Good morning, everyone. Today, Georg, Thomas, and I will provide you with an update on our 2023 results and key decisions that we will implement to accelerate the execution of our strategy. Let me first share our observations on the market backdrop in 2023 and how this shaped our results. Entering 2023, the questions on every investor's mind were: how high will interest rates go, and how much damage will these do to the growth outlook? In addition, it was clear that after a disastrous 2022, the priority of investors, and in particular, the more tactical ones, was to protect capital at all costs. This starting point, coupled with the highest cash rate since before the global financial crisis, led investors to either wait and see or flee towards safe products and money markets.
Emerging market equities were particularly hit due to the geopolitical tensions and a China that has been viewed less and less market-friendly. The last quarter of the year has given a glimpse of what is probably now in store. As major central banks indicated that they reached the peak in the tightening cycle, equity and fixed income assets enjoy a significant rebound, and the US dollar was hurt. With growth data remaining relatively robust globally, the end of the tightening cycle reached, and yields in fixed income historically elevated. This should induce investors to start dipping their investment tools again in 2024. Turning to our key messages for 2023, our operating profitability is robust at 263 million before tax, with good momentum in our Private Clients' business.
Our assets under management are stable at CHF 207 billion on inflows from Private Clients and market performance. We retain a very strong capital position with a CET1 ratio of 18.7%. That enables us to propose an unchanged dividend of CHF 3 per share at the upcoming 2024 annual general meeting. 2024 will be about sharpening and accelerating our strategic execution, and it will be about continuing to anticipate our clients' needs. Today, we are sharpening our delivery model by organizing around 2 client segments only: Private Clients and Institutional Clients . To these clients, we will offer all of Vontobel investment solutions and digital capabilities.
Anticipating the future demand for infrastructure and the benefits for our clients to get access to this segment, we are entering the highly attracting sector of private infrastructure equity by taking a significant minority stake in Ancala, a successful independent investment manager focusing on critical mid-market infrastructure. We also recognize that we must free up resources for growth. This is why we are launching an additional cost program targeting CHF 100 million in cost savings by the end of 2026. Let me now hand over to Georg.
Good morning, and a very warm welcome also from my side. As Christel just said, we are announcing today that we will operate with two client segments going forward: Private Clients and Institutional Clients . Both will continue to benefit from all of Vontobel's investment products and, of course, be powered by a robust digital platform. Digital Investing, our hub for innovation and digitalization, will be integrated into the organization. This segment has been instrumental in incubating the technology for serving clients who prefer a digital interaction. Now it's time to leverage these skills across the organization. In other words, with this integration, we accelerate our firm-wide digital transformation. Now, let's turn to our private client business, combining former Wealth Management and former Digital Investing. Overall, we had a good momentum, with operating income up by 8%. This business has four key success factors. Firstly, we are investment-led, not credit-led.
This allows us to maintain a conservative risk profile and to grow in a highly capital-efficient manner. Secondly, more than 90% of assets under management are from developed markets, where we have demonstrated capability to grow. This footprint also reduces our exposure to geopolitical risks. Thirdly, we have a very successful approach for hiring and developing new relationship managers. This enabled us to seize further opportunities last year. We successfully increased the number of relationship managers to almost 360. That is a net increase of 42. For this, over 700 candidates were interviewed and evaluated. Finally, our industry-leading digital distribution model for structured solutions will continue to play a crucial role in servicing our clients. Now let me turn to our institutional client business. During the past year, we saw investors increasing their allocations to cash and money market products.
They also adopted a risk-off stance, increasing their allocations to benchmarks and indices, while reducing their exposure to emerging markets. We could not escape these industry dynamics. Still, assets under management were fairly stable, based on a positive market performance and a moderate recovery in flows. After two consecutive years of negative industry fund flows, we do believe that central banks might be reaching the end of the tightening cycle. The last quarter of 2023 showed some first encouraging signs, with increasing forward visibility and a more constructive sentiment. We are well-placed to benefit from such a industry recovery. Fixed income is likely to lead, and in this space, we have a strong product offering. In addition, the large majority of our flagship funds are well-ranked. We do recognize that we have more work to do on our emerging market franchises.
Finally, we see new opportunities for growth with our entrance in the private infrastructure market. Now back to you, Christel.
