Julius Baer in the Middle East: Finding a new footing

Swiss private bank Julius Baer is aiming to increase assets under management by about 59 percent over the coming two years as the firm expands globally. Boris Collardi, the man at the helm of the banking giant, outlines his plans
By Massoud A. Derhally
Sun 10 Mar 2013 09:53 AM

At 38 years old and at the helm of Julius Baer, Switzerland’s third largest wealth manager, Boris Collardi has pretty much all the ingredients of a rising star. He’s just acquired the international private banking arm of Merrill Lynch outside the US and is moving on full steam ahead to expand the bank’s franchise globally.

For Collardi, who likes to vacation where the bank does business or plans to, emerging markets are a key driver to growth.

“The number one growth driver in our industry is the growth of the market,” says Collardi, who spent about twelve years at Credit Suisse in Europe and Asia, with roles including chief operating officer and chief financial officer of EMEA private banking before joining Julius Baer in 2006 and rising to become its youngest CEO in 2009.

“Overall growth which has been a bit more subdued in the past two to three years and on the macro level has been shifting to new economies which have accelerated much faster than in the past,” he adds.

“That is what defines the strategy of a wealth management firm today; you need to follow where the growth of the money is. That’s the reason why we’re trying to ramp up our presence and expertise in different parts of the world.”

The overall financial wealth of high net worth individuals declined 1.7 percent across all regions in 2011, with the exception of the Middle East, according to the World Wealth Report 2012, released by RBC Wealth Management and Capgemini. However, despite the decline in investable wealth, the first decline since the 2008 financial crisis, to $42 trillion, the global HNWI population grew marginally by 0.8 percent to 11 million. In 2008, global HNWI wealth dropped by 19.5 percent.

During 2011, the United States, Japan and Germany accounted for 53.3 percent of global HNWI population. The previous year, these three nations represented 53.1 percent of the world’s HNWI population.

The world of private banking for Swiss banks has, however, become a bit more complicated as Switzerland comes under pressure over its banking secrecy regime from the US, UK and Germany which are vying to crack down on tax evaders.

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“This is probably one of the biggest challenges of Switzerland and its financial services industry,” Collardi says when asked about the increasing pressure on Swiss banks.

“We want to go to the future, we want to go to international standards but one cannot ignore that there is a past. This past is there due to a number of events in Europe. It was not a deliberate strategy of Switzerland; it was just a consequence of being a country being in the middle of a region that was in turmoil at some stage. This is over... The US has stronger influence than some of the other nations. I’m hopeful that in the next two years we will find an agreement with Germany, Italy, with France and once this is done, Europe is done.”

With the backdrop of regulatory pressure, Swiss banks like Julius Baer, the country’s third largest wealth manager, are looking to expand outside their home markets.

As part of its strategy to boost its presence globally, Julius Baer acquired last year the wealth management units of Merrill Lynch outside the US. The integration of Merrill will potentially expands Julius Baer’s existing financial adviser base by as much as 64 percent. That ties in with Collardi’s goal of increasing the bank’s assets under management by 59 percent over the coming two years as the firm looks to expand globally.

“My personal objective is to be above the bar of CHF300bn ($322bn) by the end of 2015,” says Collardi. “That puts us in a nice comfortable position with approximately 50 offices around the world by then and that should allow us to finance the growth.”

The Swiss wealth manager increased assets under management by 11 percent last year to CHF189bn from 2011 as market performance improved and net inflows increased 5.7 percent.

“We are in a very privileged position to be in an industry where the overall pie is getting bigger every day,” says Collardi. “We are growing on average two times the rate of our next competitor.”

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January was a record month for Julius Baer, the bank’s best in thirteen months with clients coming back to equities and structured products. “There is activity,” says Collardi. “Is it 2007? Not yet even though stock indices are relatively high.”

More than 75 percent of Julius Baer’s net new money comes from emerging markets and the majority within that comes from Asia, followed very closely by the Middle East. Emerging markets and developing economies are projected to grow about 5.6 percent this year, up from 5.3 percent last year, while Europe contracted 0.4 percent last year, and the US economy increased 2.2 percent, according to International Monetary Fund (IMF) estimates.

Until 2005, less than fifteen percent of Julius Baer’s clients were coming from the non-European and non-Swiss markets. The expansion of the bank has seen that portion increase to 37 percent, says Collardi, and with the Merrill integration is set to rise to 50 percent by 2015.

