Lombard Odier, the Swiss banking and investment house, has made two of its multi-strategy funds – already used by its own employee pension scheme – available to private clients, opening up what it says are innovative ways of spreading risk.

Lombard Odier, the Swiss banking and investment house, has made two of its multi-strategy funds – already used by its own employee pension scheme – available to private clients, opening up what it says are innovative ways of spreading risk.

The funds are the LO Selection Vantage 1500 and LO Selection Vantage 3000. The methodology behind the funds builds portfolios designed to optimise diversification across risk factors. Instead of asking clients what returns they want, Lombard Odier said it finds out clients’ risk tolerance and potential drawdowns, before building a risk budget based on the average loss that a portfolio would experience in the worst year out of 20. It then diversifies portfolios by looking research on economic cycles, and other variables.

The Vantage 1500 strategy targets an expected return of cash-plus 2-to-4 per cent with an expected shortfall of 5 per cent and a maximum volatility target of 3.5 per cent. Vantage 3000 targets a return of cash-plus 5-to-7 per cent with an expected shortfall of 10 per cent and a volatility target of 7 per cent and a maximum leverage of 1.8 times. Both approaches have an expected Sharpe ratio of 0.7.

The firm said it builds portfolios using a mix of external managers and its own strategies.

“This is a tried and tested approach that we have been offering some sophisticated institutional clients for a number of years, as well as applying to our own pension fund for employees,” Stéphane Monier, chief investment officer of Lombard Odier’s European private banking business, said in a statement.

“Traditional approaches can over-expose investors to equity risk and may not be dynamic enough to cope with today’s markets. By balancing risk with a diversified approach, we aim to keep clients’ portfolios balanced and not expose them to more risk than they’re willing to take,” said Monier.

The strategies are registered in the Netherlands, Spain, France, Belgium, the UK and Luxembourg. Registration in Switzerland is pending, the firm added.

Lombard Odier has total client assets $225 billion (as of 30 September 2013).