Vontobel is, by choice and conviction, a resolutely active investment manager. To be successful, it relies on highly experienced teams of specialists focused on the segment of expertise. All these teams, independent of the target client segment, whether private or institutional, are part of Investments and receive the exact same mission: to deliver institutional investment quality. We have an offering that spans all asset classes, in particular, as we are now entering private markets as well. While performance of active asset managers always fluctuate through the cycle, let us look at the important three-year time horizon and the percentage of our assets ranked in the top best 25 or 50 percent of the categories, or in other words, ranked first or second quartile.
We see that 56% of our equity funds, 70% of our fixed income funds, and 93% of our multi-asset products are ranked in the first or second quartile. Our multi-asset products are primarily mandates, and so not immediately accessible to analysts, yet they represent a substantial and growing share of our assets under management, and one that is strongly performing, as can be seen. Our equity ranking is currently penalized by our emerging markets franchise, where we are working with the teams to improve on performance. On the other hand, our impact equity fund and our developed market equity franchises are well-positioned versus their peers. Now let's turn to our announced investment in Ancala. This marks an important milestone in delivering on our strategic priority to enter private markets. Ancala is a highly experienced, London-based, independent private infrastructure manager with strong growth prospects.
Private infrastructure has seen strong demand in the past 10 years and is expected to be one of the fastest-growing segments of private markets in the years ahead, with an expected compounded annual growth rates around 16% over the next 3-5 years, a growth that is strongly supported by favorable structural macro tailwinds. Through this acquisition, our clients will be able to access the stable cash flows, the inflation protection, and the low correlation to the overall economic cycle that this asset class offers. The returns will be further enhanced by the long-term value creation brought by Ancala's active management of the underlying assets. Ancala is a firm founded in 2010, with more than EUR 4 billion in assets under management. It has a solid performance track record and a demonstrated ability to source unique investment opportunities.
It focuses on critical mid-market infrastructure and has proven to add long-term value by proactively managing its assets. Ancala recently closed its third flagship fund, which raised EUR 1.4 billion in commitment, surpassing its target. Vontobel is today acquiring a significant minority stake. We are fully aligned for future growth and success and have agreed with Ancala, our associate, about acquiring remaining stakes over time. The transaction is conducted out of Vontobel excess capital and, as a consequence, is earnings accretive from day one. The transaction structure ensures that we are fully aligned with Ancala to generate long-term growth, and that when we do increase our investment in the future, we will buy locked-in revenues. Now let me turn to costs. Despite good operational performance and savings of CHF 65 million at an exit rate last year, our Cost-Income Ratio is above our target.
This is in part due to our strategic long-term investments through the hiring of relationship managers and the acquisition of SFA. Today, we recognize the need to do more and are initiating an efficiency program targeting cost savings of CHF 100 million by end 2026. We strongly believe that we can further sharpen our organization and become leaner in how we operate. This is how we will reach our 72% target. Beyond this target, we view this program as critical to retain our full strategic flexibility and being able to release the necessary resources for future growth and improvement opportunities. We will share details on how we progress over the course of the year. Back to Georg.
As Christel introduced in the beginning, we are sharpening and accelerating the implementation of our strategic initiatives while anticipating future developments. This will enable us to reach our ambitious through-the-cycle targets. They remain unchanged. With that, let me hand over to Thomas, who will cover the financials.
Thank you, Georg. Good morning and welcome. Let me begin with a look at the net income development. When starting with the CHF 230 million net income from 2022, Vontobel's underlying operating performance increased by CHF 39 million. This means, adjusted for headwinds and the announced investments in Wealth Management , the organization has improved the result by more than 10%. So what headwinds did we have to deal with in detail? First, the strength of the Swiss franc had a negative P&L impact of CHF 25 million, CHF 16 million of which was driven by the US dollar exchange rate alone. As a Swiss-based firm, we have 78% of our costs in Swiss francs, but only 45% of our revenues. We're therefore structurally exposed to a strengthening Swiss franc.
Taxes increased by CHF 11 million, as our success in Wealth Management shifted more profits into our Zurich-based entities. Last but not least, we decided to seize opportunities to invest in the future growth of our Wealth Management business. The net hiring of 42 relationship managers and, of course, selected support functions contributed CHF 16 million to our cost base. In addition, we had to deal with the same headwinds that many other active asset managers faced: a muted demand for investments in actively managed investment solutions. So all in all, this resulted in a 7% lower IFRS group net profit of CHF 215 million Swiss francs. We believe it is a solid result, given the challenging environment. Assets under management increased by 1% to CHF 206.8 billion Swiss francs.
