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Why Global Macro?
Jan Szilagyi
co-Chief Investment Officer Global Macro Strategies
April 2016
FOR PROFESSIONAL INVESTOR USE ONLY
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Lombard Odier – independent and privately owned
Strategic diversification across three business lines
PRIVATE
CLIENTS
USD
120 billion
Wealth management solutions
for high net worth individuals
and their families
TECHNOLOGY AND
BANKING SERVICES
USD
53 billion
IT services and global
custody for both internal
and external clients
LOMBARD ODIER INVESTMENT MANAGERS:
ASSET MANAGEMENT1
USD
47 billion
Asset management services for
institutional clients, third-party
distributors and financial intermediaries
Focused solely on asset management for institutional and private clients

The oldest private bank in Geneva and one of the largest in Europe

The bank’s partners are responsible for the day-to-day management of the firm; this
management structure brings tangible benefits for our clients
– Independent ownership brings an entrepreneurial approach to our business
strategy and the ability to take a longer-term outlook
– Our focus is 100% on our clients rather than shareholders
– We are able to respond with agility to market events
AUM in USD billion1
Equity
Convertibles
Fixed income
Multi-asset 2
Less liquid
Others3
10.5
8.7
16.9
7.8
2.1
1.0
FITCH RATINGS
AND TIER 1 RATIO
AAOur firm is rated AA- by Fitch – this
is the best possible rating for a
firm of our size
22.7%
Fully-loaded Basel III CET1 ratio
AUM as at 30 June 2015. CET1 fully loaded Basel III capital ratio figures are correct as at 30 June 2015.
1 Lombard Odier Group annual results includes USD 3.0 billion of non-managed assets for LOIM which is excluded from the LOIM AUM shown here.
2 Multi-asset portfolios includes both risk-based and traditional as well as fiduciary assets.
3 Alternative Risk Premia and commodities.
Lombard Odier Investment Managers. Please see important information at the end of the document.
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Global Financial Crisis elicited extraordinary policy response

Central Bank policy rates reached historic lows in response to the Global Financial Crisis

Major central bank balance sheets saw unprecedented (and coordinated) expansion: ECB, Fed, BOE, BOJ
CENTRAL BANK RATES
CENTRAL BANK BALANCE SHEETS
Source: Bloomberg
Lombard Odier Investment Managers. Please see important information at the end of the document.
Source: Bloomberg
2
The unorthodox policy stance is fueling new imbalances
Chinese Credit/GDP ratio expanded to 280% of GDP from 158% before the crisis, mostly driven by corporate credit and
encouraged by the government eager to offset headwinds from the Global Financial Crisis.
Source: McKinsey Global Institute
Lombard Odier Investment Managers. Please see important information at the end of the document.
3
The unorthodox policy stance is fueling new imbalances
Enormous Chinese Fixed Asset Investment program fueled a fast recovery in commodity prices that had collapsed
in the wake of the GFC. As the policy ended, prices dropped again.
The drop in crude oil prices alone equates to a $2-3 trillion transfer annually from producers to consumers.
Oil (green) and Copper (white)
Source: Bloomberg
Lombard Odier Investment Managers. Please see important information at the end of the document.
4
The unorthodox policy stance is fueling new imbalances
To counter ECB’s balance sheet expansion and its impact on their currencies, Sweden and the Czech Republic are
forced to keep their own monetary policy on the emergency setting in the face of economic growth in excess of 4%.
SWEDEN: GDP & RIKSBANK RATE
Source: Bloomberg
Lombard Odier Investment Managers. Please see important information at the end of the document.
CZECH: GDP & CNB RATES
Source: Bloomberg
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The unorthodox policy stance is fueling new imbalances
A massive proportion of Developed Market government debt is now offering negative yields.
Source: JPMorgan
Lombard Odier Investment Managers. Please see important information at the end of the document.
6
The unorthodox policy stance is fueling new imbalances
While US households have delevered after the
housing bubble (white line), US corporates took
advantage of low rates and relevered to near record
highs (yellow line).
Most of the debt taken on has gone into share
repurchases. US equity markets dwarf the rest of the
world in importance of equity buybacks.
HOUSEHOLD DEBT/GDP AND CORP DEBT/GDP
Source: Bloomberg, JPMorgan
Lombard Odier Investment Managers. Please see important information at the end of the document.
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The world after the debt bubble …
Global economy is now significantly more indebted than it was prior to the Global Financial Crisis.
Source: Mckinsey Global Institute
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8
Why Global Macro?

Every asset price is determined by a combination of its own idiosyncratic factors as well as a systemic
Macro factor that reflects the underlying macroeconomic landscape

A commodity analyst’s estimate of the supply-demand balance is contingent on an implicit
macroeconomic view. Similarly, a financial analyst’s earnings estimate embeds an expectation for the
underlying macro variables such as inflation or growth

A realignment of global imbalances – housing bubbles, credit dislocations, monetary policy
divergences - results in a reassessment of market expectations regarding the near term
macroeconomic landscape. This reassessment then drives prices across different asset classes
simultaneously, with the Macro factor overwhelming the idiosyncratic ones
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Cross-asset Correlation
The greater the importance of the macro dislocation, the larger the resulting correlation with other asset classes.
Correlation with other assets
1.0
Idiosyncratic
Market regime:
Macro
0.5
Drivers of Asset
Prices:
•
0
Individual market
Supply & Demand
Low
•
Combination of S&D and
Macro factor
Importance of the Macro factor
•
Macro factor driven
asset pricing
High
Source: Mckinsey Global Institute
Lombard Odier Investment Managers. Please see important information at the end of the document.
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How to monetize big trends in global macro?

Relying on powerful data analytics and cross-country analysis increases the probability of trades that
are not driven by the same Macro factor

Testing top down themes/hypotheses using both top down and bottom up, micro-level data such as
commodity supply/demand dynamics or company activity and sales reports allows a higher frequency
detection of significant inflection points

Focus on trade structure and instrument selection. Complementary use of derivatives ensures a high
degree of convexity

Emphasis on Portfolio architecture that anticipates the degree of correlation across trades in the
portfolio and adjusts the risk profile accordingly. This allows each individual portfolio theme more time
and risk space
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Portfolio architecture
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Disciplined Cross-Country analysis
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Macro Indicator Snapshot
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