Hedge funds a matter of course

Typically, private clients of the leading Swiss banks have been more accepting of hedge funds than their more conservative institutional counterparts. One expects the fur-hatted and coated burghers of Zurich to invest in bonds and little else.

But the reality is very different to the perception. A chat with the man who set up Investment Solutions, an almost industrial-style strategy selection unit at UBS, the world’s largest wealth management organisation, will soon put you straight.

You have to be early to catch Hansjoerg Borutta, who favours 7am appointments. The rest of his day is filled with assessing the suitability of third party hedge fund managers for private clients, and winding alternative positions into model portfolios.

While few institutions even invest 5 per cent in leveraged products, Mr Borutta’s investment tool already shifts to a 10 per cent default position in hedge funds for discretionary clients, even conservative investors. Unless clients express a strong wish to the contrary, they will get hedge funds as a matter of course.

These instruments are no secret weapon, believes Mr Borutta, a wry German who was asked to carry out the momentous task of cleaning up the shelves at UBS to eliminate considerable duplication of strategies, and to save the wasted energy expended by competing product teams.

He says hedge funds are here to stay, and are a strong diversification tool and integral part of client offerings. In Switzerland’s other half, where the French language reigns, Pictet’s managing partner Rémy Best is also a fan of alternatives. Pictet’s clients currently hold €10bn in funds of hedge funds selected and managed by the Geneva-based bank. In fact, Pictet guards performance so jealously that Mr Best talks about restricting access to hedge funds, so only his most loyal and valuable clients can buy them.

At Northern Trust, an American player keen to grab some European market share, Lucille Knapp, head of non-US wealth management business, sees the flow of client assets into alternatives including hedge funds, private equity and property as the single biggest trend affecting markets.

However, she admits that US clients are more likely to invest than Europeans. One major family office client laughed out loud when she suggested a modest allocation to hedge funds. “A lot of families in Europe are saying ‘if I don’t understand it, I won’t invest in it’,” says Ms Knapp. She says the language explaining hedge funds is not precise enough, and there is no uniform definition of risk to satisfy her most discerning private clients.