That means one in two of the bank’s client assets will come from Asia, Middle East, Africa, Eastern Europe or Latin America. Asia — which accounts for 60 percent of the world’s population and about a quarter of the billionaires globally — is the fastest growing region for the private banking industry, followed by Latin America, Europe and North America.

“In January 2006 we kicked off the new strategy of the group. At that time we thought Europe could not continue growing at the pace it was growing,” Collardi says.

“As we didn’t have unlimited resources we had to decide where to focus and we decided to start with Asia. We built in Asia a fantastic franchise which is the fastest growing area of our business. With the momentum of Asia we decided to embark on the Middle East, Africa, Eastern Europe and Latin America.”

The bank is considering establishing an office in Saudi Arabia, as it seeks to expand its franchise and target the largest concentration of wealth in the Middle East, the bank’s CEO says.

“Our expansion has been almost everywhere except in Saudi. Over the next twelve to 24 months one of our key priorities will be Saudi,” Collardi says. “If we get Saudi right we could double our franchise in the next five years.”

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Setting up in Saudi Arabia is a potentially good move for Julius Baer. The country, like the rest of the GCC states, has traditionally been covered from Europe and Dubai. However, the regulatory operating environment for suitcase private bankers operating in the kingdom is getting stricter on the one hand, while competition from regional and local banks is increasing as they vie to build up their private banking franchise, says Magdy El Zein, managing director of Boyden global executive search.

“A few factors have changed the landscape, namely the Saudi authorities clamping on the practice of unlicensed private banks operating in the country so foreign banks  wanting to operate in Saudi have either obtained licences and are growing their teams there or are in the process of doing so,” says Zein.

The number of high net worth individuals in the Middle East increased 2.7 percent in 2011 year on year while they grew about 5.4 percent in Latin America, 3.9 percent in Africa and 1.6 percent in the Asia Pacific region, according to the RBC Wealth Management and Capgemini report.

Saudi Arabia and the UAE are set to see double digit growth in the number of millionaires in the next five years, according to Credit Suisse. The number of millionaires in Saudi Arabia is forecast to grow 17 percent to 64,000, while the UAE is projected to grow by 12 percent to 48,000 by 2017.

“There is still a lot of money that is not in the financial system,” Collardi says. “A lot of people are in real estate in this part of the world. For those clients that we generally target they don’t use a lot of leverage for real estate, a lot of it is paid cash. They have money in their companies, they have a lot of different cash flows not captured by the system so I believe there is money that they keep under the mattress as well.”

Julius Baer isn’t interested in clients that retain the bank for a year and then move elsewhere. It’s a boutique bank with a niche clientele focused on long-term relationships.

The bank’s financial consultants today are taking more of an active role towards equities in an investor’s portfolio, less on fixed income with a bit of gold as an inflation hedge.

“We would certainly not go in 100 percent. We would probably step up building up the portfolio of the next few weeks to take advantage of a bit of volatility,” says Collardi.

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“We would be looking at not putting everything on a regional basis but be well diversified. Europe has good pick up opportunities right now. The US is medium to long-term a very interesting investment and Asia for us is a darling of a portfolio.”

Looking forward, Collardi sees Asia continuing to grow, followed by Latin America, Brazil in particular and smaller countries like Columbia and Chile picking up. Markets like Russia and the Middle East are growing.

The number of millionaires worldwide is expected to increase by about 18 million, reaching 46 million in 2017, with China set to surpass Japan as the second wealthiest country in the world behind the US, according to Credit Suisse.

As the consultancy McKinsey wrote in a report last year, Asia and the Middle East are two markets of “critical importance for private banking” and of all the regions in the world, the two share two challenges: serving the needs of the business owner and entrepreneur segment, and attracting and retaining top talent.

There will be only three main segments in wealth management in the next five to ten years, Collardi says. Either you are part of a gigantic firm that does everything for everybody doing commercial banking, investment banking, private banking, asset management under the umbrella of an integrated group.

The second option is that of Julius Baer’s to have the critical mass and be able to afford an international standalone private banking strategy or else be a smaller player exclusive to one or two markets barred by the high cost of having a complex international operation.

“You will not be able to have only Switzerland in your offering, you will have to be in Hong Kong, Singapore, Jakarta, Shanghai, in Rio de Janeiro, Johannesburg, Dubai, Manama and Istanbul,” says Collardi.

“That has a cost and complexity and the only way you can afford it is by the size of your organisation.”

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