Sturdza confident staying slim serves an advantage

In a world where increased regulatory pressure makes the survival of small institutions harder and harder, Eric Ioan Sturdza, founder of his own Swiss private banking group, believes, and arguably proves, that small can be beautiful. 

“Size does not mean quality,” says Mr Sturdza enthusiastically, the descendant of a Romanian aristocratic family. “Private banking is really a small business, as the word ‘private’ conveys.”

A former prefessional tennis player, passionate about cars, as well as golf, polo and shooting, Mr Sturdza applies the same philosophy in sports. “We won the GT3 [European Championships] car race, although our team was small, because we had very good quality people and mechanics,” he reports, referring to a past success achieved in the race sponsored by his bank for three years.

In 1985 Mr Sturdza drove the Swiss expansion of Banque Baring Brothers, the merchant bank established in London by Francis Baring in 1762, shifting its activity towards a private banking model.

Ten years later, following fraudulent activity by rogue trader Nick Leeson, Barings was taken over by ING and the Swiss operation was transformed into a 70/30 partnership, owned respectively by the Dutch financial group and Mr Sturdza. He then acquired ING’s 70 per cent stake in 2005, and added his name to the private bank, now Banque Baring Brothers Sturdza (BBBS).

The institution has grown to “exactly the right size to be manageable and be able to turn the wheel if necessary,” states Mr Sturdza, previously in charge of client management and development for the French and Italian-speaking markets at Citibank for eight years. 

The bank is believed to manage SFr2bn (€2bn) in client assets. The right size is not a “magic number”, but is about effective sharing of the know-how within the organisation, he maintains, believing that increasing the number of his 85 staff would dilute knowledge and communication. 

“In market turmoil, we can act very quickly and this is the reason why each time there has been a crisis our bank has grown from strength to strength,” he says, explaining his theory that the 2008 crisis was partly due to the inability of large banks to withdraw promptly from their huge investments in subprime assets. 

Having accumulated SFr90m of excess capital, in 2008 he founded another bank, Banque Pâris Bertrand Sturdza, with two previous senior managers at UBS Wealth Management, Pierre Pâris and Olivier Bertrand, who were responsible for the ultra high net worth European segment at the global bank.

The two banks are complementary to each other, but independent. The most recent arrival – believed to manage SFr3.5bn in client assets and in the process of opening an office in Luxembourg – targets the ultra-wealthy segment and, for example, specialises in private equity. BBBS focuses on the lower client segment, with clients able to open an account with a minimum $2m (Ä1.7m) of assets, and offers liquid strategies through its fund management arm, EI Sturdza Investment Funds.

“Most people try and grow businesses vertically; I want to grow them horizontally.” A small firm can be more profitable than a large one, he says, giving away his grand vision of setting up a couple more boutique banks. 

While he accepts no compromises on quality of service and performance, he sees no limit to the growth of the size of assets under management, thanks to successful portfolio management. “Over time assets will grow naturally with the markets and our investment expertise.” Costs are escalating, particularly in the audit and compliance space. But outsourcing and key appointments help face this issue, he says. 

The crackdown on private banking secrecy and, in particular, the programme set up by the US Department of Justice to clampdown on offshore accounts is not going to affect his private banking business, believes Mr Sturdza. 

His few American clients, mainly Middle Eastern individuals born in the US, were asked to declare their assets. But in general, he has stayed away from American citizens, a decision driven by past professional experience and a suspicion that US justice can have a “business” element. 

Nevertheless, the ongoing consolidation in the Swiss industry may offer good opportunities to hire talent. This would enable the expansion of  his latest aquisition, a small independent Swiss asset manager called Coges, and the younger bank which, with 30 people today, still has room for growth. 

Switzerland may have lost part of its attractiveness, but it has retained its strengths as a financial centre, not least its history of neutral status. With geo-political tensions rising, a safe harbour is always going to attract investors’ interest, believes Mr Sturdza. 

