Asset Management
EXCLUSIVE INTERVIEW: Swiss "Evangelist" Wants To Shine Brighter Light On Risk, Returns
Getting quick and accurate data that shows if a portfolio is out of line with its objectives can, if acted upon rapidly, cement client relationships and build trust, a figure in the Swiss investment industry says.
The “open source” movement in computer software upended how
people thought about the business of IT, the control of
intellectual property and how to charge for business. And an
investment industry entrepreneur in Switzerland wants his own
firm to have a similar impact.
Nicholas Hochstadter, founder of Investment By
Objectives, a company created more than 10 years ago,
is, he says, an evangelist. His business, located in the Morges
area of Switzerland, gathers daily price and related data from
banks and other financial organisations in return for giving
these contributors information showing if their portfolios are in
line with, or drifting away from, stated objectives. (Information
is given on condition of anonymity, to protect privacy.) Such
data can provide users with an early warning that something might
be going wrong. Because the original data is gathered without
paying a fee, it is not massaged to suit commercial
considerations. IBO earns a living by licensing its software
(known as PerformanceWatcher), consulting and certification.
With financial markets getting off to a turbulent start this
year, and regulators breathing down wealth managers’ necks to
ensure investment products and services pass suitability
requirements, the need for objective data on investment
returns and risk is as urgent as ever. Hochstadter’s business is
growing – it has added Liechtenstein to its network of offices
and is looking to branch out across the Continent, and
beyond.
“There is no real boundary for what we can do,” he told this
publication in a recent interview.
One crucial benefit of his business model, Hochstadter said, is
that because its information gives banks and others an early
indication of potential problems, rather than fear that data
would be used by clients to sack them, financial organisations
can quickly put problems right and actually deepen client links.
IBO’s web-based outlets include its Performance Network
channel.
“We can prove to the client that a bank is doing a fair job. They
[banks] saw that we were not against them but making their links
with clients stronger,” Hochstadter continued.
It is easy to see how style drift and other problems can arise in
a banking industry that, because of pressure from banks’
shareholders, tries to maximise returns for clients and can
take on excessive risk. It is not the bankers’ fault – it is
a fact of life, said Hochstadter, who takes a philosophical
rather than moralistic attitude to some of the problems of
finance.
There are a number of firms tracking performance of funds, of
course, such as Lipper and Morningstar, and private client
portfolios are also tracked and analysed by the likes of Asset
Risk Consultants, or Stamford Associates (a London-based
business). Hochstadter reckons that his firm is unusual in its
“open-source” model, and its daily price data (and having 10
years of it).
As the firm now sells its information to institutions and
professionals, and is growing, it is taking on staff and looking
to expand geographically. As well as the recently-opened office
in Liechtenstein, it is to open operations in Monaco. There
is interest from clients in Belgium and the Netherlands and the
firm has had “some very interesting discussions in Austria”,
Hochstadter said.
A change of scene
The development of such a business might have appeared odd to the
younger Hochstadter, a son of a Swiss banker. In his 20s he was
more interested in music or the outdoors than toiling away
in a bank. For a while Hochstadter ran a club in Verbier, and
managed an open-air cinema. He is an accomplished horseman; when
this publication did a news search on Hochstadter, it found
plenty of news items about his equestrian skills. Getting the
most out of all parts of life means a lot to him.
A point came where Hochstadter said he needed to spend a bit of
time at least learning about finance because of his family’s
wealth and the responsibilities that went with it. As a result,
he went to work for Credit Suisse in the early 1990s and seized
the opportunity presented to “be an entrepreneur within the
bank”.
No lover of repetitive tasks, Hochstadter developed an automated
portfolio management system and, over time, he ended up moving to
work in the portfolio management business of the bank, based
mostly in Zurich. At the end of 2002, however, now married and
with a child, Hochstadter wanted a different life and to be
closer to his family, so he moved to Geneva and worked with a
smaller private bank, Ferrier Lullin & Cie, which was soon to be
acquired by UBS. “They [Ferrier] had to reorganise portfolio
management and do this quickly because they were being acquired
by UBS,” he said.
He performed in this role for a year and decided, in around 2005,
to get out of the banking industry and take a different career
path. Deciding that there was a need for independent,
non-conflicted data on the investment world, he set up Investment
By Objectives. “The idea was to propose to clients to set their
financial objectives, compare them to their real portfolio,
discuss with their banker and then to supervise the situation by
following their performance and volatility (relatively to the
Libor and world equity market). It was a very simple idea,
really.”
Over time, IBO developed more ways of examining whether a bank or
other organisation’s portfolios and risk characteristics
matched their stated objectives, or deviated from them,
especially because many people joined the network and shared
their results, he said.
The volatility of the 2008 crisis and the current bout of
turbulence have been strong proving grounds for the value of
having such performance and risk data, Hochstadter said.
Hochstadter is keen to expand his network and extend the
business. At present, 10 people work at Investment By
Objectives.
“You cannot be successful alone and I am looking for people who
share my mentality [and] this movement towards
transparency,” he says.
Besides the Continent, Hochstadter is certainly keen on the idea
of doing business in the UK, he said when asked about the idea.
As far as this businessman is concerned, the whole world is his
target.