Exclusive Interview with CIO Fahad Kamal of Kleinwort Hambros

Fahad Kamal, chief investment officer of the private bank Kleinwort Hambros, is closely watching where we are in the business cycle when making his decisions.  Economic data can be choppy and contradictive, and market swings can cause investors to be perpetually reactive, but understanding the cycle and the economic regime can be more indicative, says Fahad Kamal. Oftentimes, the toughest part of being a chief investment officer is that, “decisions need to be made with imperfect information about an unknowable future,” he said. The chief investor was appointed to his role in 2020, after working for the firm since 2012. The bank is owned by Société Générale and offers financial services from offices throughout the United Kingdom, Channel Islands and Gibraltar. It has a keen focus on responsible investing.

During this interview, Kamal and Markets Group’s Andres Ortiz discuss his investment philosophies and where he is placing his priorities.

Kamal credits his nonlinear background with helping his investment perspective, having spent his childhood in Pakistan, attended university in the U.S. for his undergraduate degree and London for his MBA. Before becoming an investor, he spent time working for US Aid to the US Agency for International Development, as a program manager, strategizing ways to increase exports and employment across the cotton value chain in Pakistan. He also served roles as well as a specialist at the  executive recruitment firm Egon Zehnder in Boston and in Washington D.C. as a proxy advisory analyst for Institutional Shareholder Services’ RiskMetrics Group.  He currently chairs the Kleinwort Hambros Investment Committee and sits on the Société Générale Private Bank Global Investment Committee. He holds an Economics degree from George Washington University and an MBA from the Cass (now Bayes) Business School. He is also a member of the Chartered Institute for Securities & Investment. 

Andres Ortiz
Let's start with your role and then your career progression.

Fahad Kamal
My role as chief investment officer is quite wide-ranging, but effectively centers on two major things: One is the creation and development of our house view, in terms what it is that we like, don’t like, how we’re investing, and why we’re investing in it.

The House view encompasses huge amounts of material: our macro views, our analysis, our research, our process, our lens through which we look at everything. So that's sort of part one:  the formation and creation of the House view.

The second part of my role, loosely, is to make sure that that House view is being applied evenly and widely throughout our strategies, and communicated with all of our internal stakeholders: our private bankers, our entire staff -- everyone from compliance to the sales team, investment managers inside portfolio managers, etc. And then to all external parties as well, including clients, media, prospects and anyone who would ever come across Kleinwort Hambros, so they know what Kleinwort Hambros stands for in terms of its investment view. Because we are an investment house.

To sum it up: It’s the efficient execution of our house view throughout the book and then the communication of that to all the parties internal- external.

Can you tell us a little bit about how you got here?


In a very nonlinear fashion. I was born and raised in Pakistan, I went to the US when I was 18 for university, I graduated from George Washington, and my first job was in in a company called ISS Institutional Shareholder Services. Within the M & A-Team advising
Institutional shareholders on how to vote their proxies for or against a strategic transaction, but particularly where the strategic transaction was controversial or contested. I did that for four years, then did a whole series of things.

I worked at a headhunter called Egon Zehnder, then moved over to work for US Aid to the US Agency for International Development, moving back to Boston. I worked for the US government implementing a sort of International Development program.
By this time I was 30 and ended up doing my MBA in London and basically have been effectively unmoved ever since because my first job was at Kleinwort as a junior. I started off as an intern and I've been here ever since. I kept climbing up and ended up as CIO, [feeling] very lucky, very honored, very grateful.
It was very helpful to have not been in the same industry my whole life. I've had a lot of varied experience until I was 30 with very little to do with asset allocations or investments, but I honed a lot of skills that have been very helpful. So you know, obviously having a wide perspective, being really cognizant about risk, understanding sort of the human element of what moves markets.
And obviously there’s been a lot of Economic Research along the way in various roles. So I had no idea I would end up here, but it's all been very helpful. I have been doing the same thing now for 11 years.

I think that that's the modern world. I don't think people are going to be necessarily doing the same role for the rest of their career. There's going to be a lot of nonlinearity in people's career trajectories.

So going back to talk more on finance and investments: How have you and your team approached the changes in the markets and are you doing anything different for 2023 and beyond?

So that’s a really good question and it's really important, I think, for any investor to really first understand what it is that they believe. It may sound silly, but you need to have some philosophical underpinning. Otherwise, all you're doing is reacting to the news, sometimes in different ways -- You know, today you'll react to the news, you know with A and then tomorrow based on the same exact inputs, you'll react with B. That's basically because if you don't have a philosophical underpinning to your investment views, you sort of are a bit just reactive and non process oriented.

