Swiss private banking giant Lombard Odier has closed its underweight position in hedge funds as part of its updated strategic asset allocations, citing the need for greater diversification and improved risk management in volatile markets, according to a report by CityWire.
Global Chief Investment Officer Michael Strobaek highlighted the move in the bank’s latest outlook, explaining that sharp price movements necessitate disciplined portfolio diversification.
“We have increased the weight of hedge funds in our strategic asset allocations because they offer diversification benefits and the ability to capitalise on market swings,” Strobaek said.
Lombard Odier sees current market conditions as favourable for non-directional hedge fund strategies, which exploit asset volatility without depending on broader market trends.
“The outlook for such strategies in the coming years is better than their performance over much of the past decade,” the bank stated.
Additionally, the bank noted that hopes for reduced corporate regulation following the recent US election could boost merger activity, creating opportunities for merger arbitrage managers.
Lombard Odier’s decision aligns with broader trends in private banking, with HSBC Global Private Banking highlighting hedge funds as a key area of focus in its February outlook, favouring discretionary macro, systematic equity market neutral, Asian equity long/short, multi-strategy, and multi-PM managers.
Meanwhile, a Q4 2024 survey by Citywire’s Super Allocators revealed mixed sentiments toward hedge funds. Among private banking groups, 19% remained underweight, 14% were overweight, and 67% maintained neutral positions.
Julius Baer, a prominent underweight player, suggested in its January outlook that multi-strategy hedge funds could thrive in periods of heightened volatility, reflecting a cautious shift in sentiment.
Lombard Odier continues to hold an overweight position in equities, particularly favouring US and Japanese stocks, while maintaining an underweight position in EMU stocks.
The bank also remains bullish on gold, with a 12-month price target of $2,900 (CHF2,615) per ounce, reflecting its defensive positioning amid uncertain market conditions.