Net new money, which I will refer to without the outflows from our market focus initiative, overall stood at CHF -1.4 billion. FX headwinds cost CHF 8.2 billion, and the performance of our assets contributed a positive CHF 15.3 billion. Last year, we have decided to focus our Wealth Management offering by exiting the Russian market and closing our Hong Kong Wealth Management office. This led to a total reduction of CHF 3.3 billion in assets under management, of which CHF 2.1 billion were incurred in 2023. Looking at net new money, the overall outflows have improved year over year by almost CHF 4 billion, to a negative CHF 1.4 billion. While Wealth Management remained constant on a high level of positive inflows, Asset Management was able to reduce the outflows to CHF 6.7 billion.
Let's be clear: It is an improvement, but it is not what we aspire to achieve. For the operating income, the operating income increased by 2% on higher net interest income and inflows in Wealth Management . Net interest income increased by 78% to CHF 180 million. We saw a slight slowdown in the second half to CHF 85 million. This was caused by dividend income that occurs only in the first half, but we also saw a slow increase of refinancing costs as more and more clients are looking for higher-yielding deposits. Net fee and commission income is down by 6%, which is a consequence of the revenue decline in Asset Management . On client units, Wealth Management saw a 16% increase of revenues, driven by interest income and inflows. Digital Investing posted a decline of 16%.
Client demand for structured products through digital channels was slow, particularly the second half of the year. In total, the overall structured product business has remained stable, which compares fairly favorably to the industry. On the gross margin, the margin picture across Asset Management and Wealth Management was mixed. The Asset Management margin declined year- over- year by one basis point. This decline is a result of the business mix. In particular, the higher-margin emerging market business has seen outflows across multiple boutiques, which could only be partly compensated by the rest of the business. As mentioned already by Christel, we have seen slow demand for emerging markets products due to continued geopolitical tensions and a generally lower risk appetite of our clients. This change in the business mix not only explains the margin decline, by the way, but most of the development in Asset Management .
Wealth Management margin increased by 7%, commission income remained stable. Recurring income makes up now more than 50% of the margin. Turning to costs, year-over-year, our operating expenses increased by CHF 25 million to CHF 1,042 million for 2023. This is largely explained by an increase in personnel costs. To explain this increase, we have to look a little bit closer. First, we have targeted a cost reduction effort one year ago. The objective was to deliver CHF 65 million exit rate cost reduction, with a cost to achieve of CHF 15 million. We can say that we have overachieved this target. We've been faster to implement, and the cost to achieve was lower than planned. This means that the overall in-year impact from cost reduction activities was a positive CHF 30 million.
Our investments in the future growth of Wealth Management have increased our costs by CHF 16 million, and SFA by another CHF 18 million. 2023 was the first year when SFA was consolidated for the full year. The closing of the SFA acquisition took place on August 1, 2022, hence, the costs of SFA only accrued for five months in the previous year. That explains the additional CHF 18 million. Finally, we have a CHF 21 million year-over-year variance in accounting items related to personnel costs, which we have already reported in the half-year results. Nevertheless, and despite all the explanations, net-net, the cost-income ratio increased to 79.5%, which is not where we want it to be. Hence, we're going to step up our cost reduction efforts to reduce our cost base by CHF 100 million.
This is a 10% reduction of the cost base after we have already realized roughly 6% in 2023. The cost program will be delivered by the end of 2026, and at current P&L levels, will bring us to a cost income ratio of around 72. Of course, this effort will affect employees, but we aim to realize as many savings as possible through natural fluctuation. Over the course of the year, we have further strengthened our balance sheet and our capital position. Our total capital ratio remained flat at 23.8%. The liquidity coverage ratio at year-end stood at 264%, and the leverage ratio at 5.4%. All very comfortable numbers. The CET1 ratio has improved significantly over the course of the year to 18.7% on our continued tight capital management.
In this context, we have successfully refinanced the AT1 end of September from CHF 450 million to $400 million at attractive spreads. This was the first larger AT1 issuance in Switzerland since the events in March. The pro forma CET1 ratio after the Ancala participation is at 16% and the Tier 1 ratio at 21%. Also, from a financial point of view, Ancala is an attractive investment. First, the infrastructure business is expected to grow significantly, and with Ancala, we have a credible and scalable stronghold to participate in this trend. Second, since we pay for the participation with excess capital, the acquisition is per se, earnings accretive. And third, we buy a stream of revenues which are locked in for 10-15 years.
