UBP is one of the Swiss banks well known for its focus on hedge fund investments. At the end of June, the bank had some SFr126.7 billion in assets under management, SFr58 billion of which were in hedge funds.

“Up until the bankruptcy of Lehman Brothers, our portfolios were on average  down 5 per cent compared to the markets, which were down 20 per cent,” Guy de Picotto, managing director of UBP is reported in le Temps as saying. “The failure of Lehman Brothers paralysed the money markets and destroyed confidence in the system and in its participants. Hedge funds also experienced problems. In October they lost another 10 per cent even as the markets lost double that,” he said. 

Mr de Picotto remains positive on the hedge fund sector, however: “I estimate that the sector produces two thirds of market upswings against one third of the downward movements.”

He says its “most representative fund of funds”, the Divest Total Return, launched in 1986, which has more that a billion dollars in assets, has lost 15 per cent in a year compared to a 37 per cent decline for the S&P 500 index of US equities. Over five years, the portfolio is up by 29 per cent against a drop of 7.8 per cent for the S&P 500.

UBP’s clients remain calm and the bank has not seen significant client withdrawals.

UBP, however, has frozen recruitment since the summer and now is not replacing any departing staff. Sources close to the bank are reported as suggesting that some 270 positions, out of 1,300, will be eliminated although Mr de Picotto is quoted as saying that there is no restructuring plan “today.”

Jan Erik Frogg, head of alternative investments for UBP, believes that the hedge fund industry will see a contraction of some 30 to 35 per cent, cutting it back to the size it was in 2005. By some estimates that is an optimistic prediction.

Hedge fund legend George Soros, for example, has been reported predicting a reduction of over 50 per cent in hedge funds. Mr Frogg noted that a number of funds positioned themselves for the rebound a little too early and lost heavily as a result.

Whilst the losses experienced by UBP’s average client are not as bad as the markets as a whole, the hedge fund industry’s boasts of pure alpha and non-correlated returns seem to have been more fanciful than fact. UBP has reduced its clients’ alternative investment exposure from 30 per cent to 10 per cent.

But the bank remains upbeat about the future for institutional asset management and is in the process of reviewing its product range with a view to launching new funds. Mr Frogg suggests that event driven and - maybe not surprisingly - distressed investment are the most attractive strategies. But he is not being drawn on new product ideas.

“Clients who invest now should have returns never before seen in hedge funds. It is the beginning of the rebound that is the strongest,” he says.