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Profile: inside Soc Gen's Kleinwort Benson takeover

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Profile: inside Soc Gen's Kleinwort Benson takeover

Scale and how to achieve it are becoming increasingly important concerns for the private banking sector, with clients demanding ever more services and a wider reach.

On 7 June this year, this concern for Kleinwort Benson’s chief investment officer (CIO) Mouhammed Choukeir evaporated after Société Générale completed the purchase of Kleinwort Benson and set about integrating it with SG Hambros.

Choukeir then found himself faced with the wholly different challenge of being one of the biggest fish in a multinational sea. Currently, Kleinwort Benson has assets under management (AUM) of £5.6 billion.

Once the two private banks are integrated the combined figure will climb to almost three times that, at around £14 billion. With the integration of Kleinwort Benson, the group will have more than 145,000 employees.

‘The exciting part [of the merger] is that, in the end, we will be a leading private bank in the UK,’ he says. ‘We already had a strong brand and strong presence, but through the combination we will be amongst the top players in terms of size, presence and so on. That will be quite exciting.

 

‘We are a long way down the road in terms of getting to know each other and we really feel like we are one team. We spend a lot of time working together so I’m quite bullish about it. To be honest it is now a question of ensuring that we can translate that internal energy into client experience which [is the] stage we are at now.’

Choukeir says there has been a step change in what the average client expects from their bank in recent years, in they now demand breadth in services – above and beyond only catering for their investments. This, for Choukeir, is tied to the depth of an institution.

‘It is a good thing for clients to be given the ability to have one relationship that can give them that breadth of service, opposed to them having five or six relationships with different firms – that is definitely an advantage.’

He also points to the increasing need for private banks to have a global approach.

‘Even though a client may be based in the UK, they also spend time in different parts of the world.

 

‘They spend time in France or spend time travelling, and as a result expect to be able to access their bank and have a relationship across a global platform.’

He says being a global business with reach into more than 66 countries takes him back to his experience as Morgan Stanley’s head of multi-asset investing Europe, Middle East and Asia.

‘As part of the expanded footprint, I am having to work with more colleagues abroad, which is something I have enjoyed. I used to do that a lot when I was at Morgan Stanley running the international business there, so I was off to Asia and the Middle East and all sorts of places. So I’m spending a lot more time working with my colleagues internationally and across the different branches.’

However, becoming a bigger fish isn’t without its growing pains. Choukeir says the integration of the two firms’ culture has been relatively easy, but bringing the two platforms together has been more challenging.

‘The natural challenge of integrating two businesses comes with the fact that the business operates on different platforms systems. Bringing the platforms together is a big challenge and that takes time. We all want to be on the same platform.

 

‘Now we are looking at how we get there step by step and making sure we do the right thing for our clients along the way. I would say that is probably one of the biggest challenges that we have, but one that is well underway, and that is making good progress.’

As a computer science graduate formerly employed by IBM, Choukeir has taken an analytical approach to everything he does, from logging and analysing each and every workout as he trains for an Ironman Triathlon – a total of 226 kilometres – to, of course, his investment approach.

‘All throughout my education I was intrigued by evidence and data and how one draws conclusions from them. Financial services was the natural candidate for me to apply some of that analytical curiosity,’ Choukeir says.

‘Our investment process at Kleinwort Benson is very much focused on evidence and data. If we cannot substantiate the investment thesis with data and evidence, then we don’t invest. The heart of what we have at Kleinwort Benson is very much [about] process leading [our] investment approach. We talk about a star process, rather than a star manager culture.’

 

Choukeir has built this investment process on three core pillars: valuation, momentum and sentiment, which he calls the Vamos framework.

‘The valuation part is recognising the biggest risk that we run as investors is losing money and that risk is greatest when you overpay for something. So when valuations are high there is a risk of losing money and when the valuations are low there is the opportunity of making money.’

The thinking behind the momentum part, Choukeir explains, is recognising that momentum trends feed on themselves, that there is a herd mentality when it comes to investing and everybody jumps on the bandwagon. He points out this happens both on the way up and the way down when there is a rush for the exit in stress scenarios.

‘It is simple human behaviour manifesting itself in financial markets – we see that time and time again.’

The last piece of his approach, market sentiment, is the slightly more contrarian part of Choukeir’s investment process. ‘When an asset class or investment is overly loved or overly hyped, then there is a euphoria around it that is typically a cause for concern for us.

 

‘On the flip-side, when there’s a lot of negativity, pessimism and everybody thinks it is doom and gloom, that’s the time to pay attention because that’s typically when investment opportunities in the form of value present themselves.’

This empirical approach has served clients well, with the company’s balanced portfolio returning 17% over the three years to August 2016, versus an ARC Balanced sterling return of 2.7%.

‘Performance this year has been very strong, in fact the last couple of years it’s been very strong, and that has been driven by a number of things.

‘Through our investment process, we have taken some contrarian views. Some of that included investing in government bonds, investing in the UK equity market even though there was a lot of concern around UK equities earlier this year, and investing in commercial real estate even though we exited before the carnage.’

Looking to the future, Choukeir is ‘cautiously optimistic’ about financial markets.

‘There is too much pessimism and a prevailing mood of negativity at the moment around the UK and global economy. So we are investing. I’m putting money to work in a number of asset classes where maybe people are reluctant to do so. The caution comes from the fact that momentum has deteriorated recently.’

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