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EXCLUSIVE: Lombard Odier A "Haven For Clients In Turbulent Times" - Asia Head

Tom King

WealthBriefingAsia

2 December 2013

Founded in 1796, Lombard Odier & Cie is the oldest firm of private bankers in Geneva and one of the largest in Switzerland and Europe. It has a network of 25 offices in 18 countries, and offers its private and institutional clients a wide range of advisory services in wealth management, financial products, and specialised areas.

for Asia-Pacific & Japan, based in Hong Kong. He is responsible for the development of private banking and institutional wealth management in the region. He was recently interviewed by WealthBriefingAsia about strategy and recent developments.

In the broadest terms, where do you see the position of Lombard Odier in the Asian wealth management market at the moment and for the next few years? How do you want the business to develop, and why?

Lombard Odier sees itself as a haven for clients in turbulent times, and that is the same in the Asian wealth management market. Asia is the engine of tomorrow’s growth, with huge potential in the private banking sector with UHNW individuals on the rise in Asia. Singapore is exceptionally well-poised to take advantage of this expanding group.

The way we see the business develop in Asia and in Singapore is for us to develop a fresh approach toward family offices that commits to the long haul. Given that opportunities abound in the region, to make UHNW a profitable segment to serve, private bankers need to innovate in servicing clients who have multi-generational issues, and develop strategic long-term planning that will preserve a family’s wealth.

How many people are employed in your part of the firm? Are there plans to change the number and if so, can you give me some sort of idea in terms of numbers?

With more than 100 professionals in the region and 20 in Singapore, we have expanded our service to clients and more than doubled our presence in the region over the last two years. We are always looking for skillful, experienced people who share our values and are interested in innovative ways to help clients better meet their need for risk-adjusted returns.

Are there recent specific additions to the team you would like to highlight and mention in terms of importance?

In Hong Kong, we have recently added Fred Horsey, who joined in September as co-chief operating officer and general counsel, as well as Christophe Morel, who relocated from Geneva to become the chief risk officer for the Asia-Pacific team. These positions are newly created to enhance our operational excellence. Fred and Christophe bring energy, insights and expertise in operational and internal development and their appointments significantly enhanced our ability to add value for clients in Asia Pacific.

We more recently appointed Keiichi Hirano as managing director for Japan, who succeeds Norbert Joué. Mr Hirano is one of the pioneers of Société Générale’s private banking business in Japan and held various senior roles in Tokyo and Singapore where he was global head of Japanese private banking clients and responsible for functions including marketing, and Société Générale’s global head of real estate.

Mr Hirano will work closely with Mr Joué, who has successfully led our Japan business for the past four years from Tokyo, to ensure a smooth transition. Mr Joué is moving to a broader regional role in Asia for the bank working closely with Mr Vincent Magnenat, local managing director of Lombard Odier in Singapore. In this newly-created Singapore-based post, Mr Joué will take the lead to develop our integrated private client offering in Asia.

What kind of strategy are you employing to develop the business? What sort of markets are you particularly interested in, and what are you more wary of, and why?

Most private banks and investment businesses still offer to construct portfolios in a bullish environment based on a 60 per cent allocation to equities and 40 per cent allocation to bonds. In a bull market they switch that to 60 per cent bonds and 40 per cent equities. An investor might think they are well diversified like this, but that approach leaves investors at the mercy of correlating asset classes in a downturn because in reality 90 per cent of the portfolio’s total risk is in equities, so that when the market falls, your portfolio will follow.

Instead, we focus on an actively managed risk-based approach which divides a portfolio between different asset classes to provide diversification of volatility, or risk. With each asset class accounting for the same amount of risk, the goal is to offer better risk diversification with limited draw-downs and over time, a much smoother, transparent performance, whatever markets do.

This thinking lets us help clients to think about the risk that they take and manage their draw-downs. With each discretionary mandate tailored according to a client’s risk appetite, investment horizon and preferences. This works for individual clients as well as institutions such as China’s Social Security Fund, which signed up in 2012.

Where do you mainly source new managers from? Has this changed recently, with more focus on in-house development vs external recruits? What is your approach to talent management and how you work with external recruiters, etc?

We are always looking for relationship managers with the right balance of skills. It’s important in our business to expand horizons and look not just at private bankers but other wealth management institutions where there may be people who have the technical financial expertise and the relationship skills, so that we can learn from them and above all add value and bring solutions to our clients.

How does your firm relate to the Lombard Odier business in Switzerland? How much autonomy are you given?

We are a truly global company and have a network of 25 offices in 18 countries. With $211 billion under management and custody at the end of June 2013, the Group employs about 2,000 staff and offers its clients wide-ranging advice in the areas of wealth management, financial products, and specialised services. We enjoy autonomy in the local markets, but also work closely with our headquarters to align strategies and targets, as well as share research and market insights.

Given some of the issues facing Swiss banking at the moment, does the “Swiss” provenance of Lombard Odier work as a plus for you in Asia?

Our structure, rather than our Swiss origins, means that we take a different view of risk. Because we have no external stakeholders and no debt, we can play long-term and invest where we think it is needed long term. That means our partners’ interests are completely aligned with the interests of our clients and creates an emotional and capital ownership with a more prudent approach to risk taking.

We take the view that if you look back over the last 200 years since we were founded, there have been around 40 crises. That means there’s a crisis every five years - which really means that we either just after a crisis, in a crisis or about to go into another crisis.

When you think like this your attitude to managing money and risk is completely different than a manager who expects that somehow markets are going to come along every now and then and save him from any bad decisions.

Fitch, the ratings agency, for example, gives us the highest rating possible for a bank of our size – and our Tier One capital is more than 22 per cent, more than twice the level required in Switzerland.

How do you see the Lombard “brand” evolving? What sort of steps do you take to spread it, raise awareness? Is your acquisition of new clients mainly a word-of-mouth affair, or are there other channels?

We’re not an events management company so we don’t sponsor Formula One or golf tournaments. We believe in trying to offer clients material that informs the way they think about and plan their wealth.

That means the brand has to develop based on our values and principles which are all about helping our clients to make better investment decisions.

We try to create thought-leadership opportunities for our clients, for example giving them opportunities to meet with Al Gore for discussions about sustainable capitalism, or with Kenneth Taylor, the former Canadian ambassador to Iran, who speaks eloquently about managing geopolitical risks. Mr Taylor of course recently became famous through the movie “Argo” which told the story of his work during the 1979 hostage crisis and provides an excellent opportunity for our clients to understand the dramatic impacts disturbances in the Middle East can have on their portfolio.

The investment management process at Lombard Odier is a very distinctive one, given its focus on how to approach risk. Can you tell us a bit more about that?

We adopt a long term perspective and value the independence of our operations. We take a risk-based investment approach, where our bankers minimise drawdown for clients through specialist teams managing different kinds of risks.

Investment managers traditionally encourage clients to spend too much time focused on allocating capital, rather than looking at tolerance to risks. Our approach takes that into account to help clients to achieve their investment goals and make sure that we help to position a portfolio in such a way that you can sleep at night, whatever the market does.