Decura-UBS joint venture ‘was flawed’

The Decura-UBS partnership was based on a flawed model as the assumption was that clients would buy anything pushed by investment banks, according to a market source. “It does not work like that any more and investors nowadays take their time to look for alternatives,” said the source. “They could have explored innovation via derivatives but it did not happen. I don’t think governance was done properly as this happened on the back of the 2011 trading scandal involving UBS.”

The Swiss bank won a lawsuit, on January 30, brought against it by Decura IM Investments after the High Court in London dismissed the asset manager’s claims that cuts in UBS’s investment banking division undermined a joint venture launched in 2012 to provide clients for its Exclusive Business Services (EBS) which consisted of two types of product – managed accounts business and algorithmic trading strategies. Decura, founded by former Goldman Sachs partner Vishal Gupta, who held a number of roles at the US investment bank including head of credit, equity exotics and fund derivatives, was seeking $167m compensation over the disputed joint venture.

Judge Michael Burton heard the evidence of a number of relevant UBS witnesses, including Carsten Kengeter, primarily in relation to the original agreement; Roger Naylor; Henrik de Koning; Patrick Grob and Shane Edwards, from UBS global equity derivatives; and Chris Murphy, the global co-head of the foreign exchange, rates and credit (FRC) division, formerly the fixed income currencies and commodities division of UBS. The Swiss bank agreed to market the EBS to its clients, subject to their being developed by Decura to standards acceptable to the Swiss bank, stated the ruling. Decura agreed (with exceptions) not to enter into any agreement to provide EBS products to a third party, and UBS and Decura agreed to share the revenues from EBS products sold to UBS’s clients – 50/50 for the first $200m of gross revenues in the first year, and 60-40 in favour of UBS for any excess over the same period. “I am satisfied that Decura have failed to prove their case […], and consequently I must give judgment for UBS,” said Burton.

During several court hearings last year, the asset manager argued that cuts at UBS damaged its ability to market Decura products. UBS had cut about 2,400 jobs at its investment banking unit since late 2012 and exited most debt trading activities while focusing on wealth management. “The findings confirm that the strategic repositioning of the bank did not have an adverse effect on UBS’s ability to market Decura’s products,” said UBS in a statement in which it confirmed the ending of its relationship with Decura. “Following the judgment, UBS and Decura have agreed to resolve their differences and have terminated their relationship.”

Competition in the managed accounts market is stiff, with many investment banks and independent platforms offering similar services, said a senior market source with knowledge of the situation. Meanwhile, “margins are not massive and you have to sell large volumes to make this business sustainable,” said the source. “When UBS closed its managed accounts platform only had £5bn of AUM.”

Decura declined to comment on the judgment.

Click on the link to read the full ruling on Decura IM Investments LLP & Ors v UBS AG London Branch at the High Court of Justice, Queen’s Bench Division, Commercial Court, 14-561.

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Decura-UBS joint venture ‘was flawed’