Pioneering Banque Syz welcomes winds of change

Eric Syz, one of three founding partners of a new-style private bank, uniquely focused on asset management rather than white-gloved concierge services and secrecy-led custody of assets, created waves in Geneva when he launched Banque Syz back in 1995.

Since then, he has made friends and created enemies in equal numbers. Friends have rallied to him because he has been one of few industry leaders ready to act as a voice for a Swiss banking industry beleaguered by changing economic conditions, a hostile US and a slowness to realise its true potential.

Enemies have bristled at his readiness to criticise existing, often unsustainable practices, which have for so long fed the insatiable Swiss cash cow. “We had more enemies than anything else back then,” recalls Mr Syz about his decision to open new offices around the corner from the august Lombard Odier, along with two other dissatisfied refugees.

Many banks, including his former employers, together with Geneva stalwarts Pictet and UBP have since also made their key raison d’être asset management rather than secrecy and tax-led structures.

“People in Geneva were friendly and polite to our faces,” he says. “But none of them could believe somebody could leave one of the venerable old institutions and take some of their clients by being not just an intelligent asset manager, but start a new bank from scratch.”

Most of them thought “this guy must be nuts,” smiles Mr Syz. “There is no way he can do it. But I went about things in a different way and started thinking about the best interests of clients and this was very unusual.”

He describes his bank as a “very sophisticated asset manager with banking capabilities,” able to offer clients deposits and lend against investment portfolios to help buy properties. Performance fees were also an early innovation.

But it was not plain sailing for Mr Syz and his partners. Despite their best intentions, strong partnerships with external fund managers and desire to bring institutional-style portfolio management to the backward private banking world, performance suffered with the hedge fund collapse back in 2008 and clients withdrew funds.

Assets in the heavily equity-biased Oyster funds fell 60 per cent in 2008, from Ä6bn to Ä2.4bn due to the market crash and redemptions. His Luxembourg-based umbrella fund concept was also aped by many competitors.

Although Banque Syz’s managed assets are now up to SFr31.7bn (€26bn), there was a time when funds looked perilously close to folding. Mr Syz talks about early days when 40 to 50 per cent of his clients’ assets were invested in hedge funds, uncorrelated to the benchmark.

“I knew this could not last forever,” he says. “People got carried away and sold businesses growing at 8 per cent so they could make 15 per cent from hedge funds while sipping Pina Coladas in the Bahamas. Who would run the world and produce cars and chocolates while this was happening?”

Despite his best efforts in trying to persuade clients about risks and liquidity problems, Mr Syz claims they would not listen to him and remained over-exposed to alternatives. 

These days, less than 10 per cent of assets are linked to hedge funds. Just like the tech craze in 2000, he does not think we will ever see such over-exposure to a single type of asset again in his lifetime.

Problems with performance for Swiss banks came at around the same time the US started attacking the country for supposedly hiding untaxed assets invested by US citizens. “Politically, this was an easy problem to focus on as it was a great diversion for the US and other governments,” he says. Yet despite his criticism of cynical motives, Mr Syz has welcomed the attack, which brought about a landmark settlement with UBS, the end of so-called banking secrecy and closure of some smaller banks.

“There is a balance that needs to be revisited from time to time,” he suggests. “Currently, we are in a period where it is being revisited. New entities are emerging which will launch new products to the market.”

He dismisses strong Swiss rumours of the sale of his own bank to a larger competitor such as UBP and instead claims his bank is likely to buy another player as part of expansion plans.

Despite Swiss spats with the US, he believes North American markets are a key part of the future. “America will continue to be a great market for Swiss banks and that’s where we should concentrate and establish our networks,” says Mr Syz. “There are a lot of wealthy Americans who need what Swiss banks can offer – good asset management and portfolio services which currently exist there only in a very limited way.”  

Eric Syz won the Judges Award for Industry Leader in the Global Private Banking Awards 2013