Most Swiss private banks have an eye on two markets – their lucrative if troubled home market and the growing Asian riches available to them from Singapore. Lombard Odier, which runs $120bn (€93bn) in private client portfolios and another $45bn in managed funds, however, has an important third string to its bow.
The Geneva-based coterie of eight managing partners have long had ambitions for the rest of Europe outside Switzerland, which is why they dispatched one of their exclusive club, Frédéric Rochat, to London, to try and realise their growth plans.
In order to achieve the tough targets he has been set, Mr Rochat has embarked on a major recruitment drive for portfolio management and private banker talent.
“We have a very entrepreneurial model,” he says. “We do not want to attract the type of people who are looking to spend three to four years here before they move onto the next job.”
The model he puts forward is an intriguing one. It is the notion of encouraging bankers to transfer their nascent business from another provider, and then build it, almost as an autonomous profit & loss unit, but with strong constraints and regulations, within the Swiss mother ship.
“We are looking for those people who like the group and wish to be associated with its economics.”
Potential recruits, weighing up the opportunity to work in what is perceived as a conservative Swiss bank, will typically ask themselves: “Is this business international enough, stimulating enough and meritocratic enough, compared to a fast-paced investment bank?”
Although Lombard Odier is famed for its ‘Swissness’ among clients, and this intangible quality is hyped up when it comes down to differentiation for clients in Asia, it is played down when recruiting bankers for the London hub in Mayfair. “There are only three Swiss individuals among 100 staff in London,” states Mr Rochat. “We have a huge diversity in terms of backgrounds and nationalities, the same as the Goldman Sachs trading floor would have. We have recruited people from hedge funds, long-only portfolio managers, sales staff from investment firms and sales staff from investment banks.”
One of the biggest misconceptions about Swiss private banking he has to combat is that of sleepy, slow-moving institutions, stuffed full of second-string family members with little incentive to achieve top returns for clients.
“Ultimately, it’s about pace,” he says. “Many Swiss private banks have been expanding internationally for a long time, through adopting a faster pace than their competitors. If we are to be successful in London, it is because we are as aggressive as our competitors.”
Perhaps the most important part of this focus is Mr Rochat’s brief to boost institutional fund management assets and then to leverage that expertise back into wealth management, deploying sharply-honed financial techniques to manage portfolios of wealthy families. “In London and New York, we have fundamentally re-arranged the way we build portfolios for institutional clients over the last three years.”
Overall, the investment industry has managed portfolios based on returns targeted by clients, which leads to a discussion of preferred allocations between equities, bonds, alternatives and commodities. In most organisations, the chief investment officer will draw up a grid, together with the investment committee, featuring a number of risk profiles, matched with corresponding target returns.
In a typical balanced portfolio, equity weightings will oscillate between 25 to 40 per cent over a ten-year period.
“That is still how balanced portfolios are managed today,” says Mr Rochat, although Lombard Odier changed its system soon after the 2008 crisis. “We sat down with our institutional clients and thought through the key ingredients of that approach and looked at how to build portfolios more resistant to a difficult environment.”
The thinking among the bank’s strategists was that the world’s economic ills would not be solved overnight, so it was no use using existing portfolio management models and waiting for market behaviour to revert to the mean. Rather, portfolio construction methodology would have to change to accommodate the new reality.
Instead of talking about targeted returns, client communication starts with a discussion about the risk of drawdowns: “What is the maximum possible loss you are likely to sustain from a peak to trough?”
In addition to the risk debate, the bank has made strong strides to identify potential sources of return. These have been divided into long-term illiquid strategies such as private equity; conviction led-strategies where a portfolio manager will be taking large positions within a pre-determined investment programme; and market specific risk with exposure through passive vehicles such as ETFs.
It is exactly these institutional-style strategies which are then leveraged for Lombard Odier’s broader private client base. “We continue to strengthen our profile in terms of investment offering and the addition of portfolio managers and risk managers and now we have a more distinctive offering to help us do this,” says Mr Rochat. But he is well aware that the only way he can maintain this quality of product and service, is to make sure that he is attracting the best quality of new recruits, who are prepared to sign up for some time.
