Lombard Odier bets on sustainability and alternatives to navigate economic transformation – an interview with Hubert Keller

But the reality is an even starker one, he believes: why rely on energy sources subject to supply chain shocks and massive price volatility, when renewables are cheaper and more reliable? “The Ukraine crisis is simply emphasising the need for an innovative transition to more efficient and reliable energy systems,” he affirms.

The task ahead will involve adding some sustainability flavour to the entire array of products in the Lombard Odier menu. So far, the group has been successful in devising a suite of institutional products, under the stewardship of Jean-Louis Nakamura in Hong Kong, and including them also in the wealth management offering.

The firm now runs more than USD 393 billion in client assets, up 13 per cent over the previous 12 months. “Out of Asia, Jean-Louis pioneered our multi-asset portfolio management, which has been a huge success story for us,” says Mr Keller. The next chapter will be in alternative investments, both private markets and hedge funds.

“We think there are going to be a number of attractive opportunities over the next few years in private markets, plus we are seeing a lot of appetite from clients towards this asset class,” he says. Not only is his investment team devising products in the stalwart strategies of private equity, venture capital, real estate and infrastructure, but the bank is also marketing private debt funds, a product set rarely available, despite its popularity among fund selectors.

Hedge funds, on the other hand, are much more specific today than in their pre-2008 heyday, when they embraced a huge variety of often obscure, black-box strategies. Today Mr Keller’s buzzword is “convexity”, emphasising hedge strategies “which can create a strong and interesting cushion if and when the market really dislocates.”

He is very aware that Swiss private clients have long memories and admits today’s heightened appetite for private equity resembles the scramble into, and ultimately out of hedge funds, at the time of the global financial crisis.

“Effectively, you had a lot of investors invested in the alternative asset class, through funds of hedge funds,” he recalls. “That additional layer created opacity, lack of transparency and limited understanding of what was happening in underlying portfolios.”

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Transparency is now appreciated at Lombard Odier in a way that it may not have been in previous eras. “The biggest issue on which I am totally focussed on at Lombard Odier,” ventures Mr Keller, “is to make sure that when we go for fund selection or open architecture of any kind, we have a good understanding and visibility of the underlying portfolio, which is why we have decided to move to direct strategies.”

This means the bank is now running its own hedge funds, for direct exposure to assets, rather than selecting third-party funds and creating a whole new layer of opacity, he says.

Fearing a similar meltdown in private equity assets, the Swiss bank has decided to work only with a small number of private equity firms, known as General Partners (GPs).

“As a firm, we have very much focussed on building a small number of very good relationships with GPs, giving us direct visibility into their portfolios, where we can effectively co-invest with them,” says Mr Keller. “At the end of the day, what matters is understanding the ultimate investment and having transparency around it. That is the path we have chosen.”

It is this focus on investments which is saving Swiss private banking, previously seen as a mechanism for secret money to avoid taxes in a variety of jurisdictions, he admits. “Frankly, when Switzerland stopped dealing with internationally non-tax-compliant money, everybody thought the Swiss financial marketplace would suffer as a result,” he says. “In fact, it grew stronger, and our market share of international wealth has grown consistently throughout this transformation period.” 

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More of the same

Rather than choose a new path under his stewardship, Mr Keller says the bank will be following the previous strategy, already signed and sealed under previous Senior Managing Partner Mr Odier.

“The role of Senior Partner is simply to orchestrate and coordinate the discussions, so we can reach a consensus on the important decisions which need to be taken,” he says with a degree of humility. “Frankly, we will always say our change of Senior Managing Partner still leaves us facing business as usual. We have a long-term [five-year] strategy, extensively discussed and debated amongst partners and we are just one year into it. The markets may force us to adjust, but our strategy is very clear and we are moving in the same direction.”

Currently, that direction for the firm means continued organic growth, scaling up the institutional business and transforming Lombard Odier’s technology infrastructure in order to make its platform even more attractive to third party private banks who want to rent out its infrastructure.

In terms of the investment philosophy, it is about the continued pivot to both private markets and sustainable assets which the Lombard Odier brand now represents. “We are an investment firm, with a clear view on how the energy transition will unfold,” ventures Mr Keller. “We want to make sure that in the next three to five years, we will reshape quite substantially our investment offering in private banking to make sure clients have the ability to benefit from this profound economic transformation.”

So far, Lombard Odier’s staff are staying loyal to Mr Keller’s vision, who has masterminded the investment engine’s transformation, while publicly playing second fiddle to Mr Odier, who also had a high profile role chairing the Swiss Bankers Association and representing the banks of Geneva and Zurich on the international stage.

Those who know Mr Keller well say his devotion to both investment and running a company in the age of climate change are totally genuine, in an age populated by too many great pretenders. “When I first met Hubert 15 years ago, he was passionate about alternative investments,” says one investment manager who knows him well. “Today, he is passionate and determined about two things: making a success of both alternative investments and sustainability.”

This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.

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