Hard times call for new thinking, says Hubert Keller of LOIM
When relative returns become meaningless it is time to take a different approach, says
Hubert Keller of Lombard Odier Investment Managers.
Asset managers are struggling to serve clients in an environment where there are few clear market trends, where there are no risk-free assets and where traditional asset allocation techniques no longer work.
Hubert Keller (pictured), a veteran of SG Warburg and Deutsche Bank, is one of eight partners at Geneva-based Lombard Odier Darier Hentsch & Cie, and managing partner, along with Thierry Lombard, at Lombard Odier Investment Management (LOIM).
“The system is in limbo. It is a big conundrum for clients, they don’t know what to do,” he says, drawing an analogy with a car speeding down a straight road with no exit towards a solid wall. “There are no brakes, no possibility to alter direction. It’s a headlong rush to the inevitable. Consultants and benchmarks lock investors into impossible positions. They are stuck with relative return model in an absolute return world.”
Keller joined Lombard Odier in 2006 to design and implement a strategy for institutional investors that systematically separated alpha and beta, and embedded risk management at the heart of the asset management business. Since Lombard Odier is a partnership, with unlimited liability for the principals, risk management is close to Keller’s own heart.
Fund gap widening
In present markets, the challenge for managers is to produce convincing long-term solutions for clients: “The killer at the moment is the uncertainty, and what it does to the business and to clients. It is difficult to position yourself on a clear trend, as there are none. There is massive political risk everywhere, and major central bank actions.”
A low-growth environment is particularly testing for risk assets, but Keller says firms need to stick to key principles and explain their processes to clients.
“Customers know there are problems with the old asset management models, and they want to discuss it,” he says. The focus is on capital preservation and absolute return. They want to protect against the downside and make a little money, in that order.
“That is actually a very difficult thing to do at the moment, and it is an entirely different proposition from trying to beat a benchmark. It needs a different kind of manager,” Keller says.