So effectively, the first thing that we did was ask: what is it that we believe as investors? And, 11 years ago, [using a]  blank sheet and a pencil, we asked it and  just listed things down.

[It was centered on] what we think about the economic regime, which is very different than the economic data. The economic data is choppy. It's full of noise. We’re not really concerned about whether today's inflation print was one basis point higher. That's too choppy and noisy. We want to know where we are in the business cycle. Because we know that if you think about the business cycle as a circle, and if you are in a expansion or recovery, a slowdown or recession, asset classes have very, very different behaviors.

So really, much more important than the latest data on market movements in one day is: where we in the cycle and that should basically help decide your risk stance -- being overweight risk, neutral risk, or underweight risk. And that's sort of the most important factor. And then the other three are valuation, momentum and sentiment because we believe that these things matter. Doesn't matter what the news is, it doesn't matter whether you've got one in 100 year pandemic or not, these are philosophical underpinnings that lead us to an investment process as well as valuation, momentum, and sentiment. We combine all four of those factors to guide us in how we invest.

So no matter what happens, we ask the four questions: how are those four factors reacting. And in a very process-oriented way, decide, most importantly, whether we're risk on or risk off and then make sub asset allocation decisions within the same framework.

Continuing with that philosophical approach, can we talk a little bit about ESG and what you guys are doing in order to incorporate it into the framework of your investments and asset allocation?

We absolutely are. It's very, very critical for us. I mean, in fact, our stated aim at Kleinwort Hambros is to be a leading responsible bank, being responsible across every meaning of that word. It's not just what we invest, how we hire, how much energy we have, the whole the whole thing. But basically when it comes to investing, we are doing a whole series of things. One is that we have an out and out ESG and responsible investing set of investment strategies.

So they basically follow the same Hambros and economic regime framework, but all the implementations are green for lack of a better word. That’s our best foot forward when it comes to ESG. But even across the rest of our book, for all clients who are not specifically invested in our responsible strategies, we have a whole series of things that we've done. So we have a lot of big solutions.
We won't invest at all in in companies that, for example, have a business, or even part of their business towards cluster munitions. We won't touch anybody that does anything with coal, we even have a strict limit on energy production. So an oil and gas company who primarily does fracking, or who are involved in the Arctic, we will exclude those things from all of our portfolios blanket, no questions asked. And in the past, companies like Shell have been a part of our exclusion list and you can imagine that that's quite a big deal for a UK-based private bank, given that Shell is obviously the biggest sort of company on the FTSE 100,etc. So we do that and we really put our money where our mouth is.

Not all clients are on board, but we get that, that ESG means a lot of different things to a lot of different people. But it's part of our corporate identity and our corporate ethos that we want to keep pushing the bar. And one day, I don't know when this will be, but we would like to have no differentiation between classic strategies and responsible strategies, but they all just look responsible by default.

As a CIO, what is the most difficult thing when you are talking to your team and managing your team, while being in charge of the investment team. What are the challenges that you face daily?

Well, by nature, it's an impossible job because the job is effectively trying to understand what's going to happen in the future. It's not possible for anybody to do that. And obviously, you've got really smart people, really intelligent people who can see the same set of data and have totally different outlooks as a result of that. And you can see that today, where everybody's looking at the same data, but nobody’s sure if we're going to have a recession or not. You know, nothing is clear. It's a very, very unusual sort of time where a lot of the data is conflicting still as a result of the pandemic hangover where we've got manufacturing data that looks really weak, service data that looks really strong. Usually they go together, so how do look at that?

The hardest part of the job, I think, is basically the decision making, right? You've got to make decisions about an unknown future with an imperfect set of inputs. With different views that can very reasonably and rationally be formed. You've got to follow your process as best as you can. It’s not like some black box that perfectly answers every question. It just gives you a framework from which you look through, and then you've got to make a decision, you've got to live with it. Some of them are right, some of them are wrong.
There's no CIO on Earth that has no regrets.
And I'm no different. And that's the big difference, right? There are lots and lots of incredibly smart people, great strategies, great analysts, etc. I think where the CIO role is possibly different is, in the end, decisions need to be made with imperfect information about an unknowable future. And you just have to go with that. That's the job basically.

Making decisions about everything might be really challenging, but for our readers who are on the asset management side -- GPs and fund managers, maybe you can tell us a little bit about how you and your team manage your research and manage your selection for your external strategies?

