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when worlds collide

Not only that, but Mirabaud has an unlimited liability partnership structure – it’s not surprising that this creates an attitude of caution that percolates through the entire bank. “That’s a very important point,” says Aeschlimann. “Our values and philosophy as an unlimited partnership are that we have a very long-term vision. Although we want people to have their unconstrained environment to allow them to fulfil their dreams, we also have a very strong risk-management philosophy.”

But to have highly successful funds, you need highly successful fund managers – and most fund managers are motivated by money. Mirabaud pays its fund managers a compensation scheme that is very similar to how the partners are paid – that is, participating and sharing the profits of the development of the products they manage. However, their share of profit is capped so they are not incentivised to take unlimited risks.

It is a tricky and not completely comfortable arrangement. Wouldn’t it be better to extend the time period for profit sharing? “Today we live in a world where, thanks to the consultants and the data providers, asset managers and funds are too-often judged on a yearly basis,” says Aeschlimann. “So we have to find a balance between the investment time horizon of the fund and the necessity to live in this world in which short-termism plays an important role. Five years seems excessive to me – three years seems a good compromise.”

Mirabaud is looking to move to a three-year rolling basis for compensation for its fund managers, something that already exists for the senior executives. “Our high executive participation scheme is kind of a phantom share plan, and the people who are eligible for this plan have a part which is deferred for three years. So we have the three-year element in place already at a higher level.

“You’ve got to realise that even as partners of the group, we are in a special situation. When we leave, we don’t take goodwill with us, so we are owners but in a way we are like tenants, so we have to relativise the concept of poverty!”

Role of consultants

Speaking of consultants, despite Aeschlimann’s belief that they are part of the general trend toward short-termism, he also thinks they are a force for good. “I believe that, generally speaking, consultants play a positive and important role because they help investors and pension funds to define their strategic asset allocation. They can sometimes play a role in tactical allocation they help keep proper governance in the world of asset management.”

The Company

Mirabaud is a Swiss private bank, founded in Geneva almost 200 years ago. In the asset management world it was probably best known for its hedge funds capability – however, it has in recent years begun to promote its asset management services under the leadership of Lionel Aeschlimann. It has a presence in 12 locations, but primarily focuses on Switzerland (of course), France, Spain, Portugal and the UK.

He is also happy to admit that they cause, by comparing managers directly and organising their selection, they put a continuous downward force on charges.

An alternative view

There has been a noticeable change in the attitude of consultants towards one of Mirabaud’s best-known lines of business – funds of hedge funds. Mirabaud has been investing in hedge funds for 40 years, focusing only on the most liquid strategies: equity long/short and global macro. “We have seen a change in the past three years in the consultants’ remit,” he says, referring to the recent swing in investor sentiment against hedge funds.

“Some of the consultants have extended their offer to the selection of hedge funds – and though I am convinced that they have well-established due diligence processes, they don’t manage money professionally,” he warns. “And I see a difference in the work we do when we select third-party hedge fund managers.”

Biography

Born: 1966
Education: 1985-92 at Bern University Graduation in law: 1992
Joined Geneva Bar Association: 1994
Joined Mirabaud: 2010
Partner of Mirabaud: 2011
Before Mirabaud, Lionel was a partner in the Geneva office of Schellenberg Wittmer, where he headed the firm’s banking and finance group until 31 Dec, 2009. Aeschlimann was a partner and member of the Strategy Committee with Schellenberg Wittmer since 2000. It is one of the three largest business law firms in Switzerland, with more than 120 specialised lawyers based in Zurich and Geneva. He graduated from the Bern University (law degree) in 1992 and holds a postgraduate diploma in European law (University of Sevilla, Spain), as well as an LLM (College of Europe – Bruges, Belgium). He was admitted to the Bern Bar in 1992 and the Geneva Bar in 1994. He is a member of the International Bar Association and the Geneva Business Law Association (AGDA).

According to Aeschlimann, one of the reasons why people were disappointed by funds of hedge funds in 2008 was client expectation and communication. “If you look at what happened between 2000 and 2008, the hedge fund industry was getting a lot of inflows and this attracted intermediaries. These intermediaries launched an awful lot of funds of hedge funds with very profitable remuneration structures.

“Several were newcomers, and instead of building portfolios according to risk and explaining what they were to their clients, they were basically just adding hedge funds to a basket and then selling the basket.

The emergence and development of passive investment presents an opportunity for a house like ours. It cleans the market of semi-active managers, people who were not really defined

“Most of the time they were selling these products as bond substitutes – or total return products. So clients bought them without knowing what was inside, with the expectation that the product would never have a negative result. People placed these products in the bond allocation of their portfolios – and for them a fund getting -10% or -15% was very disappointing.

“However, the people who had been properly sold a product as an equity allocation and a reduction of volatility – they were very pleased to have exactly the same result.”

Changing approach

So the situation has become an interesting paradox. The average investor dislikes hedge funds but is keen to invest in hedge fund strategies. You can see this in the enormous success of some big Ucits-compliant global macro and long/short managers, of the likes of BlackRock and Standard Life.

“There has been a convergence between the hedge fund world and the long-only world,” explains Aeschlimann. “You have seen long-only managers launching global macro funds – and you have seen a number of hedge fund managers launching long-only funds. Then you have these Ucits hedge funds, which are continuing to grow and they bring one response to some of the problems of the hedge fund industry, which is the lack of transparency, regulation and liquidity.

“There is a trend toward direct investment in single-strategy hedge funds, and in the future I’m sure there will be accidents and there might be accidents with Ucits funds. People should not assume that just because a fund is Ucits it is not exempt from risks.” For Mirabaud, he does not expect to see huge inflows into their funds of hedge funds, but instead clients approach them to run managed portfolios for them.

Passive competition

One of the other big trends is the growth in passive strategies. This is one of the biggest threats to the traditional active fund management industry and yet Aeschlimann is not worried for his business.

“We have also seen the emergence of passive investments, so for us we see competition is very fierce. The emergence and development of passive investment presents an opportunity for a house like ours. It cleans the market of semi-active managers, people who were not really defined. People either buy passive products – or they want to focus on really active managers like us, either using a core/satellite approach or by just looking for unconstrained and high conviction managers. We believe that people are good when they are unconstrained.”

Which brings us back to Aeschlimann’s dilemma: matching up the need for highly motivated, forward thinking and aggressive staff with Mirabaud’s conservative outlook. While an ‘unconstrained Swiss banker’ might sound a little like saying a ‘deadly Chihuahua’, it is clear that Aeschlimann has the confidence to mesh those two worlds together in a vision that could continue to push Mirabaud into the mainstream asset management world for years to come.

Dylan Emery

Dylan Emery is the group editorial director of Last Word. He is one of the founders of the company and he created International Adviser, Portfolio Adviser and Expert Investor. His primary responsibilities...

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