trading places

The last time Portfolio Adviser visited Kleinwort Benson, in April 2011, the business had something of a different look than it does today, at least in terms of its personnel. Relatively fresh from its acquisition by RHJ International in July 2010, the investment team, headed up  then by Jeremy Beckwith, told of a boutique mentality, despite the Kleinwort and Benson names having existed together within the private banking space since the 18th century.

Beckwith has since left the firm, and a recruitment push has seen it edge closer to the big boys with an impressive roll-call of hires. These include London-based Stephen Rothwell as head of wealth management; Marianne Kafena as head of strategic wealth planning; Danny Vogt as chief operating officer; as well as a host of senior appointments for its offshore business in Jersey.

Beckwith’s replacement as chief investment officer is Mouhammed Choukeir, who joined in November last year from Morgan Stanley, where he was head of multi-asset class investing.

For Choukeir, the appeal of the move was a “more nimble, entrepreneurial environment”, though the focus on expansion was also a big attraction.

He adds: “We have a growth trajectory rather than a retrenchment. Perhaps some of our peers are under pressure because of the challenges in the industry. For us, our starting point is to build – I’m building the investment side.”

Currently, the investment team numbers around 40, with a further six professionals based in the Channel Islands.

Choukeir does not go in to great detail about the changes he has brought about to the investment team since he took over other than to say that the best investment processes are “adaptive”.

He explains: “Kleinwort Benson has over the years developed its multi-asset class approach. What the team is doing now is further enhancing what was already there and we know that in three years’ time we will still be enhancing this approach because it needs to be adaptive to the changing environment. As a group we have been working to identify what are the parameters that count today that maybe didn’t count five years ago, and vice versa.”

A star process

Choukeir oversees a team of discretionaries, advisory portfolio managers and investment researchers looking at asset allocation across individual stocks, bonds and third-party funds.

Behind their thinking is a disciplined investment framework. Choukeir says he follows a “star process” rather than a “star manager” culture. The investment philosophy, of preserving and prudently growing clients’ wealth, has three key tenets: getting the big decisions right; avoiding large losses; and taking on risk only when it is rewarded.

Choukeir outlines a further four components to the investment process. The first is valuation, recognising that the biggest risk is over-paying for a financial asset. Second is a focus on momentum: “We recognise markets can remain over-valued for long periods of time, classically in the ’90s, the equities market remained very over-valued,” he says.

“The same goes for cheap markets, which can become even cheaper. We combine valuation with momentum so we are looking at price action – we like cheap assets that are trending upwards and, as momentum gains force, it starts to realise that value.”

The third component is sentiment, again building on the idea that there is a right time to be contrarian during times of crisis. Lastly, there is a component looking at the economic climate – Choukeir says his team often “finish where most people start”.

“Most people start with the global outlook, what is going to happen to the economy and how does that translate. We finish there because we recognise that forecasting the economy is impossible,” he says.

“Many people try and fail, but we don’t partake in the business of forecasting. What we are trying to establish is what the climate is like. Are we currently in a climate that’s favourable for certain asset classes or unfavourable? We look at monetary policy, money supply and the like to help us assess where we are in the cycle.”

The bigger picture

Looking specifically at equities, Kleinwort Benson defines all markets as one asset class, rather than split out by country or region.
Choukeir points to the tight movement between emerging and developed markets: “They are highly correlated and two asset classes that are highly correlated are not asset classes, they are essentially homogenous and part of the same thing.”

However, that does not mean the team does not have country biases. In keeping with its reluctance to invest in what they perceive to be over-valued markets, they are not currently seeing much opportunity in US equities, despite many of their peers taking a positive stance on this market.

“Part of the reason we are nervous about the US is because people think it is OK and everything is fine, and if everybody paints the picture of things being rosy then it makes us more cautious,” says Choukeir.

“The US is not necessarily expensive outright, but relative to other regions it is not so cheap and that makes us favour the cheaper, unloved markets – we want to be contrarian.”

Finding value

So where is attractively valued? Choukeir picks out the UK, emerging markets and Europe, the latter especially since the eurozone crisis.
Investing in emerging markets may not necessarily be a particularly contrarian idea, especially the high-growth behemoth that is China, though Choukeir points out that there is a big disconnect between its economic growth and equity market performance.