Monday, 16 May 2022

Lombard Odier’s Vincent Magnenat: “Future of private banking in Asia is onshore”

5 min read

By Gordian Gaeta

Vincent Magnenat, Limited Partner and CEO for Asia at Lombard Odier shared how as a seven-generation family business, the 225-year old institution continues to drive innovation in the wealth management industry with tailored offerings for global clients and partnerships with local incumbents to deepen its presence in the region.

As CEO for Asia of one of the oldest Swiss private banks with $63 billion in assets under management, Vincent Magnenat has helped build Lombard Odier’s growing presence in Asia. He has forged strategic alliances with Kasikornbank in Thailand, Bank Mandiri in Indonesia, Union Bank in the Philippines, Mizuho Securities in Singapore, Taipei Fubon Bank in Taiwan, and JBWere in Australia. 

Magnenat shared from the bank’s latest study of high-net-worth individuals (HNWIs) a rising conviction among private investors towards sustainable investing. To this end, Lombard Odier is educating and helping clients in the region to transition towards sustainability. It has also integrated sustainability into all investments and increased its importance in its portfolios. 

Magnenat added that private investors are increasingly looking for guidance to wade through the impact of the COVID-19 pandemic. For investors in Singapore, Australia and Hong Kong the world has become more local and less global.

He observed an increase in intergenerational conversations on family and wealth succession, with the younger generations more willing to challenge traditional belief systems. HNW clients are seeking advice and help to define family values, and structure family and business governance. Tax efficiency is no longer the only driver for increased interest in mobility and relocation among investors. The pandemic has offered ample time for reflection on how and where investors wish to spend their wealth, proximity to the extended family being an important consideration. 

Following key points were discussed:

Below is the edited transcript:

Gordian Gaeta (GG): I'm Gordian Gaeta. I'm the Chairman of the Advisory Council of Wealth and Society. Wealth and Society is a platform that provides information and data and awards to build a better world. Welcome to Wealth and Society, we're very pleased to have you. Now maybe we can start for people who are listening, tell us a little bit about what does your house do? What is the strategy before we maybe delve into some of the data you have collected? Just an overview. And how did you do more recently, given the COVID pandemic?

Building regional partnerships in Asia

Vincent Magnenat (VM): Thank you Gordian. We are one of the oldest private banks in the world with 225 years of history and we are a seven-generation family business. We are also one of the safest private banks in the world, with an AA- rating and a Tier 1 ratio close to 30%. I think what is very important is that we have the memory of the experience because we are a family business. The approach is really to leverage this memory to capitalise on our experience to serve our clients. Of course, in a period like the one we are going through, this pandemic, the environment is volatile; an organisation like ours is rightly perceived as a very safe place to be. We are recognised as a very strong, trusted advisor and partner for our clients. In Asia, we have our three offices, Singapore, Hong Kong and Tokyo. We have been in Asia for 30 years and we are growing our business, on the private banking side and asset management side. Of course, I think being a bank that was perceived as very confidential and private in the past, our name has to rise in the region. 

So, we have our traditional private banking services from our three hubs, and we have also built a strategy that is quite different from others, which is the strategic alliances model that we have with local banks. We have built this network in the region because we strongly believe that the future of private banking in Asia is not only offshore, but also onshore. I can come back to these onshore businesses later. I think what is very important to understand is that we have these two legs of business – traditional private banking, and strategic alliances. But more importantly, we are extremely focused and disciplined on what we want to do. We accept not being everything to everyone; we want to be a holistic bank, have a holistic approach with our clients, and have a good understanding of what they are doing. This is the reason for us conducting the APAC 2021 High Net Worth Individuals study; to build a portfolio for investors that can fulfil their objectives and their needs. You will understand that being a family business, we have very strong family services offerings. Again, we need to understand their needs and their objectives, before giving advice in terms of investments or structuring their portfolio.

Aligning vision with clients

GG: Hong Kong bank always said, think globally, act locally. And I think your survey demonstrates that high net worth individuals know more about their local markets than you will probably know or can know; but on the other hand, they need global services. Let me get back to something practical on the division of labour – who owns the client, or which part of the client and who does what, in a relationship that's both with you and with a partner?

VM: First let me explain that we don't do joint ventures (JVs). We sign partnerships to develop friendships within the first 12 months, as we work together. We work together as colleagues, to bring in the value. It's all about knowledge transfer. 

GG: Essentially, they can access your asset management capabilities. 

VM: Exactly. In terms of products, it is our asset management capabilities. But beyond that, it is also really about having access to advise – helping our Asia clients understand the risk and diversify their asset allocation through our asset management's global offering. And of course, if they need an offshore account, we can provide that to them.

Sustainable investing takes centre stage

GG: Tell me what were the highlights of the study because you talked about surprises. Of course, with your experience and personal experience, based on your background. What was most interesting for you in the study as a result?

