funds account for CHF 300 billion and more. And actually, if I look at our investment numbers, they compare very nicely with these big 5 guys. So there is a lot of optionality in the current business. However, we understand as well that private markets are a mid- to long-term topic. We don't only look at it from a fee or from a growth perspective. At the end, what focuses our mind is how do we deliver return to our clients. And if for reasons of regulation, society, capital flows, whatever, a greater part of value creation is done under the umbrella of private markets, we have to be aware of that and talk about that. So yes, we talk about it. We look at options, and it may well be that we try to use capabilities that we have. For example, our asset-backed security business as a steppingstone into certain areas of private markets. But we're in early talks, and we will very probably go on a step-by-step journey. Then if we go to Asset Management, this is the reporting ESG criteria, sustainability criteria in line with SSDR. Very soon, we will, like everybody else, then also have numbers according to Article 9, 8 and 6, which will be probably more easily comparable going forward. When we look at sustainability flows in H1, one of the key drivers was our Clean Tech product, a strategy that we run for many, many years. that really, I think, is very proven, gives a strong feedback to investors on the CO2 impact on every dollar invested. And that is now just -- it has always been in the kind of the end client space. It now moved even into the institutional space with large institutions, clients developing demand for it. That's one of our main drivers for the flows in sustainability, and we will add this Global Impact Fund to that range coming from the same team and from the same investment process. With that, I would give, for the third question, to Thomas.

On the fund side, on how much -- the question was how much of the transactional element, we believe, is sustainable. That's a difficult question, and I wouldn't dare to give you a concrete number. We're working with different scenarios. I mean the future is always very difficult to predict in this case. Retail clients have come back. If we would see a very sharp correction somewhere in the next half year or a year, of course, retail clients can be spooked again and pull back out. You've also asked for a change in the business. Yes, there is change in the business. We're getting broader. We're getting more digital, and we are integrating more along the value chain with our B2B clients. For example, we do calculations for them on their behalf, Greek simulations, all other things. We do things like if there's a structured product, we would calculate optimal switching times and all these kind of things. As an example, a structured product that gives between 0% and 10% in a 6-month expiration date. If you realize 9.3% in the first 3 days, of course, we would recommend to switch because then you can lock in the gains. That's the kind of thing. So what we're doing is standard work, working on technology, working on data and integrating with our clients and increasing the service level that we provide to our clients.

Perhaps it's worth shedding some light on the geographical progress also in Asia.

Yes. On Asia, we had -- that's one of the critical things on Asia. We have gained significant market share, which we also believe is not something that will go away very quickly. We started a couple of years ago and have a step-by-step made our way up in terms of increasing the market share. So we're in a very good position there as well. And our position has increased. Our brand is strengthening and also with the -- on the retail side with the users of that, we're still very careful on the risk side, but this is how we grow the business, and we believe that could be a very interesting growth opportunity for the years to come.

Nicholas, does this answer your questions?

Incredibly helpful. If I could just phrase the last question one other way. You may -- in digital investing, you made CHF 160 million of revenues in 2019, CHF 180 million odd in 2020, given your Asia market share gains, given new product ranges such as crypto. Is it fair to say that a sustainable run rate should be above those levels? I guess that's another way of putting it.

Yes, I would say we believe it should be above those levels. Then we stay to the phone channel, and we have Nemes from UBS.