Even when we increase our investments in the future, we will always buy in sync with locked-in revenues. So the transaction offers downside protection, while the underlying asset has significant upside potential. Finally, it is important to mention that we continue to be conservative on our overall risk profile. We have reduced our risk position across the board at the end of 2021 and have remained careful since. This means we're also careful in our lending approach. We are investment-led, not credit-led. We do not do any corporate lending. We do not do any complex structured lending. Generally, we do Swiss mortgages, and we lend against liquid assets in diversified portfolio. So as a consequence, we did not suffer any write-offs or provisions in connection with the latest events in the real estate sector. Due to the high public interest in that topic, we would have disclosed it otherwise.
And with that, let me move on to the long-term perspective. So why do we always show a more than 10-year history? The answer is: because that is what we manage against. Long-term value creation and capital accretion. We believe that this is the core to be successful in financial services, create value, and generate capital over the medium to long term. Vontobel continuously creates value to shareholders since 2014. Our ROE stands at 10.5% versus a cost of equity of roughly 9%. The return on CET1 capital is 18.7%. Dividends over the whole time horizon have also increased almost threefold, and we propose a dividend of CHF 3 per share. Now let's look at capital accretion.
The tangible book value per share, plus dividends paid out, has increased by more than 130%, 140% since 2011. Except for 2018, where we have made the large Notenstein La Roche acquisition, so we didn't reduce capital, we invested into goodwill, the tangible capital accretion was positive every year. The capital light business model we pursue, and our conservative risk profile, allows us to compound steadily. So let me repeat this: We believe that the key to long-term success is to create value, to generate tangible capital, and to compound. And this we have achieved again in 2023. So to summarize the year from a financial point of view, we have shown good underlying operating performance and a solid IFRS group net profit of CHF 250 million, despite the headwinds that we mentioned.
Yet, we're going to step up our cost reduction efforts to reduce our cost base by CHF 100 million. Our balance sheet and our capital position is strong, even pro forma, after taking a participation in Ancala, which is strategically and financially an attractive acquisition. And finally, we have continued our long track record of value and capital creation. And with that, I've finished and give back to Georg.
Thank you, Thomas. Let me reiterate. In 2023, we achieved a robust profit before tax, stable assets under management, and a very strong capital position. For 2024, we will sharpen, accelerate, and anticipate on our journey to reach our strategic priorities. This includes sharpening distribution to two client segments, anticipating future growth by entering the attractive private infrastructure market business, and accelerating operating performance by launching additional cost measures. We believe Vontobel is exceptionally well-positioned for the future. We have a long-term-oriented business model, a strong culture, outstanding talent, and the right leadership team. Today, we started the journey to drive our strategic execution, guided by our framework, sharpen, accelerate, and anticipate. Now, let's open for questions.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. You will hear a tone to confirm that you have entered a queue. If you wish to remove yourself from the question queue, you may press star and two. Anyone with a question may press star and one at this time. The first question comes from Daniel Regli from ZKB. Please go ahead.
Good morning, everybody. Thanks for the presentation and for taking my questions. Actually, I have quite a lot of questions. I may start with three and eventually come back with more questions if there is no other questions. So, first, on the cost savings of CHF 100 million, can you maybe talk us a little bit more through where exactly you see the potential for cost savings? And, how shall we see this cost savings? Will this kind of be some gross cost savings and mostly kind of reinvested into the business, or will we also see really a net reduction in the cost base by 2024? Then the second question is about this hiring of 40 new relationship managers.
Can you maybe give us some more color from where these relationship managers are coming, and which kind of regions they cover or segments or, yeah, areas in the Wealth Management space they are responsible for? And then maybe third, on your acquisition in the private market space. As I understand, Ancala is a kind of private infrastructure player in private markets. So can you talk us a little bit through how you kind of cover the rest of the private market space? Do you have partnerships in private equity you are working with, or do you plan further acquisitions in the space, also in other sectors of the private markets industry? And then, just one last one. Sorry, then it's four.
The trends in net new money and Wealth Management , we've seen kind of a slowdown in net new money generation into Q4. Can you talk a bit about seasonal effects and deleveraging, and what has driven this kind of trends we've seen there? Thank you.
Thanks, Daniel, for your questions. I start, pick up with the cost savings. So, the cost savings will be in the areas that you would probably expect it. It is around the business model, focusing our business model, align the staffing with the demands, automating processes, restructuring our IT, our infrastructure, reviewing where we invest, and so on and so on. So this is the areas where we go. The objective is clearly to get the Cost-Income Ratio to 72%. If you take the current P&L, and you just subtract CHF 100 million from the cost, you get to roughly 72%, 72.2% or whatever the number is.
