“We have a long history and a reputation as being both solid and conservative,” he begins, “but we are also innovative, something necessary for us, especially in Switzerland where competition is intense. We remain today a small to medium-sized organisation and we understand that to survive and be profitable, to be scalable, we need to be different.”
He explains that in recent years the bank has been intensely focused on building the DPM capabilities and penetration and is, he says, rather proud to say that probably in the market it is the private bank with the highest rate of assets under management (AUM) under DPM.
A story to tell
Nakamura concedes that Asian clients have the reputation to be wary of passing over control of their investments, but Nakamura maintains that is in considerable part because until fairly recently DPM was not a popular product amongst the private banks. “Many banks had a huge legacy business heavily driven by transaction revenues,” he observes, “making it awkward to shift their resources to management-fee based models.”
Additionally, he remarked that the market – and this is not specific to Asia - has traditionally been driven by ‘stories’, for example, what might propel the market in one direction or another, where clients should invest money for the next three or six months, what is in trend and what is not. But DPM, by comparison, he remarks is rather dull, requiring a lot of discipline and self-confidence to try to tackle a completely different narrative in front of the clients. “Many banks are not fully equipped with that capability today,” he says.
Sticking to its course
Nakamura says that in face of some financial market weakness and volatility since 2018, Lombard Odier will nevertheless remain focused on the strategy it has in place. “A benefit of our drive towards DPM,” he remarks, “is that although new money flows were weaker, especially in the second half of 2018, we have not been under acute pressure, as the larger part of our revenues are management fees. This is where we want to continue to consolidate for the coming years.”
Nakamura is pleased that the bank is ahead of the game. “Most other banks are trying to move from their legacy transactional business towards a DPM business,” he reports, “but we have already built our very strong DPM position. Actually, we now probably need to build more of an emotional connection with our clients by also developing our capacity to plug on top of this DPM some more emotionally driven investment. That is effectively the opposite dynamic of what we see in the market.”
Balance is essential
Nevertheless, this is incremental rather than transformational and Lombard Odier, he says, want to keep things in balance, not go too far towards more transactions or too great a dependence on leverage in the portfolios.
Nakamura and colleagues see a greater future for onshore banking in Asia than the historical offshore private banking model would suggest. He notes that Lombard Odier was one of the first organisations that embraced the concept of partnering with private banks or leading financial institutions in local markets in Asia.
The bank’s partnerships in the region began in Thailand with KBank in 2014 and that arrangement is proving a template for building this type of model for the region. Aside from this productive partnership, Lombard Odier followed up with another relationship with UnionBank of the Philippines in March 2017.
And further building on these two deals, the bank in April 2018 then partnered with Indonesian state-owned universal bank, PT Bank Mandiri, again to attract more local money through the appeal of a globally diversified offering. Under this partnership, the Indonesian bank, through its subsidiary Mandiri Wealth Management, now offers a more diversified and sophisticated range of investment services to attract asset repatriation and to service the growing ranks of Indonesia’s HNW investors at home.
Building out the partnerships
The overall mission for Lombard Odier in these partnerships has been to align the bank’s product and investment expertise with local distribution and high-quality brand names and integrity. It was also seen as an opportunity to work with their local bankers and RMs, to enhance their skills and thereby to build out their local proposition for HNWIs and ultra-HNWIs with a greater global focus.
“This remains a key strategy of development and growth for the next five years,” Nakamura reports. “We are a strong believer that the future private banking is onshore, not offshore anymore, for obvious reasons such as the need for transparency, and because international agreements and regulations have made it more and more difficult to bank offshore, and also, if not more difficult, then less and less interesting. There is a clear stake for local strong commercial, retail, corporate banking to develop their private banking functions.”
But local banks, he adds, do not always possess the expertise, or the breadth of offerings, hence partnering often makes a lot of sense, especially with a brand such as Lombard Odier.
“And from our perspective,” he reports, “it makes a lot of sense for us to partner with those banks who have strong brands and great local knowledge of the clients and the entrepreneurs, hence it is a win-win strategy. But it will only be successful - and we are gaining experience all the time in this - if we find the right partner, someone who shares the same vision of the market, of the industry, who shares the same values.”
