AS GLOBAL financial institutions navigate through a clamouring landscape of market uncertainty, changing economic outlooks, and a growing emphasis on sustainable investments, Lombard Odier has been deftly manoeuvring through the noise – and has made some key observations along the way.
For one thing, the high-end Swiss investment firm found that private markets have gained traction among high-networth individuals (HNWIs) seeking stable and diverse investment opportunities.
“The traditional notion of risk and the level of risk we need to take to get returns has fundamentally changed,” says Vincent Magnenat, Limited Partner, Asia Regional Head, and Global Head of Strategic Alliances for Lombard Odier.
“It is no longer necessary for investors to take on excessive risk to achieve attractive returns.”
This comes as rising input costs, supply chain disruptions, and pent-up consumer demand have fuelled concerns about the potential long-term effects of inflation on asset values and purchasing power, Magnenat adds.
To that end, private markets – which include private equity, private debt, and real assets like infrastructure and real estate – have come to the forefront, as they provide a “potential in-road to performance that traditional asset classes may struggle to deliver”.
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Indeed, private markets have been “slowly moving away from an ‘interesting to think about’ to an essential consideration” for HNWIs in constructing a successfully diversified portfolio, Magnenat says.
In a recent study by the bank of over 450 HNWIs across the Asia-Pacific (Apac) region, 37 per cent of respondents planned to increase their allocation towards private assets.
Granted, these assets may not be appropriate for every investor due to their longer-term and more illiquid characteristics, which could then be difficult to price and sell in difficult markets, Magnenat says.
Yet, private assets are increasingly seen as a necessary part of a diversified, long-term investment strategy.
He adds, “It is a difficult market to access without the necessary infrastructure, scale and resources, but at Lombard Odier, we have distinct sourcing capabilities, a differentiated market positioning and more than two centuries of expertise as a wealth and asset manager.”
The rise of onshoring, and family offices
Lombard Odier has also observed a trend where most of the wealthy population’s assets in the Apac region are managed by localised financial institutions.
“We believe that a local financial institution, through our support and access to global expertise, will present major opportunities for HNWIs in Asia to invest and further grow their wealth,” says Magnenat.
To tap such opportunities, Lombard Odier has formed ‘strategic alliances’ with leading financial institutions, Magnenat says.
One such tie-up was February’s announcement of the strategic alliance between the Swiss bank and Japan’s Mizuho Financial Group.
Through the agreement, leading Japanese families and entrepreneurs banking with Mizuho Financial Group will gain access to Lombard Odier’s suite of products and services.
These include the bank’s global investment solutions and wealth management platforms, deep expertise in wealth planning and family services, and leading sustainability expertise, says Magnenat.
He adds: “In addition, Lombard Odier supports Mizuho Financial Group’s ambitions to elevate its private banking capabilities in Japan. We collaborate with Mizuho Financial Group on training of relationship managers, and on knowledge-sharing through events, whitepapers, and research.”
Another key thrust of the bank’s expertise-sharing initiatives under the strategic alliance model lie in the family offices space.
“What we have observed is that newly established family offices we come across often lack formal governance frameworks,” says Magnenat.
“We work with families to develop a protocol for decision-making and aligning on matters relating to target return, asset mix, risk tolerance and attitude, to ensure that processes are fair.”
He adds: “We also help families draw a clear distinction between a family’s essential goals versus aspirational goals and being cognisant of the differing goals and adept in navigating this complexity, to help individual family members and the family as a whole to flourish.”
More family offices have been setting up base in Singapore in 2023, and in numbers exceeding pre-pandemic figures, based on data from Singapore’s Accounting and Corporate Regulatory Authority.
Part of the appeal for foreign investors lies in Singapore’s “solid reputation as an innovator and an enabler, with a robust yet forward-looking jurisdiction”, says Magnenat, even as client expectations regarding wealth solutions “are more demanding and more complex than ever”.