Also, congrats to a good set of numbers. I have 3 questions, please. Firstly, if I may, I would like to stay a bit with digital investing. The growth in Asia that you mentioned, can I ask which products were driving this? And are you now focusing more and more in investment products, for example? Or this is primarily high activity and strong demand for warrants and perhaps shorter-term leverage products? So if you can talk a little about that. And still on digital investing, could you perhaps quantify the contribution from crypto trackers or Bitcoin trackers to revenues or at least give us a sense how significant that contribution was? And also, whether these revenues were primarily skewed to the Q1 than we saw really high activity in crypto currencies? The second question is on Wealth Management gross margins. I acknowledge, certainly, your comment on the typical seasonality in the second half and the inherent unpredictability. But I'm just wondering what sort of strong seasonality should we expect here. It seems like the NII component of the margin have come down quite significantly already. Transaction activity have been holding up. And I'm just wondering, should we expect the same type of seasonality like in prior years? Or this could be a bit more perhaps softer? And the last question is on asset management. Can you perhaps talk a little bit about the flows you saw primarily in the second quarter this year? Were these mainly the mandates? Did the fact that a lot of the -- a much higher number of fixed income funds have 4- and 5-star ratings, did that have an impact? And generally, where did you see these flows into which strategies and if you could give us an indication of their clients are looking at going into the second half?

Yes. So let me start. Thomas, could you elaborate on margin developments and seasonality?

Yes.

Then -- so the first one, Asia are both things. So it's through our Hong Kong presence is leveraged products listed on the stock exchange and the usual direct interaction with self-guided investors. Then they have so far limited demand for investment products. However, where the investment products have grown are on the B2B channels with external asset managers, respectively. Banks, where we have made quite some progress in linking up to digital platforms, so that leads to -- or refers to the point that Thomas has made that we have come better in linking us up on the value chain with our distribution partners. So we have made significant progress in Asia to be linked up to more digital platforms and therefore, also be electable to more distribution partners when it comes to investment products. The business that is linked to packaging, crypto currencies and giving a convenient access to them, it's a lower double-digit number in terms of revenues. And then perhaps I hand over to you, Thomas, on Wealth Management. And I'll be back with Asset Management flows.

Yes. Crypto contribution is below 20%. And what is interesting, though, is the first and the second half of this half year, so quarter 1 and quarter 2 weren't significantly different. On Wealth Management gross margins, the seasonality is, normally, July and August are rather slow. So the second half of July and the first 2 weeks of August are normally a bit slow. And then in December, also, in general, you see a slowdown of activities. Now that is on average over the last couple of years. But we have seen years where December was extremely strong, in particular, if there is a strong movement in the market. Of course, clients are repositioning themselves. So we would see that going up. What is important, the key driver of the margin decline has been net interest income. And net interest income mostly in the U.S. dollar position, where we have a -- as you can see from the segment report, we were down 25% in Wealth Management, and that we're not sure this is going to change very quickly. So that is something where we are locked in. But we also don't think that the interest rates can go -- in the U.S., in particular, will go much further down. compared to where they have been on average over that half year. So that's a bit the situation. So seasonality, yes, but that is mostly driven by the fact that people are on holiday and that in December, if markets are calm, people tend to -- you tend to have activity in the first 3 weeks and then in the last week, people normally also are off for holiday.

Then let me get back to a bit color on the flows in Asset Management. So one large chunk of flows was within fixed income, but there especially in the multi-strat sector. So this was a building block that was bought by very large global banks by distribution partners. So far, the appetite for clients into more credit-linked strategies, corporate high-yield or emerging market, hard currency, local currency or even corporate has not yet returned. So actually, this is one of the hopes, expectations, aspirations we have for H2 that given our track, given our credibility flows in more credit-linked, fixed income strategies should come back on top of what we see from the multi-strat field. Obviously, the asset allocation decisions were a bit slow because up and until May, the benchmark returns of everything that was credit linked and had a duration exposure actually was negative and asset allocators don't like to go into negative territory. So let's see where -- how this develops into H2. But in H1, fixed income flows were important, but more or less limited to less duration sensitive, less credit-linked multi-strategies. The other source of net new money was multi-asset class. Within multi-asset class, also quant strategies from Wesco that should probably see an unchanged pattern in H2. We don't expect a lot of changes there. Then on the -- the other chunk was a very long-term institutional asset allocators who kept investing in our bottom-up equity strategies despite the general challenge they currently face in the market environment. Obviously, that will be an area to watch going forward. How will the appetite of very long-term investors develop relative to a market that can remain momentum-driven for longer. So that's surely something we watch very carefully. That's the overview on flows. Does this answer your questions?

