SG expands onshore from Manchester to Moscow

With many private banks blamed for having a cavalier attitude to risk and asset management in the months preceding the financial crisis, their clients are now opting for more transparent portfolios. This means going back to the basic building blocks of direct holdings in stocks and bonds, says Alexandre Zimmerman, the Swiss-born head of portfolio management for French bank SG Hambros in London, which runs £15bn (E16.3bn) in private client assets. “Today, clients are dispensing with levels of fees and complex fund structures, where transparency is not optimal,” says Mr Zimmerman, who reports customers complaining of performance drags of between three and five per cent due to over-intricate product designs. “Performance is not here any more, so clients are no longer confident. They want a portfolio they can understand.” This also means more frequent communication with the portfolio managers. Clients in ‘advisory’ portfolios, where SG suggests investments to them and monitors risk, but does not allocate assets, are now contacted every six weeks to make sure they are happy with the set-up. The result, reports Mr Zimmerman, has been a move by many cautious clients to more liquid, less diversified portfolios. “We have adjusted our offering to match these new requirements,” he adds. This change started before the summer, with most clients failing to profit from the market rally, through fears of high volatility and equity risk. Rather, those clients returning to invest were seeking exposure to cyclical asset classes such as corporate bonds and commodities. A simple approach, using stoppers to take profits, has been preferred to selections of hedge funds or traditional mutual funds. Along with others in the private banking community, Mr Zimmerman and his colleagues have had to adapt to changing client needs. There may have been gentle persuasion from the head office of Société Générale – SG Hambros’ parent institution in Paris – to try and market the wares of Lyxor, the investment bank’s fund management subsidiary. This specialises in offering hedge funds through an accessible platform and providing core asset classes through a new range of exchange traded funds (ETFs). But whereas clients were once happy to be given lists of these funds, today they are harder to please, and selling the Lyxor strategies seems to have been put on the back burner for now. Even though clients’ needs may be suited to buying something from such a platform, most are too sceptical to take the plunge, he believes. “We are now back to where we were six or seven years ago in the private banking industry,” says Mr Zimmerman. Structured products have also lost their allure recently. The so-called ‘free lunch’ of selling volatility, which was popular in the first half of the year, has evaporated with changed market conditions, while capital protection is too expensive to be worthwhile. Yet despite this caution, there is a determination to transform cash into returning assets. Private clients have seen an equity rally and are conscious of near-zero interest rates. This means they are willing to take a little more risk than previously, while insisting portfolios are kept simple and easy to understand. The result is a far more opportunistic rather than strategic mindset. “The investment horizon of clients is quite short,” says Mr Zimmerman. “It’s not about a value-driven approach of buying stocks for the next three to five years. It’s about the momentum of the market and what’s driving the cycle at the moment.” Currently, clients are interested in commodity-related investments, which they are keen to back with newsflow about individual stocks and broader, macro-economic analysis. The growth strategy sanctioned by Daniel Truchi, SG’s dynamic private banking boss in Paris, is one of onshore growth in all the regulated European markets served by the group. This has already led to new offices being opened in Edinburgh and Manchester in the UK this year. A team is also being installed in Newbury, Berkshire. Onshore expansion is also important further afield in Russia, where SG has acquired the Rosbank branch network, viewed as a major commitment of the French bank to that market. Mr Zimmerman’s portfolio management skills are very much in demand with wealthy Russian families, so he is a regular visitor to Moscow. “We have very big plans to be seen as a local player in the Russian market with Rosbank,” he says. “We can work with clients on a local basis and provide corporate finance for their company. We are not just there to take their money and move it to Switzerland.”