What distinguishes ultra-high-net-worth from-high-net-worth private investors? LGT's Riccardo Petrachi talks about sophisticated needs and the risks associated with not having a comprehensive overview of complex assets.
Mr. Petrachi, in private banking, ultra-high-net-worth private investors are considered particularly demanding. What do these clients expect from their banking partner?
Ultra-high-net-worth individuals (UHNWIs) require products, services and competencies that go far beyond traditional private banking. Their wealth is often linked to an entrepreneurial background that sometimes goes back generations. In addition, their personal circumstances can be very complex, including having numerous branches of their family, all with economic interests, residing in different countries. They therefore expect their banking partner to be familiar with the challenges this entails and to be globally positioned. For example, a Swiss client who would also like to be served personally at their second place of residence in London and to have their portfolio of Asian equities, which is booked in Singapore, managed locally by specialists on the ground.
Do these clients also invest differently?
They are usually interested in alternative, less liquid asset classes, such as private equity, private debt, hedge funds or insurance-linked investments. They find these attractive because they help to better diversify a traditional portfolio of equities and bonds, and the lower liquidity is compensated for with a premium. For traditional private banking clients, these investments are very difficult to access. By contrast, ultra-high-net-worth clients, or their family offices, have the necessary expertise, they can invest long term, and the often relatively high minimum investment amounts are not an impediment. For many of our ultra-high-net-worth clients, it is therefore important that we as a bank have specific expertise in alternative investments and access to leading investment managers around the world. Impact investments, philanthropy and family governance are other areas that are becoming increasingly important for our clients in this segment.
What should ultra-high-net-worth investors pay particular attention when it comes to managing their assets?
Ultra-high-net-worth investors usually have a very complex structure in place, especially if part of their assets is still tied up in the family business. In addition to bankable assets, which are usually distributed across various banks, these investors often also own non-bankable assets in the form of real estate, art collections, private aircraft, yachts or vintage car collections. These asset components are sometimes tied to liabilities, for example Lombard loans or mortgages.
Updating a wide variety of data can be very time-consuming.
Doesn't that make it difficult to have a comprehensive overview of all the assets?The more complex the structure, the more difficult and at the same time the more important this becomes. After all, a wide variety of data has to be updated and prepared on an ongoing basis, which can be very time-consuming. However, having a comprehensive overview based on transparent, consistent and up-to-date information about the individual asset components is key to making well-informed decisions about strategic and tactical asset allocation, and to managing the associated risks.
So how do you support your clients with this?
We offer our clients consolidated reporting. This gives them an overview of their assets, across any number of custodians and countries, and including non-bankable assets. As a result, it can be ensured that individual accounts and investments are in line with the overarching investment strategy. A better understanding of performance and risk drivers in their overall context also makes it possible to take targeted action to optimize the robustness of the assets as a whole with regard to adverse market and environmental conditions.
What do UHNWIs look for when selecting their banking partner?
Most clients, often through their family offices, take a very professional approach. In my experience, there are three points they consider. First, if a bank claims to be able to do everything and to be the best provider in all areas, that tends to go over badly. The people sitting on the other side of the table are often specialists, or in other words, former bankers. They know exactly what a bank's strengths are and how it ranks in a particular investment segment. Second, the solutions presented must not be off-the-shelf solutions that have been made appealing by giving them an individualized sheen. In this segment, tailor-made really still means tailor-made! Third, and this is not necessarily always offered: they expect sophisticated additional investment-related services. This includes, for example, portfolio stress tests or strategic asset allocation analyses, which at LGT are conducted by our specialized Competence Center.
Is there a particular area where you have an edge over other providers?
Most clients appreciate the fact that LGT is owned and managed by an entrepreneurial family, the Princely Family of Liechtenstein. In addition to this, they can co-invest with the owner. The Princely Family therefore has "skin in the game", their interests are aligned with those of investors. This makes us a credible partner, which can ultimately tip the scales in our favor.
Dr. Riccardo Petrachi joined LGT Bank Switzerland in 2016 as Head of the UHNWI Competence Center and serves both UHNWIs and family offices. He is also responsible for coordinating LGT Group’s global UHNWI business. Before joining LGT, he worked in investment banking, including at Goldman Sachs in London and Zurich, and then went on to hold leadership positions in private banking at UBS. Most recently, he worked as Head of Private Banking at Rothschild Bank AG in Zurich.