In January 2006, we were offered another insight into the unwritten rules and rituals of succession to the head of family businesses when a new Managing Partner with a familiar surname was appointed: Hubert Keller, 39, the son of the former Partner Pierre Keller, and brother of Jean Keller, CEO of Lombard Odier Darier Hentsch Asset Management in London until 2004.

 

Hubert Keller has 15 years of experience in corporate banking in London, primarily at Deutsche Bank. He therefore belongs to that rare and precious breed of bankers who have been versed in private banking practices and values almost since birth, but have also been trained in cutting-edge banking methods.

 

His profile naturally led the Partners at Lombard Odier Darier Hentsch to entrust him with the joint management of the Investment Managers Unit. We talked to Thierry Lombard and Hubert Keller, two private bankers with confidence and a healthy dose of humor and ambition, about their ancestral culture and the Firm’s bold new strategy. 

 

 

Thierry Lombard: All the Partners are very attached to this company, and we give it our very best. Our responsibility in this capacity is to ensure its continuity. To this end, we decided that the best solution would be to allow everyone the chance to learn, change role, and chair the debate among the Partners. This is also a challenge. Gradually transferring knowledge to the following generations is a responsibility. In this type of company, we take a 20-year view of business affairs. Our mission includes facilitating succession, and I think that I will be more useful to the Firm if I remain an unlimited Partner with other roles and functions than those of a Senior Partner. (editor’s note: At this point, Thierry Lombard quotes the stages we pass through during our lives, as defined by Mariano Puig, below). Moreover, let me point out that this function is similar to that of our country’s institutions, such as the Swiss Federal Council. Presidents of the Swiss Confederation retain their responsibilities as Federal Councillors after the end of the term as President.

 

 

TL: Our Firm has a fair and intelligent rule: it’s difficult to be a father and a boss at the same time. It is therefore the responsibility of my Partners to follow the future of my children and I follow theirs. It’s a wise rule, which keeps things balanced.

 

 

Hubert Keller: It’s true that I don’t have any direct experience of managing private assets. But I hope that my experience in institutional banking will be useful to the Firm. Following our decision to sell our brokerage and corporate finance activities, we opted to concentrate our strategy on two pillars: private management and asset management. My previous experience allows me to find my bearings fairly easily in an environment that features increasingly complex and sophisticated financial instruments, while the financial markets remain at the heart of the management business.

 

 

TL: If you’re the son of a Partner, you grow up with the family business culture. You’re immersed in it from a very early age. As you can see from this sketch by the cartoonist Gabs in the book "Who Me? Family Business Succession. A Practical Guide for the Next Generation", Hubert Keller is best placed to say that "Somehow the business invited itself to every meal!". LODH often invited itself directly or indirectly into his life, and the lives of his brothers and sisters. They were all steeped in it. Gabs’ cartoon is just made for Hubert Keller.

 

 

TL: You need to stand by both our common values and culture, and offer skills that can help the Group achieve its key ambitions. It’s a complex combination.

 

HK: I had the privilege of being immersed in this culture from a very early age but was able to pursue my entire career abroad. A Partner must exemplify a balance between skills on the one hand and values, legitimacy, and sensitivity for our culture on the other.

 

TL: What we look for in this family business is a delicate balance between legitimacy and meritocracy. One doesn’t work without the other. Both these factors have been present in the case of all Partners in the last 30 years, whether they were members of founding families or their descendants, or whether they came from outside these families. For example, Ken Mathysen-Gerst, Vice President of Capital Group, who was made a Managing Partner in the 1980s, contributed a great deal to our Firm.

 

 

TL: The company is constantly evolving. Some personalities fit in better than others. 

 

 

HK: The Firm’s success testifies to the sustainability of this model. When I left for London in the 1990s, the Firm had 35 billion Swiss francs under management. Today, it manages 180 billion.

 

TL: Which do you think were the top private bankers in Geneva in the 1940s? Ferrier Lullin (editor’s note: bought by Julius Baer in January 2006) was the number one, followed by Hentsch & Cie, and then Lombard Odier & Cie.

 

 

HK: No, the reverse is true. Our brokerage and corporate finance activities were so successful that the next development phase would have needed more resources than a partnership could provide. In other words, the continued success of these activities would be more certain in a group that does not have the same restrictions as ours on the use of capital. The sale of these two activities has led us to concentrate our strategy on two axes – traditional private banking and asset management.

 

 

TL: We are very attached to this form of company, which currently fits our business very well. It is important to protect and preserve it as it allows us to carry out our business to the best of our abilities.