VM: I would say, what pleased me the most was really on the sustainability angle. We conducted the same study a year ago, and we can see with the new study that has been conducted with all the strategic alliances in the region, that this interest in sustainability is becoming more than an interest; it’s a belief. We can see that 80% of the participants believe it will remain. We have also seen an increase of participants saying that they believe investing in sustainability will generate superior returns. And it's not a surprise, but I was amazed and pleased to see that answer. 

GG: Let me just ask you. I mean, there is an ongoing debate. And I'm also an academic, and I read most of the papers. And this response is by far higher than in other parts of the world, certainly in the biggest financial markets, the United States, but also in Europe. Most people do not believe that sustainable investments will generate higher returns. That is a major concern.

VM: Yes, but again, maybe we are in a region where it shows that they have started to believe because they have a good understanding of the world. And obviously, the COVID-19 pandemic has accelerated that trend. Of course, we have an approach to sustainability – Lombard Odier is quite different from the markets. 

We believe in the transition; we believe that we are moving from an economy that is wasteful, idle, lopsided and dirty (WILD), to the ‘CLIC’ economy, that is circular, lean, inclusive, and clean. This belief comes along with studies and research; we have signed a partnership with Oxford University. We need to have this responsibility of educating and championing stewardship in terms of sustainability in the region. This is something that we are working extremely closely with the strategic alliances in the region. Interest in this subject is increasing a lot. And you have seen it in the study – it's still interesting to see that and it was absolutely not a surprise to see that the next generation of our clients, the children of our existing clients, are extremely into sustainability. I have two boys myself, 17 and 14, and they explained to me about sustainability before I explained it to them. I think the trend is clear here, and it will stay. It was also interesting to see that women are much more into sustainability than men. Maybe this sustainability trend is also because we are dealing with entrepreneurs in the region, the first and second generations of entrepreneurs, and they need to adapt to this new world.

The study reinforced Lombard Odier's belief

GG: I think you're right. I am like you – when I was looking at the other studies, I wasn't so surprised about the next generation and female findings because there is a bit of a tendency, but what did surprise me was the strength of the conviction of the people you interviewed, as opposed to many other studies. And it's interesting that in Asia, the conviction is higher than elsewhere.

VM: Yes, I agree. And we saw that in our previous study that we still had quite a several sceptical opinions on superior returns – I think that is moving. The fact that we can measure these investments is a key element, and this gave the researchers an understanding of the ‘why’. Investing in transition is completely different because all of us will understand it. I take a very simple example – we all understand that our big SUVs at one point will become electric cars. This is a clear trend, and we know that these companies will have to adapt. 

GG: One of the things that I have argued for some time is that the ESG, or sustainability argument, has moved from being compliant to being impactful. What matters today is impact, because many people have commitments and ideologies. They say the right things, but now it's all about impact and the measurement that you have, which makes it very different. So, let me ask you when an investor comes by, do you impose, or do you recommend that the portfolio has a certain level of benefit or direction?

Investors diversify portfolios

VM: First of all, we have integrated sustainability in all our investments at Lombard Odier. This is a measure that we have for all our investments – it is part of the framework, and we engage with our clients on the subject to see how we can invest more in certain strategies. I can mention two strategies that we launched in 2020: the climate transition strategy and the natural capital strategy. Both of these strategies have raised close to $1 billion each, in less than two years. This shows the interest level of the clients and reaffirms how the framework is fully integrated within our investment solutions.

GG: In the study, you looked at investments. Everybody is worried because the external factors are moving in different directions. We've had some of the most impressive boom periods in equities, and there are hardly any alternatives available, because of the low-interest environment, certainly in Switzerland, for example, or in Austria or the whole Euro area. So, what do you tell a conservative investor in terms of the portfolio? Perhaps somebody who wants to make a decent return and beat rising inflation? What is your core competence in asset allocation?

Private investors seek trusted advisors 

VM: What is very important is to understand the objectives of the clients – what they want to achieve, and their risk appetite. What the study shows is that investors would like to be guided even more than before. They are here to find a trusted advisor, an adviser that can understand their risk appetite. And again, we want to make sure that you can sleep at night, regardless of whatever happened in the markets – this discussion is extremely important amid the current environment. And then, the diversification will depend on one’s risk appetite. But we are dealing also with entrepreneurs in the whole region, and as you know, people are not so diversified in their own country. For example, a Filipino investor would be invested mainly in Filipino securities. This is the same for Thailand and Indonesia. Don't forget that the interest rates are completely different between, for example, the Philippines and Japan. Only then will you build the portfolio, take the right opportunities, buy the right fixed income for the clients. And to have this total view about the worth of the clients between the onshore and offshore –  this is where this ecosystem of strategic alliances helps a lot, where we can diversify the portfolio between onshore and offshore and asset classes.

GG: Now, one of the interesting things were about the family services – it's not surprising that everybody wants to pass on something to the next generation. We may have received something from our generation, from previous generations, and that family issues and succession planning in times of mobility and changing tax environments, and different objectives become very important. How do you see these family services evolving?