Certainly. That was very helpful.

Great. Then we have another question on the call from Michael Kunz from ZKB.

Yes. My first question would circle back to the trading income. I mean in the first half, you have already achieved 83% of what you had achieved last year as a whole. And could you please shed a little bit more light on the underlying developments? I mean you mentioned the decline in hedging costs, but that cannot really be the only driver. So if you could help me a bit on that one, please. Then the second question refers to the asset management equity business. I mean a couple of years ago, we had been discussing even about [ cumene ] risk this business. And now today, we basically talk almost fixed income only. How is the situation at the quality growth boutique in New York? Are you happy with the way they develop? Or are they moving a little bit more sideways these days? How is the situation there? And then third question, given that you've beaten expectations by far on the half year results, your dividend policy, is it kind of still in place? Is it too early to comment? Or is it fair to speculate that the strong development of the year might also lead to increases there?

Thank you for the question, Michael. We are so surprised that we had to wait for question 3 to have the dividend topic on the table. I will perhaps kick off with Asset Management and then give both for the trading results and underlying repeatability of them and first color on dividend, I hand over to Thomas. Is that fine? So Asset Management. So first of all, it was a deliberate target of us to become more diversified. So we -- when we scale back 6, 7 years, we had 60% of assets and obviously, an even larger part of revenues in equity and within equity, a very concentrated offering. Today, we have 30% fixed income, 30% equity, 30% multi-asset class and within equity 2, strong boutiques. So I think that is a significant strategic progress and deliberately executed in a combination of organic investments and acquisitions. Why is this important for going forward and for the value of the company? It's not only because we are more diversified. It's actually also because some of the key buyers and the key sources of growth predominantly global banks are busily reducing the number of relationships of partners they work with. And if you want to keep making the cut, you need to have a broad -- you can't be a one-trick pony. You need to be able to offer 2, 3, 4 convincing options. And we believe that building convincing products in the area of high conviction active Asset Management can only be done out of protected and independent structures that we call boutiques. So that's why we have done that diversification, built different centers of competence where outstanding return can come from. But putting that under one global sales organization that can invest then in this strong and deep partnerships with our clients. So we think that was a deliberate choice, a deliberate journey and has heavily fortified our position in Asset Management and obviously, then the value that we as a company can show. In terms of the way how we are organized or how we ask boutiques to develop, we have become very, very conscious, but that's now 10 years ago. 7, 8 years ago on the talent structure within the boutiques as you can check every 4- or 5-star product of our company, and you will always see 2 named PMs. We believe that people are key in these investment processes. People make the difference. People are important, but they have to be part of a team and part of a process. So we invest a lot of scrutiny into that. And we think it pays off when you see how we can produce flows across the cycle and how we can navigate between the ups and downs of relative performance, which, by the way, is unavoidable in high conviction active asset management, and we still deliver repeatable growth across the cycle. So that's the overall picture. And that then lends itself to one of our equity boutiques, quality growth, where we are happy. You see strong stability on the team. You see strong long-term performance, especially on the developed markets. We acknowledge and are aware of that this style is generally challenged now, especially in some of the more high-growth emerging market segments, but we are working on this. We are happy with where the team goes, and things are going just fine.

If I take over on the trading income, the 83%, yes, this is, of course, correct. The hedging costs don't explain everything. But don't forget, last year, in March, what happened, market was breaking down by 30%. So there were quite some costs in order, and we have reduced, as you can see also from the reporting of the full year annual report of last year, you can see we've reduced the risk quite significantly in the first half of last year. In this year, the market environment was more benign. But as I said earlier, yes, crypto played a role. So crypto wasn't the main driver, but it played a role. Last year in the first half, there were very little revenues coming from crypto that was different. And we said it was between 10% and 20%. Asia has been a strong contributor in this year. And then also on the investment products in Switzerland and Germany, our market share has increased significantly, and the volume was just very high. Basically, it started at the end of January, and it held on, of course, with ups and downs for the whole half year, we just saw very high trading volumes, and that is what drove the results on top of our additional market share. And on the dividend policy, it is too early to ask. That will be decided before year-end by the Board.