 

 

HK: I took up the opportunity to join this Firm for the very reason that it gives me the chance to work with people I respect and whose values I share. You’re quite right. In the "Anglo-Saxon" business world, the difficulty I encountered at a personal level came from the fact that I was dealing with people whose philosophy I did not always share. Our private banking model, on the other hand, is based on ethical, human, and social values, which have stood the test of time. This is very refreshing compared with what I sometimes experienced in "Anglo-Saxon" business. At company level, this model allows us to retain our independent approach and to pursue our ambitions. It is highly entrepreneurial but maintains a human dimension. It allows us to focus on long-term objectives and to find the means to achieve our ambitions without any external pressure. This is an exceptional privilege in these times. By way of comparison, I don’t believe the institutional banking model will last. It’s unstable and has evolved over the last 10-15 years in the course of mergers, consolidations, and bankruptcies, and will undoubtedly have to evolve further still.

 

TL: In the private banking model, you gather the capital and the work together around the one table. And you gather together fathers and sons, that is, two generations, often with the same responsibilities as Partners. This produces one particular result: the company is in an exceptional position to call issues into question and to drive forward new developments. I was a Managing Partner when Hubert’s father was a Senior Partner. Now I’m a Senior Partner with Hubert at my side. Pierre Keller, myself, and Hubert Keller belong to three different generations following in each other’s footsteps, ensuring continuity. I found this extraordinary aspect very valuable during my early years as a Partner, as my elders had different experience, which I challenged. When two generations work side by side, preconceived ideas are called into question, as are methods, perspectives on clients, and views of the financial markets.

 

 

TL: The role of Partner has not changed. Our structure is fairly simple. We have two Senior Partners, and then two Managing Partners in charge of each of our two units. Jean Pastré and Anne-Marie de Weck head up Private Banking. Investment Management is run by Bernard Droux, Hubert Keller, and Serge Ledermann, a Partner of the Private Holding Company. Finally, one Partner – Christophe Hentsch – manages operations. This structure, with its 2,000 employees and 23 offices worldwide, can adapt to very different environments.

 

 

HK: We withdrew from the "Anglo-Saxon" investment environment at a time when the entire industry was under considerable margin pressure. We had been in that market since the 1970s. Accelerating the development of asset management is one of the greatest strategic challenges we face today.

 

 

HK: We will base our development on what we see as a widening gap between the kinds of product on offer in the market. On the one hand, there is passive management, which relies on volume, generates low margins, and involves products such as benchmark funds and ETFs. On the other hand, there is pure alpha generation and absolute performance, which depend on the manager’s ability to produce a positive performance in all market environments. The main players in this sector at the moment are hedge fund managers. They are developing in a very flexible universe, using sophisticated tools and instruments. Between passive management and the world of absolute performance, there is active management, which still accounts for most of the players in the industry. The main objective in this field is to beat the benchmarks, which is difficult in the long term. In our view, such players will have to move toward either passive management or absolute performance and pure alpha generation. In the future, we believe that managers capable of generating alpha will be able to deploy their skills using a variety of styles and strategies: long-only, 130/30, or even long/short. We can already see such convergence today. For example, some hedge fund managers have launched long-only products. We wish to follow a similar course, but starting from the world of traditional management.

 

 

HK: It’s important to differentiate between our private banking business and asset management. What matters most to our private clients is that they have access to the best products, whether they are proprietary or not. That’s why we have greatly strengthened our capacity to select external funds and why we’ve become one of the largest open architecture players in Europe. In asset management, our main success criterion is our ability to put together our own products and distribute them on the large scale to our institutional clients and financial partners. Today, we offer just over 80 products with around 15 management styles in our name using all the main asset classes. We make our in-house products available to Private Banking, but in competition with our open architecture in order to give priority to the interests of private clients.

 

 

TL: George Soros’s first contact persons in Geneva were Yves Oltramare and Pierre Keller. Yves Oltramare was a visionary who had already visited hedge funds in the United States during that period. However, it’s true that we didn’t concentrate on this activity at the time, whereas others held substantial shares in funds of funds and constructed part of their investment policy on alternative management. But today we have eight billion Swiss francs in funds of hedge funds in our own name and in the names of other companies.

 

HK: There again, it’s essential to look at the result. We have one of the best funds of hedge funds in the market, both in terms of performance-generating capacity and risk management. One of our objectives in asset management is to develop other flagship products just like this one, which we can distribute in the main international markets. We are currently involved in distribution in Switzerland and continental Europe, and are setting up teams in Spain. The next step will be to target the "Anglo-Saxon" and Asian markets.

 

 

We don’t envisage setting up a similar model to the one we had in the past. First and foremost, we’d like to position ourselves in this very competitive market by distributing products in which we have genuine expertise, rather than global mandates. This could entail recruiting managing teams to develop or boost specific knowledge areas. So our main activity in London will be distribution and perhaps some management, depending on opportunities.

 

 

TL: In this type of company, you join with capital that evolves depending on the needs of the company, and which you increase as activity progresses. Our aim is to have enough capital to develop our activities. At present, we do.

 

 

HK: It may be one single business, but it’s a huge one with lots of potential. It offers a great deal of opportunities.