Lombard Odier looks to win share of the family office market

Catering to increasingly professionalised family offices has become a highly competitive proposition for private banks. But there is no reason big players should always have an edge over smaller institutions, claims Ahmed Husain, head of the recently established family office team in London at Lombard Odier Investment Managers (LOIM), the Swiss bank’s asset management arm, running SF46bn ($46bn) in client assets.

 “You have to be quite patient and long-term oriented when dealing with family offices, as they may go six months without doing any investment transactions,” he warns. “But if you are on a quarterly reporting schedule, and you have got to report to shareholders, you really can’t cover this client base.”

In bigger organisations both clients and bankers are likely to get frustrated, he says, recalling his eight-year experience at Goldman Sachs Private Wealth Management as a managing director, first covering hedge funds and then most latterly advising European “ultra” wealthy individuals and their family offices.

At privately owned company Lombard Odier there are no shareholders to please or unachievable targets to hit, he states. “There are budgets, but they are softer, and because the business has been around 220 years, having been passed down for generations, the partners have a longer-term perspective.”

While the job of a banker or sales person is “to push products or solutions”, he states frankly, his “transformational” two-year experience on the client side gave him a “much better perspective of what clients want”.

Before joining the Swiss firm in September last year, he was responsible for managing the €500m ($578m) liquid portfolio of Altice Capital, the family office of Israeli-French billionaire Patrick Drahi, until the firm moved its headquarters to Geneva, just after the Brexit referendum.

New to the game

LOIM launched its family office offering in May this year, targeting single family offices with a net worth of more than £1bn ($1.3bn). Firms of that size or bigger become small asset managers, quasi-institutions, and look for the best solutions, products and ideas, he says, and this is what LOIM aims to offer on an advisory basis.

Lombard Odier Private Bank, on the other hand, has traditionally managed high net worth clients’ assets on a discretionary portfolio management basis, an approach which is not suitable to ultra-wealthy clients, he believes.

Over the past six months, Mr Husain’s team of three has onboarded more than 100 wealthy families, leveraging contacts in their network.

Being the new kid on the block in this “super competitive” space may not be easy, but Mr Husain’s objective is to get one or two percentage points of total assets out of these multi-banked clients, raising £800m to £1bn over the next two years, while doubling the size of his team. His target are the 250 very wealthy European and Middle Eastern families – many of whom have relocated to London over the past few years – in crucial markets such as the UK capital, where the Lombard Odier brand, prominent in Switzerland, is “slightly less well-known”.

“We are not Goliath, we are David. So, if you are a small, nimble player, you should figure out your home market and serve that well, before thinking of moving further afield,” he says, explaining that the first step is to understand clients’ issues, which today are linked to high fees and low returns. Family offices were greatly exposed to both fixed income and private equity, where returns have significantly decreased. Also, given high valuations in the equity market, the forward-looking returns are expected to be lower, he predicts.

 “You have then to figure out a way to help them make them money,” is Mr Husain’s straightforward recipe. This cannot consist of purely selling products, which are just a “commodity”, he insists. The aim is to be a good solution provider, offering intelligence and information over the long run.

He sings the praises of the small, client-tailored meetings recently organised by his firm, in stark contrast to the large events with “no common denominator” promoted by larger banks. Such focused gatherings are aimed at “bringing the ecosystem together”, while positioning the firm at the centre, and enabling wealthy families to access co-investment opportunities with their peers.

“Yet, offering good investment products is critical”, states Mr Husain, stressing the characteristics of a handful of LOIM’s “very successful” funds.

Heads of investment at large family offices are today professional money managers, with at least 10 to 15 years of experience as bankers or hedge fund managers. Salaries are generally linked to the performance they generate, while they are increasingly put under direct pressure to generate returns by their billionaire employers, given the current low yield environment.

“The world of family offices is a harsh one; I have been in their shoes,” he says.

Family offices are willing to be patient, and in fact around 30 per cent of their liquid assets are in cash, which is a challenge. “But if you do not offer good products, they are not going to get engaged with you, even if you can do all the other soft stuff,” he says.

His team collaborates with Lombard Odier Private Bank in services such as succession, wealth planning, and philanthropy. However, at that level of wealth, most of these issues have been already catered for, states Mr Husain.

Seeking the illiquidity premium

Sharing the firm’s investment outlook and conviction calls with clients is key, says Mr Husain. LOIM has a bullish view on European equities, expected to enjoy a three to four-year bull market supported by a growing economy. It is also positive on emerging markets with a focus on China, Russia and India, both in the equity and debt space.

UK small caps also offer appealing opportunities, as alpha is found in markets which are heavily under-researched, he says. “Most people think UK equities are like a bad word, as Brexit has scared people off from investing, but uncertainty creates opportunity, as it takes the price down.”  

A milestone for the firm was the acquisition late last year of Volantis – an eight-person team managing more than $1bn equity long/short and long only strategies, with a focus on UK small and micro caps – previously with Henderson Global Investors’ subsidiary AlphaGen Capital. The team joined LOIM’s existing 1798 hedge fund strategies platform.

In the emerging market local government debt space, in collaboration with ETF Securities, Lombard Odier launched a smart beta, rules-based ETF, which has gathered $1bn in assets since it was launched two years ago. It is based on a proprietary index where higher weights are allocated to emerging economies exhibiting the strongest fundamentals, as opposed to issuers with the most debt.

Of the 30 funds the Swiss manager offers, the most appealing to clients today are the four that are aligned with LOIM’s house view, including the European High Conviction, the Emerging Market High Conviction, the 1798 Volantis and the EM Local Debt ETF. 

Far from being “too conservative or boring” in their investments, family offices are gaining exposure to private debt, structured credit and non-performing loans, having sold all their traditional fixed income assets, and are investing in more esoteric or sophisticated assets, such as early stage venture capital.

In the alternative space, they have reduced their hedge fund allocation significantly and are greatly increasing their private equity exposure, both through funds and direct deals.

“The big trend for family offices today is to seek the illiquidity premium they can harvest.”

Through a private equity fund of funds, LOIM seeks “niche, unique opportunities”, giving clients access to smaller managers, running for instance a $500m fund out of Dallas or Chicago, which they would struggle to find on their own, he explains

First-time funds generate “much better returns” than large funds managed by the Carlyles or Blackstones of this world. These are the vehicles big banks are forced to put clients into, to avoid taking the entire capacity of small funds, he says.

In terms of direct deals, LOIM is very selective. “Out of 300 deals we see in a year, we may show clients one or two.”

The Swiss asset manager, which manages SF2bn in responsible and impact investments, is in the process of applying its proprietary ESG approach across all its funds, aiming at differentiating companies simply claiming good intentions from those which demonstrate results from actions undertaken. “Families show a growing interest in responsible investing,” he explains.

The firm, claims Mr Husain, is well positioned to meet the needs of increasingly demanding wealthy families, who expect a consolidated view of their assets and are more and more mobile. It offers global custody services – running, in fact, entire back office operations of institutions such as KBL, Bordier and Petercam – and 12 booking centres worldwide.

“We can serve clients wherever they are, and with our technology, they can use an app whenever they want.”