The pressure on margins, digitization and increased competition are forcing Swiss private banks to redesign their business. It is a new era, and it has begun for sure.
The piece of information seemed innocuous enough when it was sent out a couple of days ago: Pictet was going to invest directly in European real estate. Zsolt Kohalmi (pictured below) gathered a team of 14 experts to implement the project. Before his time at Pictet, Kohalmi was responsible for property investments with a portfolio worth some $20 billion at Starwood Capital.
Pictet's announcement was about more than just another investment plan however. It showed how strongly Swiss private banks that used to concentrate on pure wealth management have already re-calibrated their business – not least because margins are narrowing in private banking, making new sources of revenue more than welcome.
Singles and Old Age Pensioners
Real estate clearly is one such new source of revenue. «Volatility in certain European markets over the coming years, for example in the U.K. due to Brexit, will lead to a variety of entry point opportunities,» said Kohalmi. «Hence the importance of a local presence to get the ‘first call’ for transactions.»
The demographic development is also a source for optimism: «Millennials demand single households and prefer to rent rather than buy. Then there’s the growing need for specialized housing for Europe’s ageing population and demand from inbound international students at the other end.»
The private bank has invested some 2.5 billion Swiss francs ($2.5 billion) in real estate through its Pictet Alternative Advisors unit – in addition to investments in hedge funds and private equity. The share of property investments is likely to rise significantly following this recent announcement, a spokesman at the bank told finews.com.
Lower Costs for All
Pictet isn’t the only private bank to be looking for new sources of revenue. Lombard Odier for years has been operating a tech platform that is also available for other companies. «Our strategy aims to bring several partners to the table with the goal of substantially lowering costs for everyone involved,» said Patrick Odier (pictured below), senior partner at the bank, in an interview with finews.com.
Currently, twelve companies participate, including KBL Group of Luxembourg, Belgium’s Degroof Petercam and Bank Syz. Lombard Odier also managed to attract several pension funds to participate in the joint platform.
Swiss private banks also face increasing competition from the country’s cantonal banks, which typically are owned by the regional governments. They are expanding in private banking to reduce their dependence on the interest business. The biggest cantonal bank, Zuercher Kantonalbank, has almost 300 billion francs in assets under management, which put its on a par with medium-sized private banks.
Next Generation
Mirabaud, another among the Geneva-based private banks, a few years ago decided to build an asset management arm and to invest in the development of asset allocation strategies and financial products. It developed a know-how that extended far beyond the average wealth management and a year ago, Mirabaud started investing in private equity.
Bank Syz is following a similar path. The company has pursued an asset management strategy for quite some time, and recently it founded a fourth pillar to broaden the base of its revenue. Marc Syz (pictured below), the son of the founder of the bank, is investing in private equity, private debt and real estate under the brand name of Syz Capital. The segment of private equity has become popular on the Swiss financial market not least due to the meteoric rise of Partners Group in recent years.
New Demands
The old branding of Swiss private banks however lingers, for instance at Zurich’s Vontobel. The company still presents itself as a private bank, even though nowadays it generates a large proportion of its revenue in asset management and with structured products. Recently, it even added a crypto investment offering to its portfolio.
So private banking has become part of the truth – the broad activities pursued by these companies show how Swiss private banking is redefining its business to keep up with the changing demands of the financial market.