Another point of attraction lies in Singapore’s combination of “hardware” – structures such as the variable capital company framework, a depth and range of advisory services and expertise, and a strong banking hub, and “software” – a strong and attractive location for lifestyle, education and community building, and excellent healthcare and security, Magnenat adds.
But even as investors across the region look outward when setting up family offices, a key issue has increasingly been in the spotlight, forcing such investors to look inward as well – succession planning.
Most of the region’s businesses are family-owned, with much of the founding generation of entrepreneurs still firmly at the helm.
“This means that over the next decade, there will be a wave of change where these legacies are passed down to the next generation, and families and businesses will need to be ready for this change,” says Magnenat.
The next generation of HNWIs are “highly educated, sophisticated, and socially conscious”, he adds, and wealth managers will have to be able to resonate on important issues, and provide a platform that can meet their needs.
For instance, this includes going beyond just explaining how products work; instead, wealth managers will have to provide an end-to-end explanation of the products’ purpose and future implications.
“We receive high traction in our next generation focused programmes, which encourages peer engagements and cross investment opportunities. They are also eager to bridge the gap between generations, and we see increasing succession dialogues being led by them instead,” Magnenat says.
On sustainability, and future opportunities
Sustainability too, appears to be at a watershed stage. HNWIs in the Apac region who are keen on risk-managed returns and portfolio diversification have recognised sustainability as a bona-fide investment that yields superior returns, Magnenat says.
Singapore is the leading market across the Apac region where a key motivator for sustainable investments is values-driven – that is, where one can do good, and do well at the same time.
But in analysing companies for sustainability-led investment, Magnenat cautions against using only traditional ESG (environmental, social, and corporate governance) metrics. This is because such metrics “often focus too much on past performance, and too little on a company’s future sustainability trajectory”.
He adds: “At Lombard Odier, our speciality is in identifying those companies that will provide the sustainability solutions needed within and across sectors, and those that have the vision to adapt to this new CLIC® economy – one that is circular, lean, inclusive and clean.”
Such companies include those who are solutions providers to sustainability-related challenges, and transition leaders within individual sectors and industries.
The bank also offers portfolios that incorporate sustainability to mitigate risk and drive outperformance, along with bespoke solutions tailored around clients’ individual needs.
In addition, emerging profit pools are being created from “profound system changes across energy, land and oceans, materials and carbon pricing”, which are set to disrupt the investment space, Magnenat says.
From that disruption, Lombard Odier eyes opportunities in the global food and renewable energy sectors.
“One area is the rethinking of our food systems. Our food systems are incredibly inefficient,” says Magnenat.
“Agriculture is the second largest contributor to climate change and almost 80 per cent of our agricultural land is used to produce only 20 per cent of the calories that we need.”
Russia’s invasion of Ukraine has also upended global agricultural markets, highlighting the vulnerability of the world’s food system – and the need for innovation.
“The transition to new food systems is underway, and investment potentials abound as we capture opportunities in how we transform the way we produce, distribute and consume food,” says Magnenat.
A similar picture is emerging from the global energy system, he adds. Although renewable energy production is gaining mainstream consciousness and starting to replace fossil fuels around the world, the transformation is “about more than just energy production”.
“The rise of renewable energy is fundamentally rewiring the traditional power grid and changing the way we consume energy,” says Magnenat.
“While markets largely still perceive the energy transition in a linear fashion, our conviction is that it will occur at yet unpriced exponential growth.”
In 2022, 83 per cent of all new electricity generation capacity came from renewables alone, based on data from the International Renewable Energy Agency. At the same time, plug-in electric vehicles accounted for 13 per cent of all new cars sold.
Lombard Odier, therefore, has an electrification strategy that focuses on the “electrification and management of supply and demand, and the multiple enablers, both physical and digital, that are materialising these transformative technologies”, Magnenat says.
He adds: “We’re excited about the enormous opportunities at hand for our clients and look forward to accompanying our clients and their families not just today, but for generations to come.”
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