Lombard Odier more than happy to occupy middle ground

Lombard Odier, the privately-owned Swiss bank, has grown organically throughout its 222 years of history, and has now reached a “sweet spot” in the wealth management industry. Despite consolidation, the sector will continue to be polarised between two extremes, believes Frédéric Rochat, co-head of the wealth business and former head of UK private client activities. 

At one end, large banking providers, with great brands, international networks and deep pools of expertise will continue to dominate, despite being increasingly forced to offer standardised solutions to seek efficiency gains, as operational costs soar, he says.  

On the other side, small boutiques, single or multi-family offices, are flourishing – particularly in Switzerland, but also in France, Luxembourg, the UK and Asia. These independent firms are increasingly the preferred choice of typically strong-minded entrepreneurs, for their ability to work very close with clients, and come up with tailored solutions. 

With $281bn in client assets, of which $142bn are in wealth management, Lombard Odier aims to position itself right in the middle. “We are big enough to matter in the industry, but sufficiently small to get to know all of our clients personally and individually, and offer them personalised services and bespoke portfolios,” says Mr Rochat, one of the firm’s younger managing partners. 

The bank has never embarked on any systematic acquisition strategy, having always believed in organic growth. “We feel that selectively hiring new private bankers will allow us to defend a stronger level of differentiation in our culture.” 

New way of thinking

But in this very competitive, “cut-throat transparent” and highly fragmented industry, how can players continue to differentiate themselves? 

The bank’s vision of tradition and innovation is reflected in its “Rethink Everything” philosophy, which is inspiring its brand marketing campaign. 

“We are constantly seeking to rethink the way we market ourselves to clients, approach prospects and invest assets on behalf of our clients. We want to challenge ourselves and add more value. By only working with demanding and sophisticated clients we can improve the way we serve them,” explains Mr Rochat.

The bank’s partnership structure enables bankers to hold a long-term view, while the financial strength of the firm is also a source of pride.

“Since the financial crisis, the balance sheet solidity of the bank has been one of the first questions prospects ask their bankers,” explains Mr Rochat. The bank’s tier one capital ratio of 27 per cent offers “very strong comfort” to clients. 

The ability to deliver performance and managing portfolios for the long term, especially through complicated times, is a key differentiating factor for the firm, he claims. However, what most clients increasingly worry about is how to transfer wealth to the next generation, how to involve their children in the management of their wealth and whether returns are generated by sustainable investments. 

“Our clients are really looking for a partner they trust for the long term, and everything in our model is geared to offer that responsibility,” he boasts. 

Discussions with clients are focused on objectives and investment horizons, and not limited to allocating them to conservative, balanced or growth portfolios, as many competitors still do.

 “One of the first items we discuss with clients is their preferred allocation to illiquid or illiquid assets.” Thanks to their illiquidity premium, private assets such as infrastructure, real estate or private equity have “systematically delivered the best returns” over the past decades, higher than equities and bonds. And the firm’s expertise in such areas enables bankers to hold relevant discussions with clients, with portfolios deployed across those assets for the long term.

Long-term investing ties well with sustainable or responsible investing, in which Lombard Odier has been a strong believer since partner Alexandre Lombard warned clients against investing in US-based companies relying on slave labour, back in the 19th century. 

“Sustainable investing is so important for us because we are absolutely convinced that it is going to be a driver of additional returns. Also, clients, and especially millennials, increasingly request it from us,” he says. 

The private bank is starting to implement a more systematic way to screen client portfolios against sustainable investing principles, to make sure that every single step of the investment process is “hard wired for sustainable criteria”. 

“The process requires a huge amount of work, because to get it right, every single position of the portfolio must be vetted from a sustainable investment perspective,” says Mr Rochat. The bank is in the early phase of the roll out. Sustainable investments today represent a “low single digit” percentage of total private client assets, although the group’s asset management business, Lombard Odier Investment Managers (LOIM), aims for 100 per cent of its assets to be fully sustainable within the next year and a half.

Partnerships

The bank’s client base is equally split between Switzerland, Europe and the rest of the world. In Europe, the focus is on the UK market, the French speaking countries, including France and Belgium, as well as Spain and Italy. 

Emerging markets’ wealth is expected to grow much faster than in Europe or Switzerland, but will be more negatively affected by market downturns, and is more volatile.  “We feel we will have a much more balanced, solid and resilient franchise if we continue to keep a balanced mix of clients,” explains Mr Rochat. 

In some high growth emerging markets, and Asia especially, Lombard Odier is pursuing an expansion strategy which allows the firm to avoid competing “head on” with large international players already established on the ground. Exclusive partnerships are formed with carefully selected local banks, having similar DNA and values, and usually family-owned, such as Kasikornbank in Thailand and UnionBank in the Philippines – although Mandiri Bank in Indonesia, result of merger of government-owned institutions, is an exception. 

Such local institutions have developed strong personal relationships across generations of families and entrepreneurs, offering lending and retail banking activities, and are now looking to build and quickly expand their private banking activities. Lombard Odier provides them with investment expertise and tools designed to offer internationally diversified portfolios, to meet the demand of increasingly global clients. Local banks continue to own and serve their own clients, with the partnership involving equal sharing of costs and income. 

As the wealth management industry moves from offshore to “multi-onshore”, in regions such as Latin America, the Middle East and Asia, demand for this type of partnership model is growing. And multi-booking capabilities, such as as the one offered by the Swiss bank, are greatly appreciated, particularly by the new generation of clients, he adds.

 “There is a very transparent alignment of interest, which makes our partnerships solid and successful,” adds Mr Rochat. In Asia, the bank envisages striking one or two more partnerships. 

“We invest a lot of time and energy in building a partnership tailored to each partner, it is never going to be a number’s game.”

The bank’s growth strategy has drawn approval from prominent industry commentators. 

“Lombard Odier has quietly and steadily upgraded its professionalism and reach in its wealth, asset management and technology offering in recent years, allowing it to maintain the balance between ‘large boutique’ and ‘mega brand’ normally associated with much larger private banks,” says Ray Soudah, founding partner of M&A and corporate finance advisory firm MilleniumAssociates. 

This has enabled the firm not to be pulled into the category of “mass market wealth manager,” he adds.