Michael, does that answer your questions?

Yes, that's perfect.

Thank you. Then we move on to Daniel Regli from Octavian. Daniel, please go ahead.

And also, from my side, congratulations to the strong set of numbers. Particularly, I think, net new money in Wealth Management was again very strong, and there also goes my first question. We heard other banks complain a bit about the lockdown situation in H1 and related headwinds for net new money generation. Now you had a very strong net new money growth. Did you not feel any headwinds from the lockdowns? Or did you also feel that your net new money would even be -- have been better than the 7% we have now seen in Wealth Management.? And then maybe just as a side question. I was missing a bit the relationship manager number. Did you stop releasing these? And then one question on costs. Can you maybe give us some color on how much of the cost increase we have seen year-on-year was driven by variable components like bonus accruals, et cetera, versus investments or, let's say, higher fixed costs? And how shall we think into future semesters about the costs? And then just one quick follow-up, but I think you already answered this, on the net interest margin in Wealth Management. So the exit margin on net interest income was more or less in line with what we have seen in H1. Can you confirm this? And sorry, one last question on capital. Obviously, the dividend question was already asked by Michael, but more generally speaking, what other uses of capital could you imagine versus dividend payout?

Yes. Thank you very much. Lots of questions. I will perhaps start with Wealth Management net new money and the link or non-link to COVID and shed some light on how we think about capital. And then I would ask Thomas to answer on the RM number and the disclosure of this, shed some light on cost developments and the net interest income question. So Wealth Management, obviously, everybody operates under the same circumstances. So we had the same travel restrictions and the same limitations to interact physically with clients, as everybody else. I think what helped us or what supported us, I think, we have invested a lot in thinking through and executing how to actually build also in the digital world, a proper sales funnel starting from building, creating leads, nurturing these leads into a prospect and then handing over these prospects to RMs in order to convert the prospect into a client. We are still very, very early days there, but we see that this can work. And we strongly also believe that this works better if your offering is investment-led, which means you have all this great content with which you actually can create leads and nurture leads into prospects. And that's something we strongly believe in. We also throw significant efforts at it. For example, with what we have mentioned under this data-driven tipping point where we built this analytic platform and really build the whole value chain, lead, prospect, client and the content machine, that's probably one point. The second point, I think we have been early adopters of digital onboarding, which works well and has become not a common practice, but which has become more and more normal, let's put it like this. And then also, we have to be fair. Vontobel always -- if I get the numbers, you know the numbers of the competition better than I do, but I think we have a very high proportion of Swiss clients in the private wealth business. And that has always been important to us. We always believed in the home market. We said we want to be strong. Here we can -- we have to prove that we can win in the home market. And obviously, in Switzerland, we have remained very operational now also during COVID. That would probably a little bit highlight, but I would not, obviously -- I share your expectation with our Head of Wealth Management that with less COVID restrictions, we could even do better. Then capital. Those of you who follow us for a long time know that we are cautious users of our capital. One thing that we can exclude that will not happen is out of practice or one-off payouts back to shareholders for very obvious reasons. We have one shareholder that has stayed with us for almost 100 years and intends to stay with us for the next 100 years and shareholders would pay taxes in between taking out capital and paying in capital, so that does not make a lot of sense. So we have a certain slack in the capital structure of our company for the reason of that shareholder structure, but I think they add such a lot of value in terms of stability, long-term thinking that I trust that we should all live with that certain slack. Then in terms of how to use that capital, I think, we're happy to say that also what we invest organically compounds currently at 18%. That's okay. So we are happy to underpin future organic growth. So we try really hard to keep this as capital light as possible. You've seen we've increased revenues by 25%, but kept risk-weighted assets stable. So you should not expect from us a change in our risk appetite. We will not unleash lending. We will not change the risk appetite that we have in our structured product business. But obviously, should revenues grow further, they will ask for a little bit more risk-weighted assets. And we keep an open eye on the M&A market. I mean we have unchanged criteria and unchanged preference. We would not go for many reasons, never go for a big bet, the bank-merger type of stuff. But we're very happy to look into add-on acquisitions, both on the wealth management as well as on the asset management/investment side. And we see that many players competitors are looking in how to rightsize or optimize, and we have an open interest in these kind of dialogues. Then I'll hand over to Thomas for the other 2 questions.

