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Lombard Odier in Brazil: why we are aiming for growth without acquisitions
Article published in Valor Econômico, 23 April 2024.
Swiss private bank Lombard Odier wants to break the mould and grow in Brazil without acquisitions. All the foreign banks that have gained a significant share in the Brazilian market have taken short cuts by making acquisitions. This was the case with Credit Suisse, now owned by UBS, and the Julius Baer Family Office.
Lombard Odier has USD 351 billion in wealth management globally. Frédéric Rochat, a Managing Partner since 2012, explains that the group as it is today is the outcome of a merger in 2000 between two family-held financial institutions, each with two centuries of heritage: Lombard Odier and Darier Hentsch. There have been no other moves towards consolidation since then; the group has grown entirely organically. And the same logic will apply in Brazil, where the Firm opened an office in 2020, at the height of the Covid-19 pandemic.
“[Growth without acquisitions] is at the heart of Lombard Odier's model,” Rochat told Brazilian newspaper Valor Econômico during a recent visit to Lombard Odier’s Brazil office. We are not listed [on a stock exchange]; we are a privately held institution structured as a partnership. And the top-quality growth that we want to achieve can only come about organically. Critics will say this is a very slow process, that it would be more effective to make acquisitions. We say that, yes, it is slower; patience will be needed. But it will allow us to build lasting quality into the way we develop our customer base and our team. We can handpick our customers and new team members, and integrate them into our culture.”
Read also: Wealth Management Brazil | Lombard Odier
Emphasising the human side of wealth management
For Rochat, the wealth management industry, not only in Brazil but also in Europe and worldwide, has reached a crossroads. “We see wealth management firms becoming larger and larger through consolidation. We are taking a different approach. We want to maintain our human dimension.”
He points out that USD 351 billion in investor funds is a small amount compared to that of major financial groups – UBS has around USD 4 trillion following its acquisition of Credit Suisse. But Lombard Odier’s size, says Rochat, allows the firm to get to know every customer “individually and personally”. Financial conglomerates tend towards standardisation, he adds, which is why Lombard Odier’s plan is to continue as a privately held boutique.
“Going public would be good for acquisitions, for increasing equity. But that could bring with it inherent tensions, such as the short-term pressures of reporting the best results for shareholders, rather than being concerned with the long-term interests of customers,” Rochat continues. “These pressures make many major banks view wealth management as a product distribution channel. We have never seen ourselves as product vendors. We offer the best possible long-term advice; we are trusted advisors. Our customers are intelligent; they know the model they prefer.”
Brazil as a strategically important market
While having a physical presence in Brazil is new for Lombard Odier, the Bank’s relationship with Brazil goes back almost eight decades, during which time it has served Brazilian business owners and their families from its base in Geneva, Rochat points out. “Opening an office in São Paulo was a natural step given our strong commitment to offering investors a more local presence and greater convenience,” he said. “We are highly satisfied with the client base that we are developing in São Paulo. We are on target. Brazil is a strategically important market. We respect its economic performance and greatly admire the country's entrepreneurial fabric.”
He did not expand on the specific goals for the Bank’s Brazilian operation. However, a fair figure would be 1-2% of the volume that the Group has under its umbrella globally, according to Marc Braendlin, Head of Latin American Markets at Lombard Odier.
The goal, according to Rochat, is not to go head-to-head with the major private banking groups operating in Brazil, but to complement the offer with alternatives in hard currency, including assets with a focus on sustainability.
He knows that competing with Brazilian interest rates and unrivalled above-inflation returns is no simple matter for a foreign wealth management firm. He believes, however, that there is a desire for diversification amongst business owners, who are already exposed to risk in their dealings in Brazil, whether this diversification is through illiquid alternatives linked to the real economy abroad or through liquid options, given that international fixed-income bonds now offer more attractive rates. “Many business owners want to increase their exposure to private assets. And the biggest markets are currently the US and Europe.”
Seeking out sustainable investments
According to Rochat, taking a sustainable approach involves an asset manager mapping the paths of the climate transition and identifying which companies will emerge stronger; these can be included in a portfolio, while those who will lose ground can be removed. “Entire economic systems or sectors will be turned upside down; some companies will emerge stronger, others will have their business models seriously challenged.” Underlying this is the belief that responsible practices tend to drive financial performance. However, it is not enough to have the highest environmental, social and governance rating.
Read also: The countries leading the energy transition
In this regard, Brazil could attract foreign capital – a type of exposure that Lombard Odier could have through listed international private equity managers involved in financing local projects. “For Brazil, one of its priorities in the coming years is likely to be that of creating the right economic environment to attract increasing direct investment,” said Rochat.
It is not any easy market for foreign capital, Braendlin adds, although he sees potential in sectors such as energy, infrastructure and logistics. “But that alone is not sufficient. There are many other countries that lack investments.”
Rochat notes that interactions between Lombard Odier and Brazil date back to 1870, when the Bank underwrote a public offering to fund the first Rio de Janeiro oil and gas company.
Important information
This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.
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