A Star prepares to shine brighter

26 Nov 2007

 

Union Bancaire Privee must rank as one of the best kept secrets of the asset management firmament. The family-owned Swiss private bank, founded in 1969, may lack the rich history or brand recognition of some of its peers but one thing it does not lack is hedge fund assets. Indeed, as of June 30, UBP was the second-largest allocator to hedge funds in the world – behind UBS – with Dollars 45.8bn (Pounds 22.2bn, Euros 30.8bn) of such assets under management, according to analysis by InvestHedge.

Not a lot of people know that, as Terry Mellish, UBP’s inaugural head of UK institutional business, will attest. “He would have fallen off his chair if I hadn’t held him up,” says Mr Mellish of a prospective client on hearing this revelation.

The fact that UBP has managed to keep such a low profile, even while building overall assets under management of Dollars 109bn, is testament to its record.

“A lot of existing clients feel quite comfortable recommending us. That is our main source of growth to date. We historically have not had advertising campaigns or events campaigns in the UK,”

says Michael de Picciotto, nephew of UBP’s founder Edgar de Picciotto and overall head of the bank’s London operations, in a rare interview.

In spite of this word-of-mouth success, UBP is looking to raise its profile a notch or two. It is moving rapidly into new markets, expanding its operations in the Middle East and Japan. Plans for a push into Russia are next on the drawing board.

However, it is UBP’s plan to grab market share in the heavily consultant-mediated UK institutional market that is crucial in encouraging the secretive Swiss bankers to change tack and, if not shout from the rooftops, at least whisper about their wares.

Chief among these is its hedge fund operations. UBP made its first allocation to hedge funds as long ago as 1972 when the industry was tiny and the bank was still known by its original name of Compagnie de Banque et d’Investissements.

According to Mr de Picciotto, it is this longevity that has given UBP’s fund of hedge funds arm access to the industry’s top table.

“There is a real elite out there, and then there is the rest. For the elite of the hedge fund industry, we are one of the very few partners,”

says Mr Picciotto, who argues that UBP can supply not only money but also advice on everything from infrastructure to portfolio diversification.

This allows UBP to invest in what it regards as the top 3-4 per cent of the industry.

“We have first call privilege by dint of our long-standing relationships. They also know we can write large cheques out quite quickly.”

As a result, UBP’s fund of hedge fund arm, which amounted to just Dollars 2bn in 1996, has doubled in size in the past three years alone, to Dollars 50bn. Although the bank has its own in-house fund management expertise in areas such as fixed income and equities, it is happy to outsource its hedge fund operation.

“While we keep control of asset allocation, which is a key driver of investment performance, why should we do our own cooking if we can access great skills outside?”

asks Mr Picciotto.

This access to the great and good of the hedge fund community has translated into strong performance. UBP’s flagship fund of hedge funds, Selectinvest ARV, a core diversified multi-strategy low volatility offering, has generated an annualised return of 8.1 per cent net of fees since launch in August 1998, significantly above the 6.6 per cent recorded by the HFRI Conservative funds of funds index, as well as returns from equities and bonds.

In addition, Selectinvest ARV has generated positive returns in 89 per cent of months, with this low volatility helping to produce a Sharpe ratio (a measure of risk-adjusted return) of 1.42, against 0.86 for the HFRI index.

UBP has been present in the UK since 1991 and already manages Dollars 18bn of assets from London, although only Dollars 2bn of this is on behalf of UK institutions. As part of its enhanced push into the UK market, UBP is creating a new company, UBP Investment Funds Ltd, and launching its first UK open-ended investment companies (Oeics): an absolute return sterling bond fund, a global equities opportunities fund and a sterling liquidity fund.

Mr de Picciotto confesses that, in the past, UBP might have been “a bit timid” in its marketing deployment in the UK. This is changing, with the bank’s London headcount having doubled to 100 in the past three years, with sales and distribution people among those recruited.

He wants to double assets under management on behalf of UK investors to Dollars 4bn over the next two to three years, a goal he believes will be helped by a perception that the UK market is becoming more receptive to UBP’s absolute return philosophy.

“The UK equity culture was a reason why, for many years, UK pension funds did not look at absolute return; until the early 2000s there was no need for anything else,”

he says.

And in spite of equities having once more produced solid returns since 2003, Mr Mellish, previously head of UK institutional business at Credit Suisse, says: “The market is now very much swinging to UBP’s approach.”

This approach is perhaps best exemplified by an illustration. UBP’s absolute return portfolios have significant exposure to high-grade bonds, alongside a dollop of funds of hedge funds and a slice of equities. And, while these portfolios were meeting their Libor-plus targets, the bond component, in the two years to this summer, was detracting from performance.

Some increasingly edgy clients were demanding change but UBP stuck to its guns, reaping the rewards when the credit squeeze prompted a flight to quality.

“The pressure (to change) was mounting and mounting,”

says Mr Picciotto, who, in spite of his Italian name and Swiss upbringing, is part of a cosmopolitan family also boasting Dutch, German and British roots, not to mention a Danish wife.

“It’s so easy to please the client but you know deep down it is wrong. We said, ‘don’t forget when we established this 3 1/2 years ago, there was a reason for the fixed income element; if you have a real crisis, this segment should outperform’.

“Strong underperformance of short-term high-grade bonds against Libor never lasts more than 12-15 months and since June that has been the strongest performing part of the portfolio.”

By Steve Johnson
Financial Times Fund Management


Union Bancaire Privee
Established: 1969 by Edgar de Picciotto as Compagnie de Banque et d’Investissements (CBI). Acquired TDB-American Express Bank in 1990, leading to creation of Union Bancaire Privee Assets under management: Dollars 109bn (Pounds 53bn, Euros 74bn) as of June 30, 65 per cent on behalf of private clients and 35 per cent on behalf of institutional clients Employees: 1,350 globally Offices: 22 worldwide, with investment teams in Geneva, London, Zurich, Paris and New York. Ownership: private


CVs

Terry Mellish
Born: 1953
Education Southend Grammar School
1971: Schroders, asset management division; deputy head of UK institutional marketing, director and global head of relationships
2004: Credit Suisse, head of UK institutional business
2007: Union Bancaire Privee, newly created role of head of UK institutional business

Michael di Picciotto
Born: 1962
Education: Ecole des Hautes Etudes Commerciales, Lausanne
1982: Vice president, RBC Dominion Securities in Paris and London
1988: Managing director, CBI-UBP International in London
2001: Member of the executive committee of UBP. Responsible for the London operations and for the trading, foreign exchange and treasury activities

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