Similarity of vision
He elaborates by explaining that most of the partners to date are family owned. “This means we have a very familiar history as organisations, and generally the same vision, at least of the development of the business and sometimes the same vision of the investment approach. When you have this tidy alignment of views, when your partner is very well organised and disciplined itself, as we try to be on our side, it delivers very positive and encouraging results. And this is something that we are keen at developing further in many other markets.”
Nakamura dives deeper into the type of relationships being forged. “We believe we are becoming deeply interconnected with most of our partners,” he observes. “First, from a global offering point of view, we share with them our approach to investments; we have a core and satellite approach where we believe our client should stick to a discipline, with a core multi-asset diversified process which is quite unusual in the world of private banking, because you are using an institutional technique in terms of diversification, such as risk-based investment or risk-parity investment.”
He explains that to achieve that Lombard Odier manages local products for their partners under their own jurisdiction, but overlaid with the Swiss bank’s own process, the same process as implemented for large sovereign world funds in the Asia region or in Europe. “Additionally, we expand the investment offering to products that we can manage both internally, but also that we offer through our open architecture platform,” he notes.
Nakamura reports that the bank is also involved in training their bankers and their financial advisers in order to help them help their owns clients to structure their portfolios, thereby helping them to sell the products.
“Just today here in Hong Kong,” he reports, “we have roughly 15 bankers from one of our key partners sitting in a room in our offices here being pitched by our investment team as to how we manage our process, how we sell our products, and it is an ongoing commitment, a circular process. We organise events with them, we take care of their next generation clients by jointly organising events that mix the next generation in Thailand, the Philippines, Malaysia, and Taiwan.”
Welcome to the younger generation
Lombard Odier also has a keen eye on the inter-generational shift of wealth from the founder-patriarchs to you second and Millennial generations. He acknowledges it can be difficult to transition relationships to the younger generations, but he observes that from his experience most of the sons and daughters and grandchildren of very wealthy Asians, like to launch their own businesses, and in doing so have little time to spare for managing their own financial wealth.
“Accordingly, in my experience, it is generally much easier to speak with them about DPM than it was with the first or even the second generations,” he reports. Nakamura remarks that the founder generations, enjoying the successes of their own businesses, often thought it would also be easy to manage their own financial portfolios. “Although I do not believe that is really the case anymore,” he states.
“For the younger generations, DPM is actually quite an opportunity,” he adds. “I won’t, of course, go so far as to say it is easy to convert them, but as they want to build their own businesses, I do not think they want to waste their time and energy in something completely different such as managing financial assets.”
However, he also notes that the bank must be careful in how they deal with these actual and potential clients, as this generation is so digitally engaged. “You have to be at a right level, but not to try to be ahead of them, that is just not possible. What we know, what we do, is manage money, DPM, investing in a very institutional way on behalf of our private clients.”
The need for differentiation and scalability
Nakamura turns his attention to the prevailing market conditions. “Actually, the past decade [before the 2018 volatility] was not quite so easy for the banks, as you can see from the consolidation in the market that banks need to be more scalable, to have synergies, which is all the more reason why one needs to be different if you want to survive at a smaller size, which is our case. So, remaining differentiated, and remaining scalable are essential for the coming years.”
And that, he adds, is why the bank is also progressively evolving from a largely DPM-driven strategy to what he describes as “something much more open, whilst remaining highly disciplined and very scalable.”
He elucidates by remarking that if, for example, the bank has 3000 clients in Asia, there is no strict need to have 3000 different portfolios. “The idea of customisation is a bit misleading to some extent, so why should two individuals with the same life objectives, the same currency denomination, the same investment horizon, have different portfolios? From a risk management perspective that does not make a lot of sense. From a compliance perspective, it might raise some questions. So, we believe this industry needs to learn how to be more scalable, as there is little alternative, we must control costs and at the same time gain market share.”
All these initiatives are evidently helping the bank to enhance its name recognition in the region. In an interview with Hubbis in 2018, Nakamura had joked that many people in the past thought Lombard Odier was actually a Swiss watch brand. But today, more and more of the target HNWI market in the region identify Lombard Odier for what it is, namely a highly professional private bank combining a deep history and great expertise, with an innovative approach, and with sensitivities to local Asian cultures and needs.
Nakamura is certainly emblematic of this approach and is clearly a round peg in a round hole, to coin the old adage. In other words, the Francophile Nakamura has for the past decade and for the foreseeable future found his perfect ‘niche’.