We've got quite an extended team internally of fund analysts. They specifically work on that. We’ve got about 200 different variations of our portfolio. So if you think about the entire range of our products, investment products, we go all the way from an entirely fixed income portfolios to entirely bond portfolios and a few variations and flavors in between equities and risk. And then we do we do all of those in three different currencies. And then in different implementations, which is funded and then direct, so, direct stocks, direct bonds, etc.

The biggest part of our business is funds. We've got a whole team of fund analysts. We have about 10 full-time fund analysts that select across asset classes: everything from hedge funds to equity funds to bond funds, to real estate funds. And they're incredibly, sophisticated, highly-trained professionals that  also do a very difficult job, because we make the big decisions but ultimately for the implementation, we rely on our fund selection team and they are adopting a very process-based approach similar to us. Fund managers are viewed through a lens of not just their track record, which I think is what many people focus on, but we're much more concerned about their process. So we don't care if somebody has had a bad year or bad two years or whatever. It's really, for us, looking forward to make sure that do we buy into and believe in what it is that they're doing, into their process.

And we're not shy about using ETFs.  If we think that an ETF adds value and it's really difficult for a manager to outperform a certain market. For example, the US is one. We have no qualms about that.

You know there's an old-style thinking in some private banks that you need to have active management because clients don't want to pay for ETFs. I don't believe that. It’s not a binary decision for us. It's very much a buffet. Whatever makes the most sense we'll go with. And if that happens to be an ETF, we'll pass on those cost-savings to our clients.

There's been a lot of talk about a potential slowdown, or some people even use the word recession here in the U.S. Is that what you are expecting as well, or are you a little more optimistic?

No, I'm more optimistic.  I don't think a recession is coming. And if it comes will probably be mild. I still think there's a lot of momentum in the labor market. Things are pretty well anchored, consumption remains pretty strong and there's no foregone conclusion of why we should have a recession.

Obviously, rates have gone up a lot.
And you know, and at some point it’s been the expectation that it will sort of derail consumption. But I think it'll slow things down, but it's not necessary that it leads to a recession. Balance sheets are still pretty strong for households, balance sheets are still pretty strong for corporations. Both of those segments have managed, so far, to take the hit from higher rates relatively in stride. We'll see. I mean I think that, no doubt, there'll be a slowdown in growth, but that slowdown doesn't have to fall into some deep recession, not at all.

What keeps you awake night, Fahad? What worries you?

Lots of things, obviously. Our performance, all the various positions that we've got, open markets, that complete unknowability of the future. But honestly, you've got to turn off. I can be up forever with worry about everything. But the reality is that you know you've got to trust your team, you've got to trust your process, you've got to trust in your own instincts and you've got to decouple away from the markets at night and try to go to sleep and realize that that there are other things other than work. And actually that make you better at your work when doing it.

I am obviously worried about anything that could be a risk. But the key point is that when it comes to investing, you can't really do anything about a crisis in real time. Because the markets have already moved. It's too late. You can't buy insurance when the house is on fire. So we always, always, make sure that, across our risk bands, we have plenty of shock absorbers in our portfolios. It may cost us a little bit on the upside, but it definitely helps cushion our downside. For our particular client based private clients, etc. we think that that is a sensible place to be.

We're not trying to outperform in a hedge; that's not our game. We want to make sure that we are participating in upsides meaningfully, but having reasonable shock absorbers on the downside. So as a result of that, honestly, the fact that I know that we are reasonably well hedged, quite well diversified, and we've got plenty of risk protection in our portfolios, is really the reason why I'm able to sleep. Because no matter what happens, as I said, things will come out of nowhere -- a war, a crisis, a pandemic. But you've got to make sure that you're prepared for those in advance. You can't do it when it's happening.

To end on an optimistic and positive note, what gives you hope for the future, not only regarding your positions and investments, but generally speaking?

Well, look, over the last 150 years, over the last 400 years, the optimists have always triumphed. Humans are massively ingenious. Entrepreneurship will always be part of our DNA. There will always be some exciting growth opportunity. There will always be some companies that are doing incredible things and we want to make sure that we're well exposed to that kind of thing.

So as long as you have people and there's huge amounts to be optimistic about, and if you think about where we are today, versus 75 years ago, it's an amazing story of human progress. We've really slashed poverty. We've really cut down on infant deaths, had no major wars. It's been an unparalleled period of prosperity, and hopefully, that's a sign that we've learned from some of our past.  There are always questions about whether war is going to happen. But by and large, the last 75 years have been the best of humanity and long may it continue.

Fantastic. Thank you so much for answering our questions.

Anytime. Andres. Thank you and have a very, very good week.


Interview by Andres Ortiz