Yes. On relationship managers, we're a bit cautious sharing these numbers. And the reason is relatively simple. And because from the net numbers that you see, it's very difficult to directly conclude what the net new money were what -- because what you would have to look at the gross numbers. So the change in relationship managers, that's a key number to look at. And that's why we're also a little bit cautious to share those numbers and disclose those numbers. But it is -- in general, this is not super secret information and we can look into that. The -- what is important, though, is we are measuring very cautiously the contribution from the relationship managers from the new relationship managers, which we count as up to 3 years. And we manage that -- we look at that very carefully month by month what the contribution to the overall net new money from new relationship managers is. On the cost side, yes, it's always possible to reduce costs. And of all of the exercises, all of the things that we do day to day, the simplest thing would be to just go in and slash costs. That normally comes at quite significant costs on the revenue side and also on the culture side, on the people side. Hence, we are very careful with this. So what we are currently focus on is since we still have attractive growth, we are currently focusing on growing and increasing the operating leverage of the company, i.e., put simply costs need to grow less than the revenues. And this is where we are currently putting our effort in. There is a couple of things that are going on looking into investments, how we deal with investments, how we're looking to return from investments, all of these things. And these are currently in development and being rolled out. And in a couple of these initiatives, we have already taken in the first half of the year. So that's how we deal with costs and that's how we think about costs. One has to be very, very careful to not go into this cost spiral, right, which will then at the point in time, choke down the revenue growth. And on the exit margin, net interest income, yes, it's the same between half the second half. What you have seen is the biggest drop we had in the U.S. was in the first half, and basically, interest rates came down to plus/minus 0. That is when a lot of the "damage" to our net interest income has happened, and you see it now in the year-over-year comparisons. What we do have is we don't think this will go much further down. We're also growing our credit book, as you can see from the numbers. We have loan growth, has increased by 9%. That looks a lot in half a year, but that is still catch-up because on average, our penetration of Lombard loans is still relatively low. And that is where we believe the net interest income margin. There's a little bit of support on the net interest income margin. But for the time being, as Zeno said earlier, we don't see a massive increase in interest rates coming on quickly that would give us a lot of tailwind. So that's -- those would be my things on question.

Thank you. Daniel, is that helpful to you?

May I quickly follow up on the cost question? The question was also -- we have seen, let's say, a pickup in variable components of the costs in H1, which are directly linked to the top line like bonus accruals and whether you could give us some color on this. And then maybe a small follow-up on net new money in Wealth Management, have you -- can you maybe give us bit of color on where exactly you have seen this money coming from were there, in particular, have you benefited from, let's say, the struggles of some of your local competitors?

Yes. I start with net new money and then can you talk on costs. So net new money broadly diversified across all regions. So -- and by importance of our regions, just a quick reminder, Switzerland, then it's the German-speaking part, then we do -- then have increased our footprint in Italy, as you know, with a local presence. So that contributed to growth. And then for the -- from the markets far, it's predominantly the U.S., respectively, Eastern Europe. And all regions were contributing to net new money. We don't base our strategy on the weaknesses of competitors that may change from time to time. We keep winning business from all sources of where clients have been or currently are, and we try to convince with our own strength.

And on the cost, of course, additional revenue growth never comes at 0 marginal cost. So there are some general cost items that occur. Exchange fees in structured products, all these kind of things, they, of course, play a role. And then in terms of bonus accruals, we pay for performance. We do this and -- but that has not changed. So the share of the variable cost has not increased over the last year.

