Banque Privée Edmond de Rothschild

Highly commended: Best high net worth/private client fund of hedge funds provider

The Edmond de Rothschild Group was created in 1953 by Baron Edmond de Rothschild. It is still a family business but has diversified into a wide range of client support activities, ranging from asset management, corporate and private banking to currency overlay and funds administration. The overall group manages about €100 billion in assets.

Banque Privée Edmond de Rothschild is a Geneva-based private bank that has become the cornerstone of the business. It has been quoted on the Swiss exchange since 1988. Specialising in wealth management, it is managed by Claude Messulam. The head office comprises around 656 employees.

Asset management is the group's fastest-growing activity. It is very much the father of the fund of hedge funds (FoHF) industry, having launched the first FoHF vehicle in 1969, making it the most experienced of managers in this field. Assets under management (AUM) in the FoHF business have had plenty of time to grow and recently topped $10 billion for the group while the number of dedicated staff in this sector has grown to 80.

Today the company offers a range of FoHFs covering all major strategies in the alternative area. Most of these portfolios are highly diversified. This diversification was of substantial advantage during the crisis in 2008.

The investment process at Banque Privée Edmond de Rothschild incorporates two stages, a bottom-up selection process as well as a top-down screening. During the bottom-up segment of the selection process, the investment team focuses on the qualitative aspects of the manager. At this stage of portfolio construction, macroeconomic criteria do not come into play.

In the first step selected managers are grouped into pools. Each pool represents an alternative strategy. During the second stage the size of allocations to the various pools or strategies are calculated to reflect the macroeconomic view of fund managers.

Risk management is a core focus and is performed at several levels. First, a due diligence process that has been honed over 40 years is used to select the best managers based on past performance and their capacity to adapt to different market conditions as well as on the quality and sustainability of their business.

Second, a proprietary, internally developed IT system facilitates analysis of the various aspects of the portfolio such as manager and strategy weight, liquidity, cash, exposures and other elements. A separate risk control team also monitors the investment restrictions and liquidity profile of each underlying position to ensure the managers do not drift away from their stated criteria.

The group insists that the skills of staff, not computers, are of the greatest value. In short managers are selected not just on the basis of product but also based on the quality of staff within the organisation

This proven due diligence and monitoring process has helped Banque Privée Edmond de Rothschild's FoHF business to avoid frauds or blow-ups for more than four decades.