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CERN's Economou to complement Lombard Odier's risk-based strategy

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Industry veteran Théodore Economou has joined Lombard Odier’s pension funds to help with the ongoing development of their risk-based investment strategy. 

Economou, who still serves as chief executive at the pension fund for CERN, the Swiss research facility in Geneva, was recently appointed chairman of the investment committee for the Swiss private bank’s three pension funds, which have approximately CHF1.5bn (€1.2bn) in total assets.

Lombard Odier put in place a risk-based strategy for its schemes in 2009. This strategy was one of the reasons it won the IPE country awards for Best Pension Fund in Switzerland in 2012 and 2013.

Almost five years ago, CERN hired Económou to put into practice his ideas on a similar risk-based investment strategy.  

He said he was now going to apply this experience to complement Lombard Odier’s approach.

He said the strategy, which helped the CERN fund to win last year’s IPE Bronze Award for equity investment, aimed to predict not specific events but rather “the distribution of events”.

“Lombard Odier has adopted a risk-based framework, and, based on what was accomplished at CERN, they asked me to contribute to the implementation of a risk-based approach,” Economou said.

In his new role, he will be chairing the meetings of the investment committee, which is the advisory body to the pension fund.

Economou said the CERN scheme had not been compelled to make any changes to its strategy after the European Central Bank (ECB) surprised many by cutting its benchmark interest rate from 0.25% to 0.15% earlier this month.

He said it was “clear” the euro-zone was “queued towards further cuts”, and that the eventuality had been factored into CERN’s forward-looking projections.

Economou stressed that pension funds could no longer “hide” in cash and sit out a crisis as they once had been able to do – after the crisis in 2000, for example.

He added: “If we look at long-term low rates, the opportunity costs become infinite.”

On the contentious issue of asset management fees, he said he expected Switzerland’s new rules requiring funds to calculate a total expense ratio would provide more clarity and transparency.

He said this new push for transparency was part of the structural reform implemented in recent years, and that it was “a good thing for the industry as a whole”, as it would focus suppliers and boards on “getting the most out of the fees being paid”.

However, he stressed that it was also necessary for pension fund boards to “clarify what they are expecting from the fees they are paying – higher returns, a higher quality of returns or both”.

He said the answers would not necessarily be the same for all pension funds.

”Some pension funds should pay fees for the quality of returns, others should rather be seeking the highest return, depending on the funding, or demographic situation at the fund, etcetera,” he said.

At CERN, the investment team focuses on getting the highest possible returns for the minimum level of risk, Economou said.  

He added that this approach, if broadly adopted, stood to benefit Switzerland’s overall economy.  

“Increasing the efficiency of capital allocation ultimately directs investments to society’s most productive assets,  which works for the greater good,” he said.

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