So the objective is not to immediately reinvest, and if we reinvest, so if we do this, we would do this with only very short time period of where the revenues would return basically the investment. So very short. That's the idea of it. We have laid out a high-level plan. We are, you know, we are ready for execution. The reason why we don't give all the details over time and so on is Vontobel, as you know, and as we have discussed here a couple of times, does not have this aggressive culture where you go in and just beat people and out to the cost and all these things.
What we want to do is we want to be careful enough with this cost program that we do not hurt the revenue lines and the net new money coming into the firm. So we want to take this step by step and very carefully, but we will keep you updated, of course, very closely on how this is going and what the numbers will be. So that's all for the costs.
Yes, then thank you, Thomas. Let me talk a bit about the relationship managers. You know, where do they come from? Was one of the questions. They come from many different institutions here in Switzerland. We don't focus on one specifically. I've said before that we have interviewed over 700, actually, relationship managers. The reason for that is that we want to make sure that, one, you know, the people fit our culture, they fit our risk appetite. Very importantly, their portfolios fit our strategy. You know, as we mentioned, we have for 90% in developed markets, so that is the overall picture. We don't, you know, publish individual persons and what markets they are from, but basically, it's an add-on to the current strategy that we're driving in Wealth Management .
Should I quickly take the net new money, and then we go to Ancala? So, net new money, seasonal fourth quarter. Fourth quarter is always a bit seasonal in the sense that it's the most difficult quarter to foresee what is happening because a lot of adjustments were made at the end of the year. However, we have published that we have a strategic review of some of the markets, and as you see also in the annual report, we have due to market exits reclassified some of the clients that are being asked to leave because we do not follow those markets anymore. That's in this seasonal figures.
I will take the question on Ancala and our strategy to enter private markets. We had presented back in November 2022, how we intend to enter private markets, and they were three steps or three lanes, if you wish. Number one, to offer private markets to our Private Clients through a partnership with an institutionally recognized player. So this we announced back in August. We have entered a partnership with Portfolio Advisors, and are looking to launch vintage products with them. Secondly, we're looking to expand wherever it is sensible on our own in-house capabilities. The obvious place is with TwentyFour Asset Management, which has been one of the best-known and most successful manager, in particular on collateralized credit assets, and you should hear more about that during the course of this year.
Last, we had said that we wish to acquire own capabilities in private markets through acquisition, and this is now the third leg of the strategy that we have announced today with the significant minority stake in Ancala. We can turn to the next questions. Thank you for your questions, Daniel.
Thank you.
The next question comes from Adam Terelak from Mediobanca. Please go ahead.
Morning. Thank you for the questions. First, just a big picture question. Clearly, the environment of higher rates has been a little bit damaging to some of your businesses. We're looking at maybe a turn in the rate environment in the next 12 months, but you're talking about cost cutting on steady state revenues. So you guys don't seem too excited about the potential for revenue upside if we get into a bit of a more normalized rate environment. So just a bit of a talk to the outlook and the impact that rates have had on your business and what the forward look on the rates curve could do. Secondly, I just wanted to think about your balance sheet a little bit.
Deposits are down again, H- on- H. It sounds like competition for liquidity is very high. Obviously, you're very liquid, so what's going on in your balance sheet and on deposits? What's happened on pricing and what that means for the NII outlook would be helpful. And then finally, the fee margin in Asset Management has come down materially H- on- H. Clearly, we're flagging a bit of mix effect in there, but a bit more color behind that would be helpful. And then, how we should be thinking about the outlook on fee margin given that mix effect through the second half of the year. Thank you.
... Thank you very much. I will take the first question. This is well-spotted. It is only a conservative, and the most, the easiest assumption that one can take is everything else equal. The 100 million are not random. They—it is the number that brings us back to 72. It is also a number that we believe to be achievable. The second part of your first question is about how we see, the outlook and, and the fact that the higher rates have been damaging. I think it's indeed been the transition to the higher rates, the uncertainty that it's created, how high will it be? Will it break the camel's back? And in the meantime, while you visually and nominally got very high cash rates on your money market funds, then most clients have thought, "You know what?
