Bernard's story

“This is why thematic asset allocation both in private and public markets may be a much more appropriate approach than the traditional 60/40 diversification. The way we invest in the future will be different. Probably the next stage of the ESG development will be more about ‘nuance,’ where people deploy capital in the most efficient way possible. I suspect the focus will be towards private equity and impact investing, more than public equities. The opportunities there are more interesting.”

Sabrier’s analysis is worth noting. Marrying rigorous risk-analysis with an artist’s feel for the shape-shifting nature of financial markets, Sabrier has a long track record of making fortunes by entering and exiting markets before others have caught on.

…the world has never made so much progress so fast.

In the mid-1980s, for example, Sabrier was a day one investor with the then unknown hedge fund talents Paul Tudor Jones and Stanley Druckenmiller. In private equity, Sabrier similarly invested early with the Carlyle and Blackstone groups. “I just thought private companies were cheap. A private company was then selling for five- or six-times price-earnings; the same public company sold for 10. I thought, even if you are a dummy, at least you have a hedge buying these companies for 30% or 40% cheaper. Of course, now private companies are sometimes more expensive than equivalent public companies.”

In 1987, at the age of 35, Sabrier successfully launched a hostile takeover of the undervalued Banca della Svizzera Italiana, a shocking thing for Finanzplatz Schweiz to witness. He was, however, intent on building a private-bank business to complement his alternative investment expertise, and he thought the Ticino-based outfit with ‘universal bank’ pretensions would serve well as a launchpad. Not long afterwards he sold BSI on to Swiss Bank Corporation and rebuilt Unigestion as a private bank.

A decade later, in 1996, the fabled private banker Edmond Safra of Republic National Bank of New York invited Sabrier to a lunch he was hosting for Paul Volcker and some other Americans. The lunch guests were intent on pressuring the Swiss banks to help locate and distribute assets from dormant accounts left over from the war years. “I went back to the office [after the conversations over lunch] and spoke to my partner, Patrick Fenal. ‘We should sell the bank,’ I said. ‘The Swiss private banking model based on secrecy is over.”

Sabrier’s timing was slightly off – it would take another decade for Swiss bank secrecy to formally end – but he had heard the mood music correctly.

Sabrier called Safra later that same day to thank him for the Volcker lunch. “‘It’s great you invited me because it made things clear in my mind,” Sabrier said. “I don’t want to be a private banker anymore.” Safra instantly retorted, “I will buy the bank. Come back.” Sabrier returned to Republic National Bank at 4pm and an hour later the deal was done. “We had a few months of due diligence, of course, but we shook hands and he bought the bank.”

The French-Swiss financier became Vice Chairman of Republic, and then an advisor to HSBC’s private bank board, when that banking colossus bought Republic a few years later. But Unigestion was once again “naked,” as he says, and his team had to again reinvent their business. Today they are back up to USD 20 billion under management, says Sabrier, this time for mostly institutional clients.

Sabrier also has some serious ESG bona fides. He is a commission member of the International Science Council’s Global Missions for Sustainability; an advisory board member at the Marshall Institute for Philanthropy and Social Entrepreneurship at the London School of Economics; and a major supporter of the 100X Impact Accelerator. His analysis of Sustainable Investing - UBS is leading in key sustainability ratings - is particularly insightful and cleared-eyed.

…the financial world has to share in the responsibility for our future, next to governments and every private citizen.

At an earlier stage in the development of Sustainability Investing, the niche was derided by ‘serious investors.’  You couldn’t possibly make money by doing good, it was argued. That myth has since been debunked, but now we have the opposite problem – a sentiment that doing good always translates into making money.

“I don’t think there is a choice for companies today. You will be in the ESG camp, or it will get harder and harder for you if you are genuinely polluting or creating bad will. What I don’t understand is whether you will have goodwill embedded in your balance sheet or market valuation for being a well-run company, or solely for being good on climate change and ESG. It’s happening and it worries me. I see a lot of banks and asset managers who jumped into this sustainability trend and are claiming, ‘If you buy into our ESG mandates you’re going to do well.’ And instead of charging X basis points, they are charging a higher fee, because you know, it’s hard to manage an ESG portfolio and you need to charge more.”

Sabrier purses his lips in disapproval. “I don’t think that’s very clean. I think you have to say, ‘we have to invest today, because the financial world has to share in the responsibility for our future, next to governments and every private citizen.’ But it doesn’t mean that simply because we share this responsibility, you are going to make more money with us. You are going to make money – and you’re going to lose money.”

Sabrier cautions that demand for Sustainability Investments has created valuations that more closely resemble the early stages of the IT sector. “Some people will buy a small company at crazy valuations because they think it will take away plastic from the water or produce electricity … and these companies will be traded at billions and collapse and others will become the Googles and Amazon of tomorrow. You’re going to have great winners and losers.”

The financier warns that a period of repricing always follows a period of overexcitement. “If you bought Cisco or Microsoft in 1999 or 2000, at around 100 times price-earnings, it took 10 years to get your money back, despite the fact the companies were good and continued to grow 20% or 30% a year. But the PE went from 100 to 30. The same will happen in Clean Energy and many of these things.”

Which gets us back to Sabrier’s belief that how we invest is rapidly changing. “For many, many years the modern finance theory was based on diversification. It worked very well. But today I think correlation is much stronger, and thematic investing is now a greater [approach than diversification.] If you had diversification the last five years you had very pedestrian results, but if you had ESG and Clean Energy, then you were the king. This is not how we learned how to invest.

“Maybe the ‘free lunch’ will be much more difficult to find in the future, particularly if we enter a period where interest rates and geopolitical risks are on the rise, where democracy itself is challenged. We will have to rethink how we do things.”

For Sabrier that’s an exciting opportunity – not a loss.