Size isn’t everything as Syz revels in boutique status

Twenty-five years since founding his Geneva-based bank with two other partners, group CEO Eric Syz welcomes the continued move of Swiss banking away from secrecy to the effective management of portfolios.

“Swiss secrecy and the tax-led model are now dead and buried,” says Mr Syz, who raised many eyebrows when together with Alfredo Piacentini and Paolo Luban, he formed Banque Syz
in 1996. 

“So, what does Switzerland stand for these days? If you are looking for the last bastion for protection of your wealth, then Switzerland would be very high on the list. Having said that, you still want your wealth to be looked after in a proper way.”

Out with the old

When Mr Syz was plotting to leave lakeside rival Lombard Odier in those heady days of the mid 1990s, he had already calculated, years ahead of the US crackdown on Swiss banking, that the old model of storing clandestine caches of gold and cash was on is way out.  

“Managing assets has always been the core of our business. We created the firm to generate performance,” he recalls. “I am talking about performance in service and performance in delivering returns to meet client expectations.”

Along the way, there have been many potholes in the road. Indeed, when the bank first opened its doors, the job was much easier than today. “Bonds were generally working in our favour, with interest rates coming down, so we always made money on fixed income,” he recalls fondly. “That is less true today, when we need to be much more savvy and nimble asset managers to generate positive returns.”

He talks evocatively about the “fight with ETFs” which his fund ranges have faced against the backdrop of an unfavourable economic environment, leaving his products “facing a tougher and tougher time. We are living in an era of Japanification,” reflects Mr Syz. “This doesn’t seem to be going away very rapidly and will be here with us for another three or four years.”

Time to choose

These trends have pressured private banks and investment houses to make a stark choice, he believes. The first option, which Mr Syz recently dismissed, is to scale up and chase high volume, mass affluent or retail-style business. 

Last year, after struggling to achieve this scale for many years, still bruised by the 60 per cent collapse in assets following the start of the global financial crisis (GFC) in 2008, Mr Syz and his senior management team decided to sell their Oyster fund range. This was once a flagship product, heavily promoted to rival private banks and distributors at one particularly memorable two-day summer sojourn in Montreux. Starry-eyed fund selectors were greeted by a brass band playing Deep Purple’s ‘Smoke on the water’ as they entered the presentations.

“Oyster was very much a scale business, and we needed an expensive distribution network to keep it going,” laments Mr Syz. “If you don’t have this, along with a whole variety of different funds with different approaches and asset classes, it’s a very difficult business to be in.”

Quality of growth

Today, his group manages $28bn in assets and is still classed as a boutique house, despite being in its third decade. “Yes of course we hoped for more, but it’s about quality of growth,” he says. 

“You can grow at 10 basis points or 100 basis point each year. Growth of AuM is one thing, but the margin might pay less and less, which is one reason we did not want to be in the mutual funds business. We did hope to grow more, but it’s often a question of getting people to understand what we are trying to do. The key is strategic asset allocation and this is a very, very long-term game.”

The second route, and the one chosen by Mr Syz, is the boutique approach. “This is very focused on return for the luxury, high-priced segment, where we charge a mint, but the client gets high quality for what they are being charged,” he says. “You can’t say there is a good or a bad model, but at some stage you need to decide which way you want to go.”

Similarly, he believes there is not necessarily a good or bad asset allocation for long-term portfolio management. “The strategic allocation for you is only the right one for you and it will be very different to mine. We have to figure out what is the right weighting for each one of us, and then we have to stick with it, for the next 20 years.”

The secret, says Mr Syz, is maintaining this allocation, with a little tinkering around the edges through the many rough patches, such as the crashes clients have witnessed in 1987, 2000, 2008 and now during the Covid pandemic. 

“We have these all the time,” he says. “But you have to take the view there will be more people joining this earth for the next 50 years, having more children, growing richer, becoming better educated and consuming more. So the economy will have an underlying growth trend, the assets will grow in one way or another and it’s just a matter of sticking it out.”

Hedge fund woes

This was the philosophy of Mr Syz and colleagues when they suffered uncomfortable moments during the GFC, when the bank’s specialised hedge funds suffered huge outflows, as clients stuck in illiquid positions scrambled for the exits. Up to 50 per cent of clients’ fortunes were invested in illiquid alternatives, despite his and his relationship managers’ efforts to persuade them of their folly.

“I still think hedge funds have some of the most brilliant managers. At that time, we always told clients to get their expectations into line, that after 10 years of making 20 per cent per annum, you could have a rough patch if liquidity dried up,” says Mr Syz. 

“When that happened, many people ran for the hills. Not a single one of our clients, who listened to us and said ‘I am going to sit tight and wait until things get better’, has ever regretted it. Those who stuck with us were fine when liquidity returned.” 

Different beasts

The comparison with today’s headlong rush of wealthy clients into private equity is, however, a tenuous one, believes Mr Syz. 

“Private equity is a little bit different,” he claims, praising the Syz Capital business now under the direction of his son Marc. “Firstly, it has not been down the greed retail trail. Secondly, it is more difficult to access. Our view is there are a great number of opportunities still out there, hidden gems, where you can get fantastic returns. This is what we are trying to do, putting our own money to work, inviting our clients and friends to join us and share with us in these investments.”

Recent deals include investing in the largest ship chandler in Singapore, the world’s second largest harbour, plus buying another one in Thailand to conduct “a boring, logistics business, which has done extremely well, despite Covid”. Clients’ money channelled into these shipping infrastructure assets has conservatively doubled over two years, without “excessive” extra investment, he says. The search for more such specialist opportunities is well under way.

“I have always wanted to put investment first,” says Mr Syz proudly, describing his evolving firm as a “wealth and investment manager with a banking licence”, in stark contrast to competitors. 

“The others are banks or wealth managers with an investment licence. We have a very different way of looking at the equation and are still working in the same way. People have got used to us being different. I haven’t seen anybody else work like this.”