VM: This is the same as an investment. You mentioned the trust or the foundation –these are tools. But before going to the tools, you need to understand what the objectives are and again, I fully agree with you. I think all of us have a lot of time to reflect during this period because we spent quite a lot of time at home and by ourselves. We can see here an increase in demands, in terms of guidance and family services. Now, as much as you have differences in the markets, in Asia and between the markets in terms of interest rate, you also have big differences in terms of the wealth of the families. In Asia, we have very mature markets – for example, clients in Japan are on the 10th or 20th generation family businesses –but we also have more emerging markets into regions where we have first- or second-generation family businesses. The needs in terms of family services are quite different. We have also seen a push in the next generations engaging in discussions with the previous generation. And maybe, this is also a cultural change that we are seeing. I'm not sure that 50 years ago, grandchildren would be challenging the older generation so much; now it's changing. This is due to communications and engagements with the generations. When we talk about family services, we talk about business governance, we talk about family governance, we also talk about defining the values of the family, and how you will structure that wealth, in terms of the governance, and the structure that you want to put around that. That has increased a lot during this period. 

GG: I fully agree with you. I think that in today's world, wealth passes earlier or in different structures. So, it isn’t the same as 20 or 40 years ago, when I think the average age of your client was probably 45-55; that is changing. Now for the next generation, have you changed your strategy? Do you do things differently with the next generation? Because there's a big difference between somebody who has built wealth and looking for advice and somebody who has inherited or received wealth and is looking for advice?

Next-generation education is a key offering

VM: The new generations are building wealth. We have seen many entrepreneurs in the region who are building their own business, which they develop because they come from wealthy families, or go to different industries. What we can see with the new generation is that they are extremely educated, sophisticated, and tech-savvy. That's very important. As an organisation, if you think “should I invest in technology for the next generation?”, it's too late. It's a given; technology is a given for the coming generations. But at the same time, this need for networking, communicating, engaging with people is also extremely high with the next generation. We are also dealing with this next generation, and the study has revealed that they are here to take advice, to be guided because they have access to a full world and they know how to go and get the knowledge and the expertise from the professionals. And I think that's very important. What we are seeing, and what we were talking about it before, is this interest in terms of sustainability. If you think about the next generation, for most of them, they will deal with a bank that is taking sustainability extremely seriously. I think that's also a major trend that we are seeing with this next generation.

VM:  At Lombard Odier, we invest in our technology for many, many years. Our platform is extremely well recognised, and the added value will come from the individuals, the advisors, who would bring the value. Technology is here to facilitate communication and reporting to the clients. I think the value as you mentioned, the advice, will come from Lombard Odier’s advisors and bankers.

GG: Now, if you talk about value, what would you define as your core value – protecting people against the downside, or giving people opportunity for the upside? We can't have both, by the way.

VM: I think we can. As an organisation, we are very conservative in the way we run our own business. We are, and we want to, build a sustainable business. And therefore, we are a seven-generation family business. But when it comes to investments for the clients, it will be based on their understanding; you have some clients that prefer something conservative, or people that have long term views, and they would go into the core. That's the way we will advise our clients.

Relocation is big on the HNWI agenda

GG: One final point, you mentioned about an interest in mobility. There has always been a sort of interest in mobility among the upper high net worth individuals, but the survey gives an impression that there’s a renewed interest or increased interest in mobility, that is changing domicile, possibly nationality, possibly tax domicile. How do you explain that? What are the consequences for your business?

VM: During the pandemic, some families had to be separated for months. They had children who were studying in the US or UK, and they might have been rethinking the way they want to be together. We also see a huge interest in Singapore and its schemes, the 13X as an example. We can see several families coming here to Singapore to set up their family offices. Why? Because they have access to a very stable environment and a lot of expertise locally. I think this is why the ultra-high net worth individuals are rethinking that. Of course, the interest in stability is a key point in the current environment. The approach that we have with them is to be ready to engage in this discussion. Again, I think this is something that needs to be discussed, needs to be understood by our clients. What are their perspectives? Maybe not short term, maybe long term? Where do they want to retire? Where do they want to be, and with whom? And that’s something that you need to prepare.

GG: Do you think that all of these international tax initiatives and coordination efforts, across countries and even across regions, are going to have an impact on how high net worth think about where and how to manage their wealth?

VM: I think to be tax-efficient, is an element. But I believe – and we have also seen that during this pandemic – it's not only about tax. It's about whom you are with, where you are, and how do you enjoy the life that you have. So I think that’s very important. If you move countries, only because of financial reasons, then maybe you will not be happy. This is where you need to challenge the views and have a good understanding.

GG: We much appreciate you taking the time. And we hope to see you again. And yes, and thank you for the report. It is insightful and inspiring.



Keywords: Sustainability, Investments, Onshore, Offshore, High Net Worth Individuals, Technology, Carbon Neutrality, Next-generation, Volatility, Pandemic, Covid-19
Institution: Lombard Odier
Country: Thailand, Philippines, Hong Kong, Australia, Taiwan, Indonesia, Japan, Singapore
Guest: Vincent Magnenat, Gordian Gaeta
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