Good. And for a change, we switch back to the chat channel, where we have a question from Stefan Arnold. Where's the Vontobel -- where is Vontobel seeing itself, sorry for that, in the area of sustainability in comparison to its competitors and what are the midterm targets for asset management? For example, are you considering a potential expansion this capability? So very interesting question and tough to answer. Let me try to kick off the answer with a provoking statement. And I say, no, in 5 or 10 years, you will not ask for distinct disclosure of ESG assets anymore because it will have mainstream. That's actually a conviction we share a lot that ESG will just have to become part of each and every investment process because at least the risks coming from a different assessment on ESG criteria from capital markets, from society, from regulators will force each and every capital allocated to consider these factors and these risks as part of its decision process. So that's the direction of travel we believe in. All the boutiques are integrating ESG into their investment processes to different degrees and in different dialects because we have different investment approaches in the boutiques, but that's a general direction of travel. What will kind of remain a specialty or a special focus is that what is called impact. So where you -- whether investor deliberately asks for impact beyond pure financial returns, and this has been so far limited to private market investments. We think it will to a certain extent, also become part of liquid market, public market investing. And as I have mentioned, we're launching the first product that will also travel into this impact arena on top. Where do we see us? I mean the competition is broad. It's intense. I think what we can claim is a number of things. We have been early adopters, we have been early movers. We have a corporate setup that is credible. We are climate-neutral for more than 10 years. We think long term. Our shareholders have given away more than 10% of the company to a philanthropic trust. There's a lot of it in our DNA and in our long-term orientation. We also think that true ESG investing almost by definition needs active approaches. Because if you limit yourself in a passive world to actually just check on documents and on disclosures and you give up the most important signal, which is capital allocation, selling or buying an issue of an issuer, I don't think that's the true interpretation of ESG investing. So we think we are privileged that we can actually put actions to the words that everybody is using. And therefore, we feel fine about the competitive position. But obviously, we are now in a phase where you saying you do ESG is not bringing home any client. The answer has to be how you do it. And how does this contribute to better investment results. And there, the proof is always in delivering the results going forward, but we are convinced that we are well positioned. Then we move back to the phone channel, and we have a question from Mediobanca. Please, go ahead.

I had one on cost and more one on crypto. On the expense, the 47% marginal cost-income ratio feels quite high when we're talking about operating leverage. I was just wondering kind of the scope of planned investments over the next couple of years and whether this is front-loading some of that? Or there is actually just so much you can potentially spend with the cash on, it's natural for you guys to be spending when you can when the revenues are good? And then secondly, on the crypto notes, tracker notes, there's been some regulatory guidance out there about risk weights on crypto holdings. They're going to be very, very high at scenes. I don't know if this quarters any issues for these kind of notes given that you've got a significant amount of cryptocurrency on balance sheet to back those trackers.

I think these are both for you, Thomas.

Yes. Look, on the 47%, that's a marginal cost. The marginal cost growth that I mentioned. Of course, we're going to continue to invest in the next 3 years. It's not necessarily that we have put a lot of investments forward. We're currently looking into this on how we will deal with this. But there is some element of this very, very small numbers still included. And we're going to continue to invest in the next couple of years. We do think, as you have heard Zeno, there are great opportunities out there, both in the organic and in the inorganic space, and we're going to continue to drive this going forward, which is, by the way, one of the things that drives the cost income ratio, the marginal cost income ratio, which is -- it's not that we are on the cost side that we do have a lot of cost leakage, but we're very cautiously and very consider -- in a very considerate way, investing and thinking about where to put our chips and where we should invest for the future, which will return revenues and growth in the longer-term horizon. On crypto, we are aware of the consultation paper of the BIS consultation paper. We look into what this is going -- what is going to happen to this. Crypto is an interesting business for us. We only do it for the time being in the area of structured products that we provide access. And we shall see how this will all develop and how the regulatory space is going to develop on this. It's a consultation paper. So there's still quite some time left before that will translate into national regulation, and then we will see how we will deal with this.