After such a difficult 2022, let's wait there." But it is actually not per se damaging to our business, and we are indeed cautiously optimistic about the outlook, in the sense that the central banks have indicated that they should be through with the tightening cycle. That means that basically, the hurdle to come back and increase rates again is fairly high. And investors will therefore be looking at yields, in particular, that are at historically high level, a growth outlook or growth situation that, against all odds, is remaining very robust. And so that is very likely to get them to engage again. This is how we see it, and for that, we are very well-positioned. Our fixed income products rank well. They answer the needs of our clients. We have also other places.
I'm starting with fixed income as we are on rates, but obviously, on the developed equity franchises, impacts, and then the multi-assets, we do expect renewed engagements from our clients. For the next question, I will pass on to Thomas.
Thank you. You've asked for the balance sheet and development of deposits, and pricing, and net interest income, and what this all means. Indeed, if you look at the balance sheet, our customer deposits have gone down. I look at it year-over-year, CHF 3.2 billion. But don't forget, and we've mentioned this a couple of times, we, you know, a significant chunk of this got caught under the structured notes, which are other financial liabilities at fair value. So structured notes are, in essence, structured products, which are nothing but a deposit, but they're tradable, and they have an ISIN and so on and so on. But they're, they really have the feature of a deposit.
On the pricing and, and what we're doing here, I think there is a bit of a competition for deposits, which, which has emerged over the course of the year, starting at the beginning of the year with the when Credit Suisse- when it got a bit difficult around Credit Suisse. We do see this, but so far, we have abstained from going strongly into the pricing. I told you earlier, we have 265% liquidity coverage ratio. We have very liquid balance sheets. We don't need to do this. We do this in case of if we want to have a client, if we do it for franchise reasons, but we don't need to do it for financing reasons.
Now, what we saw in the second half of the year, you can see it also in the Wealth Management margin. We saw that the refinancing costs have been grinding up just a bit every month, every month, as clients started to switch into higher, higher, fee-yielding deposits. And I think that trend, we are assuming this is going to continue. What we're doing exactly with pricing, I cannot say now. We will look at this on an ongoing basis, but we believe, in general, the refinancing costs are starting to catch up with the rising interest rates. That's it for the balance sheet.
That you had the margins as well on the Asset Management in particular.
Yeah.
Do you want to take that?
On the margins, this is driven by business mix, and then we had some catch-up bookings in the second half of the year. So I would not look at first half versus second half. I would look at the whole year because there were some bookings shifted back and forth, but it is the business mix, right? The one basis point margin decline is explainable by assets that we lost on emerging markets products in various boutiques. These were the outflow, and they explain why the margin is down.
Christel mentioned it earlier, or Georg. We're looking towards. We believe that the whole hiking cycle, you know, slowly comes to an end, and as the risk appetite returns of clients, we would certainly benefit from this development going forward. And then, also, the margin should recover again.
Thank you a lot for your questions.
The next question comes from Nicholas Herman from Citigroup. Please go ahead.
Yes, good morning. First of all, I just want to congratulate both Christel and Georg on your new positions. I know you were appointed in October, but first, I guess, this is the first time since we're speaking, so best wishes from my side. There's a lot to unpack here, so also have a few questions as well. Firstly, on the acquisition, could you give us a sense, please, of the targets needed for you to upsize your stake, and the timing of those options? I guess, in the sense that Ancala has just closed its first fund, so presumably won't be growing AUM much in the short- to medium-term. So that's the first one.
So, especially actually, actually on top of that, on the acquisition, I also just like would like to revisit the rationale for this deal, please. I mean, I know, I appreciate that private infrastructure is a high-growth space, but growth at Ancala hasn't been super, super strong. I guess considering in the sense that the context that they launched in 2010, so what is it that gives you confidence that together you can accelerate that growth? And I guess strategically, I was also under the impression that you were looking for value-add private markets, whereas it looks like with a 12%-13% IRR, Ancala is a bit more core, core plus. So just thoughts there would be helpful.
And then just finally, on the acquisition, what is the expected EPS accretion from this deal? Apologies if I missed that. That was the first bucket of questions. On cost savings, just can I just clarify, please, how much of your CHF 100 million is front office, and can you confirm that you don't expect any revenue attrition? And then finally, on margins and cash inflows, can I just please confirm the exit rate in Asset Management ? Clearly, you know, H2 was a fair bit lower, but I guess, with... and I appreciate it is mix related, but presumably, the exit rate was a fair bit lower.
And then on the wealth side, on margin, am I right also that new, new assets are coming on at a lower margin as well? Is that right? And then just finally, apologies, I appreciate there's a lot of questions here. Just can you talk about on what you're seeing with your clients on the Asset Management side, pipeline, RFPs across asset classes, et cetera, and what you've seen year to date? Thank you very much.
