Swiss group shapes organic expansion strategy to maintain boutique service

04/23/2024

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Frédéric Rochat — Foto: Gabriel Reis/Valor

With $351 billion in wealth management globally, Swiss private banking firm Lombard Odier wants to grow in Brazil with no acquisitions. All foreign groups that achieved a relevant share in this segment took shortcuts through acquisitions. That was the case with Credit Suisse, now owned by UBS, and Julius Baer Family Office.

Frédéric Rochat, a partner and executive at the bank since 2012, explained that the current group is the outcome of the 2000 merger between two centuries-old family-held financial institutions: Lombard Odier and Darier Hentsch. No other consolidation movement has been taken since then and the group has grown organically. The same logic will prevail in Brazil, where the private banking firm opened its office in 2020, during the COVID-19 pandemic.

“[Organic growth] is at the heart of Lombard Odier’s model. We are not listed [on the stock exchange], we are a privately held firm structured as a partnership. That is the best quality growth we want to achieve, always organically,” said Mr. Rochat, who spoke with Valor at the firm’s local office during a recent visit to Brazil. “Critics will say it is too slow, that it would be better to make acquisitions. We say yes, it is slower, you need to be patient, but it allows us to build lasting quality in the way we develop the customer base and the team. We can handpick our customers, and new team members, and integrate them into our culture.”

According to Mr. Rochat, the wealth management industry, not only in Brazil but also in Europe and worldwide, is going through ramifications. “We see wealth management players becoming bigger and bigger, going through strong consolidation. We take a different approach. We like to keep it human size.”

The executive points out that $351 billion in investor funds is a small amount compared to the size of large financial groups—UBS and CS combined total some $4 trillion. But Lombard’s size, according to Mr. Rochat, allows the firm to get to know every customer “individually and personally.” Financial conglomerates tend towards standardization, he says, which is why the plan is to continue as a privately-held boutique.

“Going public would be good for acquisitions, to increase equity. But that could bring natural tension, with short-term pressures to report the best results for shareholders versus the long-term interest of customers,” Mr. Rochat explains. “Due to these pressures, many large banks view the wealth management business as a product distribution channel. We don’t perceive ourselves as product sellers. We offer the best possible long-term advice, we are trusted advisors. Customers are smart, they know what type of model they prefer.”

The executive points out that, although the firm is physically new to Brazil, relations with the country span almost eight decades serving Brazilian businesspeople and their families from its base in Geneva. “Opening an office in São Paulo was a natural step considering our strong commitment to get closer and provide investors with greater convenience,” Mr. Rochat said. “We are very pleased with the customer base we are developing in São Paulo, we are on target. Brazil is a strategically important market. We respect its economic performance and admire the country’s entrepreneurial fabrics.”

The executive did not disclose specific goals for the local operation. However, a fair slice would be 1% to 2% of the volume the group has under its umbrella globally, according to Marc Braendlin, Lombard Odier’s head in Latin America.

The goal, according to Mr. Rochat, is not to go head-to-head with the large private banking groups operating in the local market, but rather to complement the offer with alternatives in a strong foreign currency, including assets with a focus on sustainability.

He is aware that competing with Brazilian interest rates and unmatched returns above inflation is not trivial for a foreign wealth management firm. But he believes there is a willingness for diversification among businesspeople who already have exposition to risk in Brazil, whether in illiquid alternatives, linked to the real economy abroad, or in liquid options, as international bonds now offer more attractive rates. “Many businesspeople want to increase their exposure to private assets. And the biggest markets are still the U.S. and Europe.”

Mr. Rochat understands the sustainable approach as the asset manager’s ability to map the paths of climate transition and identify which companies will emerge stronger to be included in the portfolio while removing the ones that will lose ground. “Entire economic systems or sectors will be turned upside down. Some companies will emerge stronger, others will have their business models seriously challenged.”

Behind that is the belief that responsible practices tend to be a driver of financial performance. However, having a great environmental, social, and governance (ESG) score is not enough.

In this field, Brazil could act as an attractor of foreign capital, a type of exposure that Lombard Odier could have through international private equity managers listed on the stock exchange to fund local projects. “For Brazil, one of its priorities in the coming years will likely be creating the right economic environment to increasingly attract direct investments,” said Mr. Rochat.

That is not an easy market for foreign capital, Mr. Braendlin adds, although he sees potential in sectors such as energy, infrastructure, and logistics. “It is not enough, there are many other countries that lack investments.”

A curious note, according to Mr. Rochat, is that the first contact between Lombard Odier and Brazil dates back to 1870 when the firm engaged in underwriting a public offering to back the first oil and gas company in Rio de Janeiro. At the time, the crown granted concessions for oil and mineral exploration for 90 years.

*Por Adriana Cotias — São Paulo

Source: Valor International

https://valorinternational.globo.com/