Lombard Odier launches risk-based approach for private clients
Lombard Odier has launched a new investment approach applying the experience of running its own employee’s pension fund.
The multi-strategy approach aims to provide private clients with robust, diversified returns over a market cycle.
Lombard Odier’s own employee’s pension fund has delivered its targeted returns since adopting a risk-based approach more than four years ago.
Lombard Odier has now made two multi-strategy funds – LO Selection Vantage 1500 and LO Selection Vantage 3000 – available to private clients. The methodology builds portfolios designed to optimise diversification across risk factors as a way of delivering better risk-adjusted performance throughout market cycles.
Instead of asking clients what returns they seek, Lombard Odier’s risk-based approach finds out their tolerance to risk and potential drawdowns. From this the bank builds a risk budget based on the average loss that a portfolio would experience in the worst year out of 20.
To diversify portfolios properly, Lombard Odier looks at economic cycles. The bank’s research shows that on average since the 1970’s just two-years-in-five are favourable for equities, two years are a deceleration phase favouring bonds and the remaining one-year-in-five is an inflationary period favouring commodities. However, traditional capital-allocation approaches (say 40 per cent equity; 60 per cent bonds) can create excessive exposure to equity risk. That may perform well in a growth environment, but suffers in the remaining downturns or inflationary phases.
For this reason, and because different asset classes perform in different phases of the cycle, Lombard Odier builds portfolios using a mixture of external managers and its own strategies – based on transparency, track record and liquidity – that offer exposure to developed equities, emerging equities, sovereign bonds, corporate bonds and commodities.
“This is a tried and tested approach that we have been offering some sophisticated institutional clients for a number of years, as well as applying to our own pension fund for employees,” says Stéphane Monier, chief investment officer of Lombard Odier’s European private banking business. “Traditional approaches can over-expose investors to equity risk and may not be dynamic enough to cope with today’s markets. By balancing risk with a diversified approach, we aim to keep clients’ portfolios balanced and not expose them to more risk than they’re willing to take.”
Lombard Odier’s strategies, LO Selection Vantage 1500 and LO Selection Vantage 3000, are registered in the Netherlands, Spain, France, Belgium, the UK and Luxembourg. Registration in Switzerland is pending.
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