Yes, I'll start. Thank you for your congratulations and kind messages. Let me start therefore with Ancala. So the rationale for the deal is the following: firstly, that as an active investment manager, we have sought to enter private markets. We were intent on going to infrastructure. Of course, this was very, very dependent on the partners that we would find, so infrastructure being the top segment that we considered, but of course, that wouldn't have meant acquiring any partners. The rationale for infrastructure, I think, has been well laid out over the last few weeks, coincidentally. It has been one of the fastest-growing sector. It is expected to be one of the fastest-growing sector for structural macro tailwind, that we obviously all understand, whether it's from digitization, aging society, and the rest of that.
Ancala actually has on these last two funds, Fund I and Fund II, is in the top quartile of PitchBook when you look at the rankings. So we have not looked at size. As a matter of fact, we have looked at the solidity of the track record, the solidity of the approach. Is it a firm that goes through financial leverage, which would be a lot less interesting, given where rates are going? And we found in Ancala, and that is the explanation maybe for why you look at the growth as being more muted. It's a firm that goes deeply into its asset, that looks to bring value added to its asset. This has two strong advantages: a low financial leverage, and they are now at a 33%, financial leverage.
And it has a very positive side effect, which is the reputational side is well protected because they truly engage and have continued to provide follow-up financing to the assets that they've engaged with. So this is the rationale for the deal, the rationale for Ancala. Beyond that, as you well imagine, this is a process that takes a long time, and so we had plenty of opportunities to test the cultural fit to make sure that we align interest. It is absolutely key, and probably even more key than with public markets, that they can retain the independence in their, call it, investment process, which is not the adequate term, obviously, for a private market segment, but that they retain what is making them successful while at the same time, growing together with us.
In terms of the transaction structure, we won't be able to outline much more than what we have said, but we will acquire the remaining stakes over time. As Thomas has said, indeed, you can relate it to the future funds in terms of timing. For the EPS accretion, which was the last part, if I'm not mistaken, of your question on Ancala, I would pass on to Thomas, which in any case, has the follow-up questions as well on costs.
I'll take, I'll take. The EPS accretion we have agreed with the seller to not disclose any details of the transaction, so we haven't given the EPS accretion. If you want to make an estimate, take the assets and the management slightly above EUR 4 billion, and then I would go with average industry assumptions of the profitability, then and that helps you there. Then I wanted to come to the cost question. Your first question was front office versus versus back office. That's a difficult question in the sense of what is front office? Do we let relationship managers go in Wealth Management ? No and yes. Yes, we do this all the time. I mean, Georg can talk about this. We have constant churn. We get people in. They have to deliver to their business case.
So this is a constant revolving thing. The focus is clearly not on front office, if you mean client-facing. What we will do, though, is we will align the staffing with the demand. I mean, areas where we don't see demand, we will have to look into the staffing, and if it's on the front side, then it's on the front side. The whole program is designed to minimize revenue attrition, and it is designed to minimize negative impact on net new money. So that's very important. So there will be more focus on the back office, but it will also affect front office units. Then, your next question was Asset Management exit rate.
The Asset Management exit rate, I told you that we had shifted some, bookings, between the first and the second half of the year, and that is why it was lower than the average rate, but it was not substantially lower. And as I said, it is all driven by business mix. It is not that in-- on the individual product, we lost pricing power. We see outflows in, on emerging markets, which are, which tend to have a higher margin, and we see inflows in other products, and that is eroding the overall margin. But that's a matter of... It's, it's not, as I said, that we lose pricing or we're giving huge amounts and, or, or discount, or all these kinds of things. So we still stay disciplined in pricing. I will call it smartly disciplined.
Of course, we also give, from time to time, a fee holiday if we want to keep a client, but we call it smart discipline on the pricing. And then the last question was the pipeline across asset classes. I can't talk about the pipeline really well. What we can say is about how the year has started.
Yeah, absolutely. I think, I mean, that relates to the question about the outlook, how we see it. And, and I mentioned that we are cautiously optimistic, given what we see with the macro outlooks, the fact that we have, in all likelihood, reached the end of the tightening cycles, that the clients look to be re-engaging. What are they sniffing around? They're sniffing around fixed income, very clearly. They're sniffing around equities, I would say more on the quality side. Of course, it speaks to our book, but this is also where we would see the flows. And multi-asset is something that has been probably on your radar, but where we see continued interest.
