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Magazine Issues » December-January 2015

INTERVIEW: Beat the rebateless age

Xavier GuillonScrapping rebates could hurt less well-known fund houses and stifle consumer choice, Xavier Guillon, the head of Oyster Funds from Switzerland's Syz Asset Management, tells Nick Fitzpatrick

Oyster Funds is pushing to make a name for itself as an active fund provider. For Xavier Guillon, the chief executive officer of the fund range that belongs to Syz Asset Management, attracting flows will be a formidable task for less well-known active houses in the new era of fee transparency. 

Smaller fund managers stand to lose out to the larger brands in the age of cost clarity.

“The ending of fund rebates is the most significant change,” he says, referring to regulation and, specifically, the Retail Distribution Review (RDR) in the UK. The RDR ended payments to professional fund buyers from the firms that manage funds amid concerns these rebates acted like inducements and caused selection bias. Similar measures are sweeping the EU and elsewhere.

But for Guillon, rebates are a useful part of a fund selection process that promotes an open-architecture distribution model, not a skewed one.

The challenge in future boils down to this: “The ending of rebates will present fund selectors with a moral hazard issue between the additional costs of researching potentially better performing funds or just providing their own in-house funds.” 

If rebates are a revenue, and revenue helps fund buyers pay for product research, removing the rebate means there is less money around to pay for fund manager selection. People may not be able to justify the cost of selecting external managers and, where fund buyers do buy third-party funds, they will gravitate to well-researched household names.

Guillon continues: “We take the view that this will hurt the end-client and it is an unintended consequence of the regulation. The industry might be moving from open, to guided, to closed architecture.” 

He gives a scenario, which has a bearing for the cross-border funds industry. 

“When you have a manager in a foreign country, you have to fly a person there for due diligence purposes. The rebate paid for this, and so there is no more incentive to focus on outside funds and the fund range offered by some houses will shrink.”

It would be too late now for Oyster to retreat to its Swiss homeland because of regulatory change, not that the business intends to. Oyster Funds is the main distribution arm of Syz Asset Management, which is owned by Syz & Co, a Swiss banking group. Syz Asset Management recently opened an office in Edinburgh that marked the continuation of an international expansion. As well as Oyster’s chief executive, Guillon heads business development for Syz Asset Management, which has €15 billion of assets under management.

Oyster Funds comprises two Luxembourg fund ranges: the Ucits Oyster Fund range with 30 strategies, and the alternatives Oyster Multi-Manager range. Total assets of Oyster Funds are €7 billion.

Eric Syz co-founded Banque Syz & Co in Geneva in 1996. The Luxembourg Sicav Oyster was created the same year and reflects, as Xavier claims, that Syz has a different heritage than most Swiss private banks, which is to say a heritage in asset management rather than pure private banking. The funds are managed both internally by Syz Asset Management and with external providers, depending on the strategy.

Syz’s asset management business recently scored a coup with the recruitment of Michael Clements as head of European equities. Clements joined from Franklin Templeton, where he ran a European growth fund. Now heading up a London-based team of fund managers and analysts, he will manage the Oyster European Opportunities, European Selection and Continental European Selection funds. These are flagship funds. The Opportunities fund, for example, has €1 billion of assets.

Clements’s Franklin Templeton colleague Claire Manson joined him and runs a European mid- and small-cap fund.

The recruitment of Clements is a sign of how less well-known fund houses could compete against larger houses in the rebateless age.

Similar hires of established fund managers with good track records earned at better-known brands, have created an asset management trend in the last few years, with Bill Gross of Pimco, who joined Janus, being the tip of the iceberg.

Mirabaud, for example, another Swiss bank and asset manager, hired Anu Narula from Axa Framlington in 2013 to run global equities. 

The Eurozone crisis pushed investors towards funds with strong brand recognition, says Guillon. 

“But an unintended consequence of this is that it has limited the flexibility of fund managers to perform. A lot of household names have faced tremendous challenges to outperform because they’re too big.”

He says this presented Syz with an opportunity. “The crisis has given us a much greater opportunity because we have an assets under management level that creates no constraints and a company environment conducive to generating outperformance. We have taken market share from large players as major players have become benchmark huggers.”

Asked about the Syz brand, Guillon sounds keen for Syz to not be enveloped by the broader perception of Swiss banking. “Our positioning is different from other Swiss banks because we have no legacy issues as we were founded in 1996. We did not build our unique selling point on banking secrecy,” he says.

“The founding partners were asset managers before being private bankers, so the value they brought to the market was to focus on investment performance.”

He says Syz started running multi-asset absolute return portfolios with a Libor-plus benchmark for high net worth (HNW) individuals more than ten years ago and claims this has helped Syz to become recognised as a “technician” of Swiss wealth mangement.

He says Syz has a “strong focus on downside risk”, including for the managers it outsources to. “Before the financial crisis HNWs were looking for preservation of capital. They’ve made their wealth and want to preserve it, so we want to help clients invest but with less downside.”

In practical terms, this focus centres on the strength of the buy-and-sell discipline.

“Buying is relatively easier than selling. It’s always very interesting to understand how people sell. If you think you will meet a target price in 12 to 18 months, if the market is approaching your target sooner, it means the consensus is moving towards you. It means the market is in love with your idea and you have to re-evaluate it here.” 

He adds: “People want to know that you can manage money through different cycles. We are risk averse and that provides a comfort.”

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