So that 47% isn't a bad number for you going to forward?

No, we don't think this is a bad number. That we can do our investments, we can do what we have put out and the Lighthouse does -- the Lighthouse that we have formulated, does include significant growth, top line growth. And top line growth these days, it's relatively -- you have to invest to get top line growth.

Perfect. Thanks for the lots questions. Any other questions on any of the 2 channels? We have another one from Nicholas from Citi, please?

I can't resist to get back to the Apple since my peers have gone. Yes, just 2 follow-ups. Just 2 last questions on Asset Management, if I could, please. You referenced healthy outlook for quant flows in multi-asset. I mean could you just talk a bit more generally on the outlook -- on the state of the asset management pipeline for new business? I guess also particularly in the context that equity performance has been pretty muted with, let's say, 36% of funds assets in the top 2 quartiles on a 3-year basis. And then the second one was [ upon announcement, you will use ] State Street Alpha, where are we on implementation integration there? What do you see in terms of the functionality? And should we expect any additional efficiency gains or costs from this? Or is that already in the numbers?

Sorry, Nicholas, we missed the second part. I got it up and until the pipeline of asset management and then you were quickly cut off. So could you repeat the second part?

Yes, of course. Can you hear me now?

Yes.

Good. I'm back. So yes, at the beginning of the year, Vontobel Asset Management announced it will use State Street Alpha as a new platform. Just where are we on implementation or integration of that? And what are you seeing in terms of the functionality? And should we expect any additional efficiency gains or costs from this? Or is that already in the numbers?

Good. So let me start on the flows, then I comment where we are with State Street Alpha, and then I don't know if this -- is there already -- if you can see this where in the cost, I would have to refer to our CFO because I don't think that the investments are so big that you will see that aggregated numbers, but I'll give that over to our CFO. So Asset Management outlook on everything that is multi-asset class is, I would say, stable to what we have seen in the first half year. So I don't see a lot of changes there to the pipeline. That's fine. Surprise to the upside could be that given the ever lower yields on standard and multi-asset class or standard fixed income mandates, especially in the passive area, need more choose from overlay mandates that could be a booster in second half year, but we don't plan for that. And we don't see it as of yet. Then fixed income, actually, we're still a bit low on the pipeline when it comes to credit-linked strategies that have a duration exposure. But we are very, very convinced that everything we do on the distribution side and especially the quality of our products, will lead to an increasing pipeline and to increasing flows going forward. Where we see strong momentum and almost unmuted demand is everything that is a multi-strat flex where we take away the duration interest rate allocation decision away from the client and do it within our building blocks where we see very strong momentum. On equity, that's the area to work. I have been very transparent on this. Again, we sell to very long-term investors, very institutionally-minded investors. We have, especially on some of our emerging markets then take sustainable products, huge pipelines that will convert going forward, but investors watch also try to time styles. It's fine if multi-asset class allocators try to time styles. We, as bottom-up investors, should never start to try to time styles and try to be everything to everybody. We'd rather live with a few months or a few quarters of muted flows. That may happen, but we will never jeopardize the credibility and the consistency of the investment process over the long term going forward. And if this leads to a slower fund equity flows in H2, we will digest that.

But can I just follow up there with you, Zeno, please? I mean just -- I understand the type of equity product is kind of out of fashion right now, given market momentum -- sorry, given where the markets are performing. But even so, the fact that this equity fund, only 36% are in the top 2 quartiles versus same style sums, same Morningstar category. Is that not a concern? I'm just hopeful surprised to see you're getting very strong flows from long-term capital allocators. Or have I misunderstood that?