So while it is a bit too early to speak about flows for the year, certainly the environment makes us cautiously optimistic that this is one where the flows will indeed turn around. And on the Wealth Management flows, Georg, maybe you want to take that outlook?
Yes. As mentioned before, we had a very good momentum in 2023, and as we have communicated, we have made a significant investment into acquiring relationship managers. So we are optimistic that we can continue that momentum also in 2024.
Thank you for your question, Nicholas.
The next question comes from Mate Nemes, from UBS. Please go ahead.
Good morning from my side as well, and congrats to Christel and then Georg for the new role. I have two questions, please. The first one is on Asset Management . It's more of a longer-term question, I guess. Given your earlier comments, I was wondering if you could elaborate a little bit more on the work that is needed to be done on the emerging markets franchises in Asset Management , and if you could expand this a little bit. Are you generally now satisfied with the fund portfolio you have in Asset Management , any gaps that you would address and any, perhaps, areas where you would address performance, any improvement potential? Well, would love to hear your views on that.
The second question would be on Wealth Management , just broadly, on the interest-driven revenue margin in the business. Could you give us perhaps a sense what the upcoming potential rate hikes would mean for that component of the margin? Thank you.
Thank you, Mate, also for your kind, your kind wishes. Let me take the first question, which I will refer to investments and not to the client segments, Institutional Clients . But to investments, yes, we have mentioned more work needed to be done on the emerging market, equities in particular. So what did we mean by that? I guess the environment has become more difficult to navigate or slightly different. There's always been the perennial geopolitical risk, which you can never entirely, obviously, or in fact, never predict. But there's also been a lot of macro drivers. And if you think, the hint was a little bit the mention about China having been seen as less and less market-friendly, you could turn it around and say, more and more interventionist.
Well, that has a very much of a top-down consequence, and our franchises are deep, bottom-up, disciplined investment processes, which will be very well, complemented, if you want, by taking into account those more macro trends. So this is exactly what we are working on, with the teams. And that is really the only spot where the performance needs a clear improvement, and this is what these are the measures that we are taking with those teams. Are we satisfied with our funds portfolio? I think one should never be satisfied with oneself, to start with, and always keep looking. We don't have any glaring gaps. We are not looking to enter passive, nor are we looking to enter money markets, so that was harmful, last year, given that these are the segments that have seen the most flows.
We remain on our active segments. We were looking to enter private market, and we have taken quite decisive actions now. Looking forward, yes, we will continue to review our portfolio of offering, and the idea is to go to complementary capabilities, stick to areas where active managements can add value. And that, that will, this will be the guidelines, in a sense, on, on how we approach complementary to our existing book, and a space where you have opportunity for an active manager, so not a US govies bond funds, if I may say like that. The areas to address performance, I have answered, and these are really on the EM equities, specifically. For the next question, Thomas, I think-
Yep.
You'll take it, right? Yep.
The net interest income. We have presented this a couple of times. Our sensitivity to interest rates moving is roughly CHF 60-70 million per 1%. So this is across all currencies, across the whole term structure, interest rates go up and down. 1% up delivers us roughly CHF 60-70 million, fully phased in, I should say. So what we mean with that is, of course, you see some movements left and right. Clients will react to this. Also, that I have explained, we, or we discussed extensively the last time around, in this call. But so fully phased in, we should make CHF 60-70 million more. This is... We are giving a bit less infos than our competitors here. We're aware of this.
But the problem is, the point is our net interest income is 14%. So for us, this is a smaller part of the business. For others, it's much, much bigger. And you can approximate this by thinking about the currency. I also think that I mentioned a couple of times on our deposits, Swiss franc and US dollar are the top. Swiss franc, a bit more than US dollar, and they make up 70%-80% of the deposits, deposit currencies. So with that, you can make an estimate of how that will go out or make your own assumption on where you believe this is going.
I also said earlier, what we saw in the second half is slowly grinding down net interest income, as on the deposit side, clients move to more, yield-bearing deposits, either fixed-term deposits, structured notes, all these, all these things. And on the asset side, you may have seen that we have reduced our credit book quite a bit, particularly on the Lombard side, and this, of course, we also see in the net interest income.
That's very helpful. Thank you very much.
Thank you.
Madam, gentlemen, so far, there are no more questions.
Thank you very much. Thank you for listening in.
Any more questions?
Not so far, sir.
Good.
Thank you so much. Have a very good day. Thank you for your questions.