Lombard Odier boosting institutional presence

Lombard Odier, Switzerland's oldest private wealth manager, is expanding its global institutional business on the back of the financial crisis.

The firm has embarked on a hiring spree, luring institutional management talent from prominent players that include Towers Watson & Co., Goldman Sachs Asset Management and Fortis Investments, which merged with BNP Paribas Investment Partners last year.

In addition, a strategic soul-searching exercise over the past couple of years has resulted in a more concentrated effort to separate beta and alpha in the management of fixed-income and equity strategies in order to deliver more consistent alpha.

“We had trouble understanding how a niche player (like us) would be able to compete against the very large providers. More and more clients were going toward pure beta or pure alpha,” said Hubert Keller, managing partner of Lombard Odier Darier Hentsch & Cie., based in London. “We came to the conclusion that the part in the middle — in which clients buy into one portfolio that features market returns as well as alpha — is not going to be the way forward.”

Institutional assets under management increased 17% in calendar year 2009 to $35 billion, officials said. About $3.5 billion, or 70%, of the gains came from net inflows, while the remainder was a result of market returns. Of the institutional assets, $6 billion is invested in equity, $3 billion in alternatives and $11 billion in multiasset strategies. Overall, the 214-year-old asset manager has about $145 billion in assets.

While European clients still dominate, Lombard Odier is pushing to gain market share in the U.S., particularly in equity hedge fund strategies including global, emerging markets and thematic funds, but it's still early days for their effort.

It is in fixed income, however, where Lombard Odier has been making strong gains, with most of the growth coming from European and Canadian institutions. Overall, $15 billion, or 43%, of the institutional assets under management are invested in fixed-income strategies. The goal is to double that amount in the next two or three years, said Stephane Monier, global head of fixed income and currencies based in Geneva.

In the convertible bond strategy alone, which is largely institutional, assets grew to about $5 billion at year-end 2009, compared with just $850 million two years earlier. The strategy was up 18.8 percentage points for the year ended Dec. 31, 2009 and down 18.7 points the previous year compared to a custom benchmark.

Elsewhere in fixed income, Freddy van Mulligen, head of research for Belgium, Netherlands and Luxemburg at Morningstar Inc., based in Amsterdam, said the firm's emerging-market bonds strategy has “a lot of potential,” even though fees are average to above average.

Lombard Odier's institutional business was established in the 1970s, with some ups and downs along the way, according to several consultants familiar with the company.

Company executives scaled back the London institutional operation in 2005, only to re-enter the market this year. In 2008, Serge Ledermann — who was head of asset management responsible for investments — left as institutional outflows accelerated, sources said.

For example, LODH Alternative Strategies and LODH Delta Global — two multistrategy hedge funds of funds aimed at both high-net-worth and institutional clients — sustained heavy performance-related redemptions in 2008 and 2009; the funds had assets of $1.1 billion in May 2009 when they were liquidated, down from about $3.2 billion in January 2008. Another reason that the funds lost money is because unlike some peers, Lombard Odier did not impose redemption restrictions, analysts said.

In the past year, Lombard Odier has pursued an aggressive institutional growth strategy that seeks to benefit from the instability within the money management sector following the financial crisis.

“The company is unlikely to merge or to be courted, and that provides a lot of stability,” Mr. Monier said. “What we have found is that we were able to hire high-quality people whom we couldn't have attracted two or three years ago. They had been very happy where they were. But (the financial crisis) has resulted in discontent, and they are more willing to listen to what we have to offer.”

Earlier this year, Kevin Corrigan was appointed head of credit. He had been an executive director responsible for European and global credit portfolios at Goldman Sachs Asset Management.

Other high-profile appointments include David Callahan, Cyril Caillault and Mr. Monier himself, who all joined in 2009. Mr. Callahan was head of money markets at Abu Dhabi Investment Authority, the largest sovereign wealth fund globally, with an estimated $625 billion. Both Messrs. Caillault and Monier previously worked at Fortis Investments as head of the quantitative strategies team and global head of fixed income and currencies, respectively.

Jeffrey Lubin joined as head of high-yield debt from Cerberus European Capital Advisors, where he was managing partner, chief compliance officer and head of European credit. In Amsterdam, Lodewijk van Pol was appointed head of fiduciary management, also in 2009. Mr. van Pol was a senior consultant and practice leader of investment consulting group at Towers Perrin, which merged with Watson Wyatt to create Towers Watson & Co.

“The Netherlands represents the other leg of our very robust asset allocation capability,” said Mr. Keller, who is also head of asset management. “It is an important opportunity because fiduciary management demands investment professionals who can focus on portfolio construction.”

According to several sources, Lombard Odier has been swaying prominent institutional clients in fiduciary management. The firm was appointed fiduciary manager of the €2 billion ($2.7 billion) Stichting Bedrijfspensioenfonds voor het Bakkersbedrijf, Groningen, Netherlands, according to the sources who declined to be named because the agreement has not been made final. Mr. Keller declined to comment. Neither officials at the fund nor Robeco Institutional Asset Management, the fund's manager, could be reached for comment.

“A large part of the Dutch pension industry — some 25% — is not managed under a fiduciary mandate, so there's still room for newcomers,” said Anton M. van Nunen, founder of consulting firm Van Nunen & Partners, Alphen-Chaam, Netherlands, and author of “Fiduciary Management: Blueprint for Pension Fund Excellence,” which spurred the movement into the area for Dutch pension funds.