Research team builds global master list
David Bailin, Citi Private Bank
| David Bailin, Citi Private Bank |
Funds have to pass a thorough due diligence screening process to make it onto Citi’s recommended list, as David Bailin explains to Elisa Trovato.
Any asset manager who wants to be included in the list of funds that Citi recommends to its very wealthy clients must receive the stamp of approval from David Bailin and his team. Based in New York, Mr Bailin, global head of managed investments at Citi Private Bank, is responsible globally for alternative and traditional investments, as well as discretionary tailored portfolios.
“The first thing you need to have in our job is a clear idea of what you want the architecture or the platform to look like when you are finished,” says Mr Bailin. The fund selection process consists of investment due diligence and operational due diligence. “We may like a company and its investment strategy, but if operations are not strong enough, we will not invest with them on that basis alone,” he says, describing the operational due diligence group, which reports to Mr Bailin too, as a sort of “forensic team”.
Historical performance
On the investment due diligence side, repeatability, consistency and integrity of the investment process are paramount. “Past results are an indication of capability but they are not really actually indicative of what will happen in the future. We look backward at different performance periods to see if portfolios performed as we would expect they would, based on that process, which is why historical performance is very useful.”
On the traditional side, fundamental research is carried out only on those funds that survive the general screening, according to characteristics that are most important to Citi. Currently 400 funds are available on the platform, of which 150 are on the recommended list anytime.
“At the private bank our most important characteristic has to do with the longevity of the team and the amount of money they manage. We look for teams that have been together through difficult and good periods, so that we can see how they deal with market stress.” He explains that due diligence is carried out deeply once a year and “it is refreshed all the time”.
Analysts around the world research local funds, while teams operating in the larger centres cover international managers, but there is only one global recommended list of funds in the alternative and traditional space for clients. “We have a single view of the world,” says Mr Bailin.
On the alternative side, the team produces a recommended list only, which targets about 100 managers across hedge funds, private equity and real estate. “For hedge funds, private equity and real estate we carry out the most intensive analysis,” he says.
A team of 12 people takes about six weeks to complete a hedge fund due diligence analysis. “We are looking at how the manager operates in their specific strategy style and adds alpha, which is not only the risk adjusted return but the return above its benchmark. In the hedge fund space, we begin (the analysis) with a negative bias. Unless a manager meets all of our criteria and demonstrates persistence, we will not invest.”
Communication process
What is then a very critical aspect is how the results of the screening process are communicated to each private banker around the world. Knowing what your client owns and what his objectives are, which is part of the private banker’s job, constitute key premises to build clients portfolios. These emerge from a team work approach, which involves the private banker himself, the investment consultants, the “laboratory”, and the research team, explains Mr Bailin.
Having assessed the individual’s objectives, the analysis of what the individual owns is compared with the list of recommended funds and Citi’s reference portfolios, which leads to fund recommendations for that client.
“This work is very intensive and that’s why we deal only with thousands of clients around the world, and not tens or hundreds of thousands of clients,” he says, explaining the client is also buying access to the research team’s views of asset allocation.
“People ask me why I like doing research and I say, ‘I like doing research but I love doing asset allocation and fund selection for bankers and clients’. When you combine really great research with customised market sensitive recommendations you can actually help clients protect and grow their portfolios, and those two things have to happen at the same time.”
