"Investors are increasingly understanding the economic potential of the transition"

Jean-Pascal Porcherot
Managing Partner, Lombard Odier

 

Mr Porcherot, Lombard Odier Investment Managers is a traditional innovator in the field of sustainable investments. Now, together with your partner Systemiq, you have developed the holistiQ platform.

We are in the middle of an environmental crisis and a rewiring of the global economy, which will create attractive investment opportunities for our clients. The creation of holistiQ Investment Partners is a core part of our response to these fundamental changes. This sustainable asset management business that sits within LOIM focuses exclusively on sustainable investments. It combines Lombard Odier’s asset management heritage, commitment to sustainability and investment track record with Systemiq’s deep analytical understanding and expertise in economic system transformation. Essentially, we want to accelerate and translate our vision into action, by developing sustainable investment strategies that will benefit our clients and the planet, both long and short term.

What are the next steps with holistiQ?

From a strategic point of view, we’re pursuing three different objectives with the platform. Our primary aim is to be able to deploy capital strategically, seizing investment opportunities that concentrate on the transformation of key economic systems within energy, land and oceans, and materials. Secondly, we want to offer a diversified, innovative suite of investment strategies across both public and private markets – with a dedicated pillar on nature. The third aim is to develop tailored solutions that cater to the needs of investors, while also driving progress in the environmental transition. Fundamentally, these objectives are all underpinned by an intention to drive healthy returns for our clients. Operationally, we are working hard to further develop the platform. We have already integrated our high-conviction public equity investment strategies such as Planetary Transition, Future Electrification, New Food Systems and Circular Economy into the set-up. This also includes the Global Carbon Opportunities strategy. We now employ more than 50 research specialists, dedicated to translating our science-based quantitative research on the transformation of key economic systems into investment convictions. We are also actively building out our nature and private market teams, as an example we have hired Marc Palahi as Chief Nature Officer.

Lombard Odier IM also has a strong focus on private assets. Are you seeing high demand for sustainable private assets?

First of all, private markets have evolved from a ‘nice-to-have’ to a ‘must-have’. This is due to their diversification advantages. In the US, 60% of corporate profits are already generated by privately held companies, and fewer and fewer are listed. So much of the value creation in companies takes place in private markets rather than public markets. This is also seen by our clients, who are increasingly investing in private markets. Of course, there are fluctuations in demand depending on the interest rate and economic environment, but there is no way around it in the medium to long term. When it comes to sustainable investments, be it public or private markets, we are seeing increasing interest among clients as levels of education increase. There is widespread agreement that we are currently headed towards a climate crisis. Yet in addition to the environmental aspect, investors are increasingly understanding the economic potential of the transition, with investment opportunities emerging with the flow of capex to new areas.

Can sustainable investment in the secondary market, i.e. through traded securities or specific, sustainable private assets, really have a positive environmental effect?

As I said, there is a lot of potential in private markets, but this is not to say that we disregard public markets. Perhaps a thematic view is interesting here. We centre our investment activity around the prominent trends within the environmental transition identified by our research teams within holistiQ. We see the transition unfolding around three major system changes: the electrification of our energy system, the transformation of land and oceans, including the establishment of a more sustainable global food model, and an increasing focus on how we use materials as we shift from a linear to a circular economy.

How strong is Lombard Odier's focus on asset management in Switzerland?

Switzerland plays a decisive role as a location for our asset management business, with a substantial part of portfolio management taking place here. However, I believe that we must hire the specialists where they are available. Today, we have a global presence in the world’s most important financial centres, allowing us to hire talent where it suits both them and the company. The advantages of being close to the market you are investing in can’t be underestimated. It makes sense to manage Asian asset classes from Hong Kong, for example. Or, in the hedge fund and private equity markets, to have a strong presence in the US.

You used to work in investment banking. What attracted you to asset management?

Asset management is a complex business that requires not only time and resources to build up, but also an idea of how the investment landscape will develop over the coming years. Success can’t be achieved quickly and the course must be set early on. It is precisely the interplay of different areas from portfolio management, back office and trading to sales and communication that fascinates me.
I'll give you an example. When I became CEO of 1798 Alternatives in 2014, we realised that we were not optimally positioned. Our key question was: how do we provide institutional clients with access to niche strategies without taking on business risk? That's why we decided to expand our platform and onboard talented portfolio managers who focus on different strategies and who add value. We take all the regulatory and infrastructure work off the hands of these managers and teams, allowing them to focus almost exclusively on managing their strategy. This makes a significant difference when it comes to investment performance.