If nothing else the news that Boris Collardi, the departing chief executive of Zurich-based Julius Baer Group, is to join Geneva-based Banque Pictet et Cie as a partner in 2018, is likely to reignite the ongoing debate between the relative merits of stockholder-owned institutions and private partnerships within the private banking and wealth management sector.
It may also focus attention on the evolution, development and success of Julius Baer and Pictet’s business models. For although the institutions are routinely considered to be broadly similar, apart from their ownership structures, the reality is different.
Julius Baer now focuses exclusively on private banking and wealth management. The latter is just one element of Pictet’s business mix, however, which also encapsulates institutional asset management as well as global custody and asset servicing.
And although Julius Baer is bigger in terms of most metrics, such as operating income (CHF 2.9 billion versus CHF 2.2 billion at 31 December 2016), pre-tax profits (CHF 753 million versus CHF 542.4 million) and personnel employed (6,026 versus 4,130), Pictet manages a greater volume of client assets, the metric upon which most attention is focused in any discussion on private banking and wealth management.
According to its most recent annual report Pictet had CHF 462 billion of assets under management at 31 December 2016. This is nearly 16 percent bigger than the CHF 392 billion of total client assets recorded by Julius Baer.
Julius Baer, does however, manage a much greater volume of private banking and wealth management assets. It had CHF 336 million of client assets under management compared to Pictet’s CHF 184 billion, i.e. CHF 152 billion or 83 percent more.
Is this position likely to change significantly once Mr Collardi arrives at Pictet in 2018?
Mr Collardi acquired a reputation as a business transformer during his eight years as chief executive of Julius Baer. In addition to consolidating its position as a “pure-play” private bank and wealth manager he made at least one transformational acquisition as well as accelerating its rate of organic growth by aggressively recruiting new client facing personnel.
Whether this reputation is justified must remain an open question.
Although the perception is that Mr Collardi played a critical role in both formulating and executing Baer’s expansion strategy the reality is that he was just one of a senior management team backed by a board of directors.
It may have turned out - and this is certainly the perception relayed by the media - that the Julius Baer board was very quiescent during Mr Collardi’s term of office and allowed him a relatively free rein.
For the moment at least, this stance would be appear to be justified given the shareholder returns realised during Mr Collardi’s watch. Julius Baer shareholders’ total returns would have amounted to 88 percent under Mr Collardi at the time he announced his resignation according to an article produced by Reuters’ Lisa Jucca.
This easily outperforms the eight percent posted by UBS over the same period or the minus 19 percent registered by the Stoxx index of global banks. (Just to prove that Mr Collardi may not be the ultimate Swiss private banking miracle worker, however, it should be pointed out that at CHF 57.80 Julius Baer’s current share price is still well below the CHF 99.90 it attained before 2008’s global financial crisis).
Nonetheless, even if Mr Collardi was given a free rein at Julius Baer this is very unlikely to be the case at Pictet.
Unlike shareholder owned companies where the owners, i.e. the shareholders, effectively delegate the day-to-day oversight of their assets to professional managers this is not the case in partnerships, and especially Swiss private banking partnerships. Here the owners take an active part in not just the day-to-day management of the bank but the formulation and execution of strategy as well.
Take the situation at Pictet, for example. At present the bank’s CHF 2.59 billion of equity is owned by just 50 individuals of which six partners and 38 senior executives currently work at the bank. Owner-management is very much part of the business model.
Granted Mr Collardi will become a partner. But he will be one of seven. Decisions tend to be made on a consensual basis rather than by dictat. And these tend to stress continuity and stability. Even the senior partner, who acts as Pictet’s de facto chairman, is just the first amongst equals.
“The senior partner is, by tradition, chair and primus inter pares of the board of partners, only assuming the position after a decade or two as a partner,” says Nicholas Pictet, the current senior partner in Pictet’s 2016 annual report. “The thrust of the strategy is therefore towards continuity, solidity and stability: the condition in which Pictet’s entrepreneurial spirit will thrive”.
Circumstances can always change. And this may lead to changes in management policy and strategy. But when Mr Collardi does assume (joint) responsibility for overseeing Pictet’s international private banking operations it would seem unlikely that he will adopt the aggressive expansion policies employed at Julius Baer.
This means that there will be no acquisitions to boost market share for Pictet doesn’t do acquisitions. Nor should there be aggressive hiring from rivals, especially in Asian markets.
Pictet has acquired a toehold in these markets. But its strategy appears to be based on acquiring a bigger share of wallet from its existing client base rather than by expanding this significantly by hiring more client facing staff.
Of course this begs the question of why Pictet recruited Mr Collardi as a partner in the first instance.
The statement proffered by Nicholas Pictet doesn’t really provide much in the way of enlightenment in this respect.
“We are delighted to be able to appoint as a partner someone of Boris Collardi’s calibre and reputation in the industry, especially at a time when the prospects for wealth and asset management globally have never been more promising nor more challenging,” he said in the press release announcing Mr Collardi’s appointment. “The fact that he is joining us is a powerful endorsement of our commitment to independence, organic growth and focus on the long term, always in the best interest of our clients.”
But what effect will Mr Collardi’s departure have on Julius Baer?
To some extent this will reflect whether or not the Zurich-based bank was a “one man band” under Mr Collardi and the extent to which it had a management succession plan in place.
The balance of opinion, at least gauged by what has appeared in the media, is that Julius Baer has no such plan in place. Benrhard Hodler, Mr Collardi’s replacement, is a Julius Baer veteran. But at 58 is probably near to retirement. Moreover, it seems that his time will probably be spent in overseeing a fundamental overhaul and replacement of Julius Baer’s IT systems.
It is quite understandable, therefore, if a perception emerges that Julius Baer is rudderless. Whether or not this becomes a reality will depend on Daniel Sauter, the bank’s chairman and his board of directors.
Getting a suitable permanent, as opposed to interim, chief executive should be the first priority. And therein lie considerable risks. Get it wrong and it could precipitate a wave of departures, not least amongst senior management and possibly amongst client facing personnel as well.
If this does become the case it may reopen the question of Julius Baer’s continued independence. Although it may not yet have the capital to acquire Julius Baer a potential purchase by Credit Suisse may begin to look more credible.
And if this did occur, especially if Mr Collardi assumes a relatively low key, if highly remunerated, career path at Pictet what impact would this have on his reputation as the golden boy and great transformer of Swiss private banking?