In large institutions private bankers are asked to reach ambitious growth targets against clients’ interest, and clients have limited access to top executives. None of this happens in his business, he maintains. “Our goal is to satisfy clients – we look at them as our partners, and some of them have been with me for 40 years.” Mr Sturdza’s banks do not offer credit facilities but lend money to clients based on assets held in their accounts, which makes them much safer than most institutions, he claims.

“Nowadays the challenge is performance, which has become very visible. That is one of the very positive effects of banking secrecy disappearing,” he argues. 

The recipe for the group’s success, with SFr8bn in total managed assets, is the combination of the two, more stable revenue private banking businesses with the asset management arm, “which is more volatile”. 

In asset management, the goal is to find “champions”, with no obligation for bankers to pick internal funds, he vows, emphasising the key role of his fund selection analysts in Guernsey. “If we find a better fund somewhere, we will try and hire a different manager, if not, we just invest in it.” Clients’ portfolios are geared towards equities, as equities are the place to be, at least for the next two to three years, he states.

Also fund tends to perform best in its early years, and private clients could benefit from this by providing seed money. 

“We have no conflict of interest,” he declares, explaining the fund business uses HSBC and Goldman Sachs as external custodian/administrator and broker respectively.    

Strategic partnerships

At EI Sturdza Investment Funds, the Swiss private banking group’s asset management arm which also bears its founder’s name, the philosophy is to select “talented” investment professionals – investing in specific countries or regions and based on the ground – and enter into exclusive agreements with them.  

These portfolio managers, who typically come from big companies and have set up their own business, are given total autonomy within well defined, agreed guidelines. 

This enables them to focus on investment opportunities, and continue to work independently, while the bank provides them with the necessary infrastructure, including launching, marketing and maintaining the fund, as well as risk management and compliance oversight.

The fund management firm launched its first strategy, a Japanese equity fund run on a segregated basis, in 1996, to meet private clients’ needs. Today it offers seven Dublin-domiciled country and regional funds, investing SFr2.5bn (€2.52bn) in assets.

If a fund does not perform well, it may not be sold or may be closed, although this is an exception, as partnerships are for the long term. “We have to make sure our funds are really among the best,” says Georges Gutmans, co-founder of the firm and Mr Sturdza’s old colleague from their time at Citibank. “We know our funds intimately and we know the client is well served.”

Management and performance fees are shared, a system which can reduce fixed costs for the firm when volume decreases and adequately compensate successful managers at good times. 

With the ambitious goal of reaching total assets of SFr10bn in five years, the firm’s focus is on broader strategies on a geographic basis, which can attract clients’ interest and seed money. “If we want to grow our business and achieve our target, we cannot do that by covering niche markets,” he says. 

The existing US, Europe and China equity funds, as well as the new global equity strategy, currently being tested, are expected to drive assets growth. 

The firm is also seeking a suitable manager to launch a global or an Asian emerging market fund, and is exploring the possibility of developing a range of systematic funds. “We keep our eyes open for interesting managers, we have a big network,” states Mr Gutmans. 

While the five equity funds are managed by external managers, the two bond funds – a euro and a global strategy – are managed by a team within Banque Baring Brothers Sturdza. All funds, apart from the US one, have reached a three year track record, each managing “a few hundred million dollars”.

Around 20-25 per cent of total fund assets are channelled through the group’s private banks, with the rest distributed through strategic partnerships. These “blue chip clients” are mainly private banks, asset managers and family offices, both in Switzerland and Europe but also the Middle East and Japan. 

The aim is to further develop relationships with fund platforms. It recently signed an agreement with UBS, although funds are not yet on the bank’s preferred list, as well as another couple of banks. The products are also on the Allfunds platform in Italy and Spain. 

 “There are opportunities for small quality players in this business, but it is challenging,” admits Mr Gutmans, also considering the products “are not the cheapest”. Performance fees range between 10 and 20 per cent of the excess return on the index. However, he says, the business model is about generating profits based on management fees, with performance fees seen as “the icing on the cake”.