Whether it is F&C, Lombard Odier or Banque Syz, Jean Keller speaks fondly of all his former firms. And for good reason. The trends highlighted by these investment shops many years ago have gradually been integrated by the Swiss financier and entrepreneur into the Geneva-based Quaero Capital boutique, founded in 2005 and which he joined as CEO in 2011.
Even the farm where he was dispatched by despairing parents as a 16-year-old “turbulent schoolboy” gets an honourable mention in his lively life story. “They sent me to the Swiss countryside to learn about life and what did I learn? That a milking stool does not wobble, because it has three legs rather than four,” he says with a cryptic smile.
“I always compare this with asset management, as three legs lead to stability: you need performance, you need client service and marketing, and the third leg is the operations and compliance side. All three of these must be working together.”
The urbane Mr Keller refers to cases of “star” fund managers ignoring compliance responsibilities and overriding warnings from risk management colleagues as a modern-day morality tale.
“We have seen catastrophic accidents where people who were very good at the first two legs seemed to have problems with compliance. To concentrate exclusively on growing the business is wrong,” says the man favouring closing funds at a smaller size before performance suffers, justifying his firm’s current modest €2.9bn ($3bn) AuM figure.
“We closed some of our funds, but not as a marketing gimmick, despite the fact the money on the waiting list for our European small cap product is larger than the size of the fund,” says Mr Keller, voicing admiration for smaller groups Polar Capital and Comgest, which restrict mass access to investments.
“There may be some incredibly talented people out there, who can run very large products in large asset classes. But it is often even better with capacity constraints.”
Gone fishing
His ‘small is beautiful’ ethos was honed at Syz, another house springing from Geneva’s tight-knit private banking community, where Mr Keller was CEO of the 3A alternative investments division. “Eric’s stroke of genius was to tell private clients that hedge funds needed to be an integral part of their portfolios,” he says, referring to Eric Syz, founder of the eponymous wealth management group.
“He found a way to give it to them in a cheap and liquid fashion. The hedge funds were the bait at the entrance to the private banking cage. Once the fish were in, they were captured for good.”
When hedge funds floundered, Syz re-invented themselves as private equity specialists. “After the arrival of Eric’s son Marc, private capital flourished as that’s his baby. Having skills associated with a personality makes it all the more special,” says Mr Keller, singing the praises of trans-generational transfer of assets and abilities in the financial world. He understands the experience of having asset management in the family. His younger brother Hubert, now a senior partner with Lombard Odier, joined in 2006, soon after Jean had relinquished responsibilities as the bank’s head of asset management.
“Lombard Odier’s push to sustainability is very sincere. [Managing partner] Patrick Odier and Hubert have done this very successfully indeed.” But there is more to this trend than pure philanthropy. There is nothing to be embarrassed about when trying to combine profit with purpose, believes Mr Keller, highlighting Swiss private bankers’ prowess in predicting 20th century societal trends from an economic perspective.
A belief in cheaper, cleaner energy, coupled with a realisation about scarcity of finite natural resources, is backed by growing consumer demand for simple, transparent financial products.
“If you want your savings growing on a risk-adjusted basis, you have to be in that sustainable sector,” ascertains Mr Keller. “It’s not just because they want to do good to the world – and of course they do – it’s also because you are going to make a lot of money. This positioning to say it’s not a moral choice, it’s an economic choice, is actually very powerful.”
Fresh thinking
These twin influences of responsible investments and private capital are shaping the culture at Quaero. “My marketing people are always banging me on the head and asking: ‘What are we about?” says Mr Keller with a hint of mischief. “I tell them we want to be a place where people come together to focus on investment research and original thinking.”
He apologises in advance for sounding “pompous and pretentious” before suggesting some of the larger-than-life characters he used to drink with in the Cannon Street pubs of the 1980s, when commencing his investment career, would no longer be welcome.
“The alpha male type of personality, while I am not criticising it, the people who are keen to work in an environment where they are top of the pile, where they are the boss, they are not going to come to us,” believes Mr Keller. “The people who will come are those who want to work in an environment where there is pooling of resources, sharing of ideas.”
Currently, he seeks recruits to fashion a cultural “ecosystem” around infrastructure and clean energy, within a private equity format. This expertise has been used to run wind farms and hydro-electric projects, across European countries including Spain, Germany, France and the Baltic nations.
Keep evolving
But while he has built these hubs of knowledge within Quaero, Mr Keller is adamant that, like his previous employers, investment firms and wealth managers must prepare to re-invent themselves, taking account of prevailing trends and circumstances.
“When banking secrecy died, in around 2011, people thought the Swiss will have a really hard time, but the truth is that has not happened. Swiss wealth management has actually done quite well. There has been some consolidation and a large cleaning up of the business model, which means the banks have now concentrated on markets of strength, with the regulator forcing them to define which markets they want to target. In that context, we have seen the emergence of some really nice players.”
Today’s problem, laments Mr Keller, is that too many assets have gone to bigger players, now short-changing clients with poor performance. “Unfortunately for society as a whole, the asset management model is starting to break down,” he says shaking his head.
“Unlike old-school private banks, newcomers in asset management replaced old incumbents with better performance, service and ideas. The problem is that after 2008, the zeitgeist shifted to the notion that you would be better with a big brand, and the regulation favoured large groups, so suddenly we saw the emergence of mammoths like BlackRock, Fidelity and Capital Group, all those trillion dollar-plus players. People lost focus on after-fee risk adjusted performance, which is a great shame.”
Although the notion of the artisan manager, in tune with needs of clients, has been slowly eroded, he believes investors are likely to back some smaller houses which fulfil their needs.
“You would not go to a baker if they are not able to produce bread,” he says, citing a typically evocative parable.
“You may want the flour to be organic and you are pleased that they disinfect the shop every night. You want all those things, which are important from a compliance and safeguarding of assets point of view. But at the end of the day, you are not going to go into a bakery if you can’t buy bread.”
