Kleinwort Hambros: Portfolio construction is ‘form of alchemy’

A year on from the merger of two 19th century institutions, Kleinwort Hambros is looking to the future for technological progress.

Portfolio Adviser


Overseeing the creation of one of the largest wealth management firms in the UK is, you would imagine, a complicated task with a plethora of issues and questions to be answered.

However, at the end of the day the most lasting decision comes down to a single detail: a new name.

That the official unveiling of the Kleinwort Hambros brand, created following Societe Generale Private Banking Hambros acquisition of Kleinwort Benson’s private banking arm last year, was met with applause from staff was a key moment for managing director Paul Kearney.

He was all too aware of the historical significance of existing firm’s names, which both have roots stretching back to 19th century merchant banking.

The significance was not lost on clients either, Kearney said, many loyal to the old Kleinwort Benson name originally created after a 1961 merger.

“A lot of clients wanted to know what the name would be, a lot of them were quite attached to the Kleinwort Benson name. A lot of them had worked there, we have a large pool of clients that are alumni.

“Being able to announce the name and being able to announce the investment propositions to the team, that’s a really key issue.”

Credited with helping establish the private investment office at Kleinwort Benson after he joined in 2011, Kearney has been at the centre of an acquisition that has created one of the largest wealth managers in the UK.

Kleinwort Hambros now ranks among the top-ten wealth management firms in the UK in terms of assets under management, with the merged pool now boasting a value of more than £16bn.

The consolidation of the two firms was first revealed in June 2016 and the new name unveiled just a few months later in November, with the Societe Generale logo taking a humble back seat despite being the legal acquirer.

It has not been an aggressive top-down style takeover, Kearney said, looking at the acquisition from the target’s perspective he has found it “refreshing” to be involved in finding a best-way approach on key decisions.

He said: “It has not been the case that OK, Hambros is the legal acquiree so Kleinwort Benson does everything Hambros does, that’s one route for merging but it is not necessarily a soft way of integrating the two businesses.

“For every single part of the business that is being integrated we have looked at the two ways of doing it and chose the best ones, that’s quite refreshing I think.

“Internally it is quite affirming that we are using it as an opportunity to raise the game across the business rather than just say ‘this is the way it is done’.”

The consolidation plays a part of an ongoing trend for M&A in the industry and signals a change where growing in scale is all the more important if companies expect to last.

Kearney said: “It is an industry that has had a big increase in its cost infrastructure over the past ten years and you really now need a larger scale to be profitable, so I think that sort of consolidation will continue for some time.

“I’m fairly neutral as to whether that’s a good thing. You could take the view that huge diversity is brilliant but by the same token you need some people in the market who have breadth and scale.”

Dealing with this new world inevitably means dealing with the opportunities, and challenges, that arise from the growth of internet and mobile technology with clients “demanding more online capabilities”, and increasingly through their mobile phones.

With this in mind, Kleinwort Hambros is due to expand its digital offering later this year.

However, Kearney has found even after discovering what the new firm is capable of offering clients, with voice and facial recognition log-in a realistic prospect, working out exactly what clients are ready for is a different kettle of fish.

“There’s a lot of capabilities we have that people aren’t willing to adopt. People don’t want to hold the camera up to their face, and they don’t necessarily trust speech recognition,” he says.

“Finding the right balance of knowing what technology can do and knowing when people are ready for technology to be deployed is an interesting balance.”

A further interesting discovery was the age of clients looking for digital services.

“There is a fascinating misconception that it is the millennial that demand’s digital and it is absolutely not we have clients in their seventies and eighties that want access online,” Kearney said.

Whether working with clients on a traditional face to face basis, or offering digital services, the overarching investment philosophy, from asset allocation to bottom-up stock picking, focuses of three key pillars – value, momentum and sentiment.

One thing that is not found at Kleinwort Hambros is any focus on finding a so-called ‘star manager’, with Kearney instead insisting on a “robust, repeatable and evidence-based approach” to investing money.

This focus on value, momentum and sentiment involves avoiding areas considered expensive, such as the US market where valuations are “stretched” in Kearney’s view, and looking for areas where there is still enough momentum to power higher returns.

The third element, he added, was ensuring they did not buy into an area where everyone else was “euphoric”.

He explains: “We are continually looking at those indicators. We are continually looking to find opportunities where the valuation is lower, where the momentum has turned from being negative and is becoming more positive and when sentiment is still pretty negative and bearish. The problem is at the moment that does not exist in many places.”

This disciplined approach is credited by Kearney for Kleinwort Hambros’ double success at Portfolio Adviser’s Wealth Manager Awards 2017, where the firm was handed Platinum awards in the Cautious and Aggressive categories.

“It is very important these investment decisions are not about one call, it is important to have a diversified approach,” he adds.

“When we are risk off dollar and risk on euro, there is some change in the portfolio but it is a very diversified approach across equities, credit, commodities, regions and across sectors, so the nature of portfolio construction is a form of alchemy because you’re trying to balance a lot of variables to ensure you are getting the right return for the risks that you are taking.”

Kleinwort Hambros’ product range expands on the offering of the old Kleinwort Benson business and will now include discretionary, advisory, structured and alternative products such as hedge funds and private equity.

A year on from the initial consolidation deal, and nine months since it was announced publicly, Kearney said a ‘colossal’ amount of work had already been done.

“The two firms had very similar philosophies, very similar cultures and a similar client base so actually the integration of the people, which is often the most challenging, has been incredibly straightforward.”


Paul Kearney, managing director and head of private banking, joined Kleinwort Benson in April 2011. Prior to this, he was a founder and managing partner of Karrig Strategic Capital, a family office established for a European technology entrepreneur.

His long career has also included roles at Arthur Andersen, and Zurich Financial Services where he was instrumental in building the business over five years to over 400 people in seven offices with a $15bn asset base.

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