Lombard Odier, Oxford University and sustainable finance: The remarkable transformation of a discreet Swiss private bank

24 Dec 2020, 12:00 am
Guy Spier

Summary

We need to “rethink everything” and get from where we are – which is WILD: Wasteful, Idle, Lopsided and Dirty – and move to a place that is CLIC: Circular, Lean, Inclusive and Clean.

Aquamarine Capital Founder/CEO Guy Spier

For generations, clients visiting Lombard Odier would enter the back door out of fear of being recognized by French tax collectors. These days, the bank touts its credentials proudly, even brashly. And their recent endowment of a Professorship at Oxford University is yet another step in the banks’ remarkable transformation from a discreet, private Swiss bank to a transparent, and globally concerned institution.

At 224 years old and with assets of $290 billion, Lombard Odier is one of the oldest Swiss, independent, Geneva-based private banks, tracing their roots to the immigration of protestant Huguenots from nearby France. Normally, that would speak of thrifty, sober and discreet banking with, at most, word of mouth marketing.

However, in recent years, Lombard Odier has taken a radically different route. Who knew that a Swiss private bank with tradition would need a Chief Marketing Officer. But when the bank recently hired Fabio Mancone for the job, he took it one step further, opting for the title of Chief Branding Officer. Fabio is not a banker. His background is in the Fast Moving Consumer Goods and Luxury sectors, having worked at Unilever, Kraft, Lancôme and Giorgio Armani.

Now, the bank’s website gives the impression that we’re visiting the Gates Foundation or the World Economic Forum. Certainly not a quiet and discrete private bank. Patrick Odier, writing in the bank’s annual letter, states, “Sustainability shapes everything we do. We continue to embed it across our investment processes.” We need to “rethink everything” and get from where we are – which is WILD: Wasteful, Idle, Lopsided and Dirty – and move to a place that is CLIC: Circular, Lean, Inclusive and Clean.

The re-branding from old and traditional to a modern change-maker may have also been behind the move to endow the Lombard Odier Professorship of Sustainable Finance at Oxford. They created, in their words, “the first endowed professorship of sustainable finance at any major global research university.”

At first, I was a sceptic. But the more I think about it, I’m increasingly convinced: Impact and sustainability have become huge themes with family offices and Ultra High Net Worth individuals. And this re-branding helps to sell Lombard Odier. By positioning itself as an outspoken leader in the field, the bank can generate a steady stream of great content for the website. That then drives private clients and fund inflows for Lombard Odier’s range of sustainable funds.

In the words of one friend, “This is genuine and part of the bank’s strategy.” In other words, it is far more than merely a re-branding effort. It’s the result of a complete strategic rethink — a commitment to sustainable investing, thinking and leadership. Michelle Hufschmid, a Swiss national who is finishing up her PhD at Oxford, said, “for a domestic Swiss audience, it is a way for Lombard Odier to broaden their philanthropic portfolio. Sustainability is virtuous, and Oxford is prestigious. But it’s also far enough away to avoid any potentially embarrassing public criticism.”

Rhea Hamilton, the Managing Director of OGCI Climate Investments, also thinks that it is far more than PR and re-branding. In her opinion, “there is a revolution underway around data transparency and reporting, which is turning what’s nice to have into license to operate.” In her view, Lombard Odier is showing leadership on what is to come.

For now, Lombard Odier’s moves seem to be generating good results. The company was awarded B Corp Certification – one of the most advanced corporate sustainability ratings from the Certified B Corporation. It passed the test with flying colours, having achieved a score of 98.8 out of 100, with the average for all businesses being 50.8. Also, fund inflows have been significant – although that is hard to tell because being a private partnership, Lombard Odier only files the bare minimum accounts.

For Leigh Hackett – of Industria Mundum, which provides professional services for low-carbon business – it’s nowhere near enough. “This move is commendable, but if it not matched by political will and enabling legislation and regulation, it will not change much.”

Gianluca Ferrari whose activist fund targets environmental social laggards added, “The world needs more long term thinking - both in policy and in business - and only when the majority of capital – including Lombard Odier starts to take a truly long-term, sustainable view, will policy and business fall into line. One could argue that this is a small step for the financial services industry, but possibly a sign of a giant leap for society.”

However large the step is, at least it’s a step in the right direction. Moreover, Swiss private banks have not had the most comfortable time in the last decade. The loss of banking secrecy was a body blow – taking away a critical competitive advantage. Even though Swiss banks hold $6.5 trillion in assets – which is a quarter of all cross-border financial assets, their competitive advantage has continued to erode. More recently, the world of passive investing and the rise of ETF’s has only further compressed their business opportunities.

In response to this, the Swiss banking industry has evolved several responses.

One is that of Credit Suisse and UBS: To consolidate into behemoths that are, more or less, co-equal with Switzerland itself. Others include crypto finance and fintech. But perhaps Lombard Odier’s embrace of sustainable finance is the best and most robust. I have been described as a dyed-in-the-wool Value investor. I had always thought that all Intelligent Investing is Value Investing. And that true value is always sustainable. In other words: All Intelligent Finance is Sustainable Finance. But Lombard Odier’s approach seems to have hit paydirt for sure – and it may be an approach that I will seek to emulate in the fund that I manage.

There is, however, one approach that tops all of them – which the Swiss banking industry has not yet achieved, but is destined to.

And that is to become a centre of true investing excellence. I think of Boston and San Francisco in the United States. These are where some of the world’s great investors work – people like Seth Klarman, Peter Lynch, Peter Thiel and others.

And while Switzerland’s biotech, health and technology clusters are extraordinarily well developed, Swiss private banking still has a long way to go. We certainly have the beginnings of that cluster. For example, St. Gallen is a world-class business school, and Finma has the makings of a great regulator. It’s for this reason that firms like Cevian and Partners group are thriving on Swiss soil.

And other organizations support the ecosystem. In 2009, I moved to Switzerland and founded, with John Mihaljevic, VALUEx – a conference for Value investors which takes place every year in Klosters. John Mihaljevic’s Manual of Ideas investing community is headquartered here, and every year, Robert Vinall’s RV Capital attracts hundreds of investors to his annual meeting.

But these are small steps.

James Breiding – who is the author of Swiss Made and the founder of S8 sums it up best: “like other small successful nations including Denmark, Netherlands and Singapore, Switzerland is exposed to exogenous forces and thus has no choice but to adapt. LO transformation from insular and money centric to globally concerned about ESG is a good example.”

But there is so much more than can be done. I’m looking forward to finding out how Lombard Odier and other Swiss institutions continue to write that story.

Guy Spier, a Zurich-based investor, is the founder of Aquamarine Capital and manages Aquamarine’s privately offered investment funds.


Related