lombard odier multi strategy private clients
By , 13 Feb 14
Lombard Odier is rolling out the risk-based strategy it uses to run its own staff pension scheme to private clients with the launch of two LO Selection Vantage funds.
Lombard Odier is rolling out the risk-based strategy it uses to run its own staff pension scheme to private clients with the launch of two LO Selection Vantage funds.
Rather than starting with a return target, the multi-strategy funds start with a client’s tolerance to risk and potential drawdowns. Lombard Odier then builds a risk budget based on the average loss that a portfolio would experience in the worst year out of 20.
On top of this, the bank adds its own economic analysis since the 1970s showing that, on average, just two years in every five are favourable for equities, another two years are in what it describes as a deceleration phase, with the fifth year in an inflationary period where commodities are favoured.
Stéphane Monier, chief investment officer of Lombard Odier’s European private banking business, said: “However, traditional capital-allocation approaches (say 40% equity; 60% 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.”
As a result of different asset classes performing in different parts of the cycle, the portfolios – the LO Selection Vantage 1500 and LO Selection Vantage 3000 – are built combining external managers as well as Lombard Odier’s own strategies, giving exposure to developed and emerging equities, sovereign bonds, corporate bonds and commodities.
The external managers are chosen using strict criteria including a three-year track record and pre-determined liquidity measures.
The Vantage 1500 strategy targets an expected return of cash plus 2-4% with an expected shortfall of 5% and a maximum volatility target of 3.5%.
Vantage 3000 targets a return of cash plus 5-7% with an expected shortfall of 10%, a volatility target of 7% and a maximum leverage of 1.8 times. Both approaches have an expected sharpe ratio of 0.7.
Monier added: “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.”
Tags: Lombard Odier | Multi Asset