The private bank has set out its business strategy and investment ideas for Europe, arguing that its model is well suited to coping with geopolitical storms.

Citi Private Bank’s business model of catering to ultra-high net worth clients puts it in a strong spot to weather geopolitical jitters such as Brexit, and the market opportunity in Europe is wide, senior executives say.

The private banking arm of the US-listed group, which at the end of last year held $374 billion of client assets, operates in an environment where Europe, Middle East and Africa has 72,000 families each with a net worth of €30 million ($31.7 billion), Luigi Pigorini, region head, EMEA, at Citi Private Bank, told journalists this week. That number could rise significantly based on current trends in about a decade’s time, he said.

For the past four to five years, the private bank has logged growth in revenue and assets under management of 6-10 per cent, he continued. “We continue to grow in terms of client acquisition and we are very focused on the type of clients we want,” he said. 

The bank serves UHNW clients with wealth of at least $25 million; many of Citi Private Bank’s clients are far richer than that and can be described as “citizens of the world” with sophisticated investment and advisory needs, with a requirement to be shielded from volatility around events such as Brexit, said Jeremy Knowland, global market manager, UK private bank.

“We think the UK market is still in a strong state. There is still clearly uncertainty around Brexit...clients we are trying to serve, such as these 'global citizens', we see them having a relationship with a global player [like Citi],” he continued.

Investment
On investment matters, Gavin Rankin, head of managed investments for the EMEA region, stressed how the private bank now puts more emphasis than before on its discretionary capacity, giving particular focus on areas such as alternative, illiquid asset classes (private equity, real estate and infrastructure) and themes in investment such as disruptive innovations (robotics).

“Clients are very interested in private equity and real estate and it is a big part of what we do,” he said. 

To illustrate its activity in the private equity space, for example, Rankin said the bank looks at different forms of funding for pre-initial public offering companies, an area that has changed: the pre-IPO period from inception of a business has widened from around three years about 15 years ago to around eight years today.

Within the alternatives space, however, the bank is far less exposed to hedge funds than it was 10 or even five years ago. Returns in recent years and periods of high correlations between markets have made for a tough environment for the hedge fund sector, Rankin said. If interest rates start to rise, however, as they are expected to in the US, he said this should improve the situation for hedge funds.

Part of the problem with hedge funds is a crowding of the space, he said, noting a comment made that there are more hedge funds around the world than there are stocks on the New York Stock Exchange. “It’s a very Darwinian space,” Rankin said.

Other alternative asset classes spaces, such as private credit, might be considered to suffer the same potential problem of “overcrowding” and eventual falling returns as has happened to hedge funds. When this point was put to him, Rankin said this issue highlighted why there is a need for the bank to identify a “window” of opportunity in such a space. Such opportunities tend to come up because of disruptions, such as the freeze in bank lending post-GFC, he said. “That doesn’t last forever,” he continued.

Pigorini added that these issues highlighted a benefit for the bank in adopting an open architecture approach to investments. The bank’s teams can recommend to clients to switch out of a fund, for example, if Citi thinks a strategy is drifting off its objective or not working as intended, he said.

Regulation, booking centres
Asked about the regulatory environment, Pigorini noted that an issue for a private bank such as Citi is that some of its UHNW clients are still regarded by financial watchdogs in some sense as retail clients, while they are also affected to a degree by regulation of wholesale banking, given that such clients can have considerable wealth. To keep on top of both sets of regulations while maintaining a strong reputation requires heavy resources, he said.

The bank has learned over the years how to absorb and process regulations “coming down the pipe” and become better at handling these, he continued. 

Pigorini said that where certain banking services had become increasingly commoditised, the bank has outsourced some of this activity, such as to Ireland and Poland. “This is not necessarily displacing jobs in the UK or Switzerland,” he said.

Asked about the trend of some banks changing booking centres, either in favour of Asia or in the case of firms such as Barclays and Societe Generale, cutting private banking in Asia, Pigorini said: “My counterpart in Asia tells me that people come here [Asia], and at the beginning think it is all like manna but then quickly realise that it is as competitive a marketplace like any other and some end up retrenching.”

“We are very focused on our home market [in EMEA] and are going to take advantage of it,” he said. “Competitors are becoming fewer and that is helping us.”