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When an entrepreneur exits a business, his or her investment needs become far greater. The investment portfolio become larger and likely more complex. Wealth passes from business to investments, with the result that specialist, best-in-class expertise is required across the full range of asset classes, often including private assets.

With the current economic cycle over 10 years old, business owners are cashing out. Just consider initial public offerings (IPOs) in Europe, the Middle East and Africa; some 283 transactions raised US$46.8bn in 2018, according to Dealogic. While somewhat lower than the 357 IPOs and US$55.0bn in 2017, this is still a high level. And that is just part of the picture – many trade sales are also taking place.

For external asset managers (EAMs), such transformations in clients’ portfolios presents both an opportunity and a challenge. Suddenly, individual clients may have US$50m – US$100m to invest. But they are likely to need quasi-institutional asset management services, including professional governance and high levels of transparency. Few EAMs are equipped to offer this. Further, if one client’s portfolio becomes very large that leaves less time to look after other clients. The EAM might have to hire more staff in order to protect relationships with other clients.

Then there is the regulatory risk. Offering discretionary asset management across such large portfolios carries the responsibility of monitoring investments on an ongoing basis, as well as general regulatory compliance.

More than delegation

We think that EAMs are increasingly likely to partner with banks like Julius Baer to resolve this dilemma. Outsourcing the chief investment officer (CIO) mandate to Julius Baer increases the level of service an EAM can offer. At the same time, the EAM remains in charge of the client relationship.

Working together with Julius Baer through the ‘outsourced CIO’ (OCIO) model, available to large clients with US$50m-US$100m and over, gives an EAM access to the bank’s entire investment organisation. The Julius Baer OCIO representative sits on the client’s investment committee, offering insight into economic and investment trends, as well as asset allocation expertise.

The underlying investment team includes investment managers and research analysts across the globe. There are specialists in all asset classes, including private assets. Responsible investment is integrated into our investment process. Everything is overseen by Julius Baer’s regulatory compliance team.

The outsourced CIO model is a real partnership – not a delegation of services. The EAM and Julius Baer work together within a clear governance structure. As a first step, Julius Baer is appointed as fiduciary manager and then sets up an investment committee. While the composition is flexible, it typically comprises: the client, the EAM, the Julius Baer OCIO representative, the client’s lawyer or other external advisers.

The outsourced CIO model is a real partnership – not a delegation of services.

How it works

After the initial stage, the investment committee tailors an investment policy to the client’s objectives. Committee members agree strategic asset allocation. Every quarter they meet to review the investment portfolios and define tactical asset allocation. All of this is backed by consolidated and clear reporting, including costs. There is also comprehensive risk management every step of the way.

In the spirit of true partnership, how the portfolio allocation is implemented remains flexible. For example, an EAM with particular expertise in European equities might manage that part of the portfolio, with Julius Baer’s specialist teams looking after the rest.

A galaxy of talents

With the growing number of family offices being set up around the world showing the demand for sophisticated wealth management, our outsourced CIO model is a natural partnership for EAMs. EY estimated in 2018 that there are now more than 10,000 family offices globally. Often Julius Baer works in partnership with family offices, providing investment services in a similar way to the outsourced CIO.

For the EAM and the client, the outsourced CIO offers a way to maintain the benefits and trust of their close working relationship, even when the client’s wealth has grown to the point of needing world-class investment capabilities. We aim to forge genuine partnerships with EAMs, offering flexible access to the resources of the world’s largest pure private bank.

As a client’s assets grow, the EAM’s job gets harder. Working in a team, with a galaxy of talents, improves the chances of a successful outcome.

Key take-aways

Outsourcing the CIO role to Julius Baer offers the best of both worlds. The external asset manager gets access to the investment resources of a world-class bank but keeps control of the client relationship.

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