‘Hedge funds do not create the market trends’



Mirabaud & Cie, one of the oldest private banks worldwide, has opened its asset management arm in the Dubai International Financial Centre (DIFC) to serve as a regional base for its clients in the Middle East and Asia. With around $25 billion assets under management at the bank, which was started in Geneva in 1819, its main focus is alternative investments, hedge funds and private banking.

Yves Mirabaud, managing partner and chairman of Mirabaud Middle East, does not deny the role of hedge funds in the increase in prices of commodities around the world, but has his own view of this issue.

What is the role of hedge funds in the global increase in prices?

Hedge fund managers are depending on trends in the market. They are not creating these trends. They may create a sort of exaggeration, but are definitely not creating this situation. The basic commodities prices are going up not because of hedge funds but because of lack of production, climate changes and increasing global demand. There is a trend in international markets and hedge funds are using this trend. They may accelerate it, so they have a role, but they are not causing this trend.

Some experts say this year is critical for the future of hedge funds. What is your outlook?

Every year is critical for hedge funds because now we have 5,000 fund managers around the world and we cannot guarantee that all of them will be successful. Last year we saw a lot of them not doing well and some went bankrupt. And we will be seeing more fund managers disappearing, but if five or 10 managers out of 5,000 are not doing well, the overall status will be good.

We, in Mirabaud, are doing well in the light of the current market situation. Last year the markets were down 25 per cent and this year they are down around 18 per cent so far. With this situation, it is difficult to make money through funds of the funds, but we have reduced our losses to three or four per cent. In fact, our products have been down this year, but down far less than the markets. Obviously, it has become more difficult during the past few years. But with these products we could manage our clients’ assets in difficult markets.

We were suffering only between 30 and 35 per cent of the total downturn in the markets and we could also capture around 80 per cent of the upward trends, so at the end of the day we could manage our assets well. We will, of course, be going up when this correction ends and the markets go up again.

What are your major investments in funds?

Mirabaud moved into alternative investments early and we started a hedge fund business about 35 years ago, which has had returns of 18 per cent over the same period. We have the whole range of hedge funds and we are strong to the point where if you take the entire client-base of Mirabaud, 30 per cent of our funds are invested in hedge funds.

That is a huge proportion compared to other banks. Globally, at a time when most traditional investments are generating low levels of returns, institutional investors are increasingly attracted to alternative asset classes, such as hedge funds. A hedge fund-friendly environment can be seen to emerge from a region with high levels of excess liquidity and strong degrees of professionalism among regulators and service providers.

What is Mirabaud’s exposure to the sub-prime crisis?

We do not have direct investments in the sub-prime and we are very comfortable with that, but we are dealing with major international banks and when we see them suffering major losses due to the crisis, this does not help our business.

However, we are taking a part of the pain because the global markets have become more difficult. This crisis also shows our model of focusing on one sector is a good model.

What is your banking model?

Mirabaud was founded in 1819 and has since developed its brand on three continents. As a wealth and asset manager for international clients, Mirabaud offers tailor-made services in private banking, institutional asset management and fund management, and has more than 30 years’ experience in alternative investment management, brokerage and custody. Mirabaud employs more than 450 staff worldwide, with offices in Geneva, Zurich, Basel, Paris, Monaco, London, Montreal, Nassau, Hong Kong and now Dubai.

The aspects of the Swiss banking industry that are world-famous – privacy, strong client relationships and the highest levels of trust – are now available to clients here in the Gulf and across the Middle East. Building strong relationships with our clients has been the core of the bank’s strategy. We are confident our high level of personalised service will prove equally attractive in this fast-paced, high-growth region. Indeed, the historic ties linking private banks in Switzerland and high-net worth individuals and companies in the Middle East will serve as the basis upon which we build even stronger relations. Mirabaud is setting up a private banking model that does not exist in the Middle East at the moment, but which we believe is one of the models that worked quite well in Switzerland.

Why is Mirabaud interested in expanding into the Middle East?

The Middle East has enormous amounts of excess liquidity due to the high price of oil. We are now seeing professionalism from both regulators and service providers grow steadily. There is immense demand in this region for wealth management and asset management services, and we are confident that Mirabaud, through its new office at the DIFC, will make a significant contribution to the growth of the industry in the region.

The Middle East is set to become increasingly active in the global hedge fund industry. Worldwide, total industry assets under management have reached more than $2.68 trillion (Dh9.83trn) and hedge funds will become more attractive to the region’s investors. Middle East capital markets have not yet reached high levels of maturity, but they are moving fast and in the right direction. The markets and the level of regulatory oversight continue to achieve significant progress. The DIFC has even taken the step, through its regulating body the Dubai Financial Services Authority, to create a Hedge Fund Code of Practice, giving legal weight to the effort to make Dubai a centre in the hedge fund industry.

What role do you expect Mirabaud’s Middle East office in Dubai to play in this business?

The creation of Mirabaud Middle East is fully in line with our expansion strategy for recruiting asset managers with client portfolios who are capable of sharing our values of excellence and independence. Owing to the international nature of our activities, there is a demand for our presence in the region’s most dynamic financial market as a guarantee of high added value for our clients.

We are looking to become a key player in the Middle East, notably by promoting our global range of financial services. Through our open-architecture platform, Mirabaud’s DIFC office will create a window on the Middle East and South Asia regions for overseas investors keen to benefit from the strong growth in these markets, while also providing services to investors based in the region. As an independent wealth and asset manager offering investment funds managed by both the bank and third parties, Mirabaud provides its clients with total flexibility in choosing their custodian bank, while offering competitive and transparent management costs. Mirabaud’s model, developed in Switzerland, is unique to the Middle East and offers clients a very high level of personalised service.

What are your projections for the DIFC office?

We expect Mirabaud Middle East to achieve breakeven in 2009, with a team of six asset managers, five management assistants and three product specialists. We are in the process of recruiting more professionals in Dubai and this is very challenging because Dubai is a very competitive financial centre and we believe it is a very good model for financial expansions and aspiring professionals. The competition is very high because there is great potential here.

We have added value because of the quality of our products and we are committed to our business. We also have high-quality staff. We have a few clients from the Middle East and with this office in Dubai we will be able to expand our customer base and serve more regional clients. We are focusing on two main categories, which are macro managers and long to short equity managers. Our open-platform architecture provides clients with the opportunity to not only make use of Mirabaud’s products, but also to take advantage of many of the best products available globally. The DIFC is an ideal location for financial services institutions that seek individuals and institutional customers in the Middle East.

With its proximity to the major economies of the Gulf, Central and South Asia and North Africa, we felt very strongly Dubai was the right destination for Mirabaud as we grow our operations across these very diverse and rapidly emerging markets.


PROFILE: Yves Mirabaud, Managing Partner, Mirabaud & Cie and Chairman, Mirabaud (Middle East) Ltd

As one of six managing partners of the Mirabaud Group, Yves has supreme control over strategic decisions concerning the bank globally.

He was named managing partner in 1996, and became a member of the executive committee of the bank in 2000. Before joining Mirabaud he worked for Credit Suisse First Boston in New York, and Essex Investment Company in Boston. He holds a degree in International Relations from the University Institute of High International Studies in Geneva and a degree in political science from Geneva University.