Yes, we have this focus on bottom-up quality tilted strategies. That's true. So in the current hypergrowth momentum marketplace, this is not an easy situation. We have the challenge that these markets put on us, but we will not -- there is no intent to shift around in terms of styles or in terms of adding other styles. We will stick to what we know best. And we see -- we also saw in the first half year very long term, the business mix has turned to become a little bit more institutional away from wholesale as many institutional allocators tend to have a more long-term view than wholesale allocators. So we shifted a little bit the focus on the distribution side. But that's the thing we will do. What we are also looking into it, especially in emerging markets, Asian markets, you will see a little bit of product innovation coming out of our boutique that allows us to invest earlier in promising companies because that is something that clients ask for. So we will launch a separate dialect of one of the boutiques in order to be more open in this kind of market environment. That's how we tackle the situation. So we are aware of it. It's a challenge that everybody faces who is in the quality bottom-up corner, and we adopt to it to a degree that we refocus on more long-term client segments, and we are in the process of launching a dialect in parallel that is more open to buy into younger and earlier moving companies.

And for State Street Alpha, that is but one of our investment projects that we are driving. So we're not going to disclose any details on this one. The costs are not that outrageously high that it would warrant the disclosure. And the benefits will also be in line with the investments that we're taking. Progress so far is okay. There's always something that could go faster. Other things, we're ahead on track. It's a usual large project. Benefits will be around -- there will be some cost benefits but not something that you could look into in a valuation point of view, but more in that is one of our cost containments. It's part of digitalizing our infrastructure. And there will be also benefits, of course, by renovating the whole infrastructure, data and all the things that Zeno mentioned earlier. On the tech side, we have a completely different grip of the business with all the information that we get out of IFA in a consistent and efficient way.

Thank you, Nicholas. Any other questions? So we have another question from [ Yor Krone ]. Net new money was over target but weaker than the 2 previous half years. Can you shed a light on the shift in Asset Management and Wealth Management over time? I'm happy to take this directly. We have an aggregated target of 4% to 6%. We think that's best practice in the industry. We have overdelivered against this target for 1 or 2 years. We had always been very clear that this will not stay like this forever. We have now in a half year where the first quarter was very challenged: one, due to corona; second, due to the interest rate movements that capped off a lot of investment decisions. Nevertheless, we have delivered at the upper end of our net new money organic growth. So I think through the cycle, we are fine. And we're also aware that decisions and priorities of clients between Asset Management and Wealth Management Channels do shift. That's one of the reasons why we think that the combined model of looking after private clients and institution clients makes a lot of sense because it helps us to feed and nurture the different investment styles through their own life cycle and show to the capital market more stable flows than if we would go to one single client segment. Then we have another follow-up question from Daniel Regli, again, from Octavian. Please, Daniel, go ahead.

It's really an integrated question. But may I ask you to quickly repeat your comment on the margin impact of the bundling of the financial advisory services with ultra high net worth individual catering in vast management? Was this 1 basis point on the nonrecurring income margins, [ is this true ]?

Thomas, I think that's a question in your camp.

Sorry, can you then repeat? That was in which context?

Yes, the context of the Wealth Management gross margin, you commented about the impact of the bundling of the ultra high net worth and financial...

Wasn't the bundling. I'm sorry. There was -- it wasn't the bundling. I said 1.5 basis points come from the fact that on ultra high, we're gaining traction. And the margins on ultra high are by default slightly lower. And the dilutive effect it had on the margin between the first half of last year and the first half of this year was 1.5 basis points. That was my comment.

Okay. And this was on recurring or results just across margin?

Look, as we grow the ultra high business, we shall see how this goes. That is, in any way, stable and is recurring. So I don't see yet how we will get back on this one. But then I've already said earlier that what we see is when a client funds its account, it takes roughly 9 months until we see the ROA up to a certain level, 9 to 12 months on average. That is what we have seen in the last -- if you look at our clients over the last 3 years. Those are the results until they are fully invested. So we would have to wait a little bit longer to see how this goes and what the ultimate impacts of this then will be.

Good. Thank you very much. I currently see no other questions, neither on the chat channel nor on the phone. Then I would thank you all for your strong interest in Vontobel. We enjoyed the conversation. Thank you for the interest in our company, and we wish you all a successful day. Thank you.

Thank you.