LGT maxing out on Asian expansion

Liechtenstein-based funds and private banking group LGT, managing SFr110.7bn (€90.6bn), is fast making waves in wealth management.

LGT hit the headlines after a former employee from the principality’s capital city of Vaduz sold information about account holders to the German authorities.

Yet the high-profile data theft does not seem to have done any long-term harm. In 2010, LGT agreed to pay €50m, without an admission of guilt and the German authorities agreed to terminate the investigations. Since then, assets have been growing by an average close to 10 per cent each year.

“It enhanced our brand recognition significantly as we were constantly in the news,” recalls the group’s CEO, Prince Maximilian of Liechtenstein. “In the short term it hurts you. But in the longer tem, you replace it with a positive spin.”

The story now being spun out of the mountain-flanked kingdom is that the incident may have even done LGT a favour, spurring the group to restructure and sell off its German business unit in 2011.

“That chap who sold the data,” recalls the Prince, happy to discuss all topics expansively, “simply accelerated the shift already taking place in the private banking industry.”

The family had already realised secrecy-led private banking was on its way out, with the future lying in communicating the quality of portfolio management to private clients, he says, during a visit to the bank’s offices on London’s Dover Street in Mayfair.

Sporting a suave lightweight suit and pink tie, he chats informally with investment staff, preferring to be addressed simply as Prince Max.

Although he has been based in London previously, as well as New York and Frankfurt, Prince Max is now spending more time in Asia, where 25 per cent of LGT’s expanding business is being sourced. This is part of an expansion plan to garner new business further from the bank’s heartlands in Liechtenstein, Austria and Switzerland.

“We decided to expand into Asia, as we identified an area with greater growth potential and established hubs in Singapore and Hong Kong,” he says. “Of course Singapore has an interesting home market, but neighbouring Indonesia is just as important to us.”

Hub approach

This shift marks a concerted move to expand private banking into key target markets away from problematic jurisdictions, improving asset allocation competencies and becoming “less reliant on regulatory specifics and tax advantages”.

In this way, says Prince Max, the model with five hubs, each servicing its immediate country and surrounding states, is in total contrast to that of players such as ABN Amro. The Dutch bank bought LGT’s German business as part of its onshore regional expansion drive.

“Germany is a tricky market and most private banks who have come from outside have not made any money, ever,” says Prince Max. “We like making money and running our business profitably.”

After post-crisis regulation mushroomed, LGT decided the investment in resources was no longer compensated by returns from the German market.

 The key thing in banking, he says, “is to reach a critical size” for each hub, which can then service relevant client segments and geographical markets.

Germany and Liechtenstein have always been the bank’s “natural markets,” he says, but first the regulatory environment and now the “entire game” has changed.

“Not a single German client will bank with you in Liechtenstein if they are even thinking about not paying taxes,” volunteers Prince Max. “If you look at the offering we provide and compare it to what they have locally, we are extremely competitive.”

He talks about mass market German institutions such as Commerzbank and Deutsche, which have a much broader strategy. “The supermarket approach in financial services has not always appealed to everybody. From a strategic point of view, it has strengths and weaknesses,” says Prince Max.

“Just because you are large and have a branch on nearly every street corner does not necessarily mean you are robust in terms of performance,” he says, “or even particularly good in the range of services you are offering. A much more focused approach has stronger merits.”

Private clients have turned their back on tax and secrecy-led services and are now focused on their institution’s strength and performance in portfolio management, says the Prince.

Some players, he ventures, have built “mediocre” and “inconsistent” asset management arms which have failed to gain traction in the market, luring customers purely through recommendations from investment bankers.

Whereas many institutions – particularly the “one-bank” evangelists such as Credit Suisse, UBS, JP Morgan and French heavyweights BNP Paribas and Société Générale claim a strong investment banking franchise answers one of the key needs of wealthy families, Prince Max believes this is not the case in reality.

“Around 95 per cent of our clients will not need investment banking. Some of the very largest players may get some leverage out of combining investment banking with private banking, but I question that. If they have a sensible requirement for investment banking, then the Goldmans, JP Morgans and Deutsche Banks of this world will always run after them anyway for that mandate.”

Customers accessing a holistic service might be unpleasantly surprised, he believes. Investment banks might “offer you a 10 per cent price reduction on the private banking side, but that discount might be so quickly eliminated by poor performance that it becomes meaningless.”

Why would investors choose LGT as one of their two or three preferred providers rather than a group with a stronger international pedigree and cross-border reputation?

Expertise in insurance-linked investments is one key area where LGT has commanding resonance, claims the Prince. “This is completely uncorrelated to other asset classes and has generated interesting returns,” he says, as has his flagship $1.5bn  (€1.1bn) managed futures fund.

He is also keen to highlight LGT’s experiences in private equity investing across a broad number of sub-sectors, bearing in mind “the type of risk you take in European mid-market buyouts is very different to that in Chinese growth equity investing. If you compare it to other asset classes, it makes sense to have these exposures in your
portfolio.”

With a cheery wave to his staff, the sprightly 45-year-old Prince skips down the stairs, brown leather satchel slung over his shoulder, shimmies through his bank’s doorway, discreetly sandwiched between Jimmy Choo and Christian Louboutin, and melts away incognito into the Friday West End crowd. 

The low profile prince

Prince Maximilian of Luxembourg has never been one to follow convention. He created something of a stir in central Europe’s exclusive aristocratic circle when he took Panamanian fashion designer Angela Gisela Brown for his bride in 2000. According to Wikipedia, Princess Angela “is the first person of known African origin to marry a member of a reigning European dynasty”.

Although like most European royals, the 900-year-old family enjoys skiing in the Alps, or tennis in their private courts, he is just as likely to be found taking his 13-year-old son to watch their beloved Arsenal FC in north London.

“Our family has always been very low profile,” confides Prince Max. “We are very much more future than history-oriented.”

The Princely House of Liechtenstein got into the banking business somewhat by accident during the 1930s, he says, when Bank in Liechtenstein’s “ran into problems in the Great Depression and we were asked to help out,” even though they were not actively involved until recently. The name was changed to LGT in the 1990s. “I didn’t end up doing what I am today through any great masterplan, it just sort of happened.”

He believes Liechtenstein is ideally situated close to “those geographical areas that have the highest productivity levels in Europe,” singling out southern Germany, west Austria and northern Italy for particular praise. “In the middle of that area sits Liechtenstein.”

The media had a narrow image of his home territory which did not mirror reality, he says. “They looked at it as a financial services economy, but only 10 per cent of the workforce is employed in this sector, which is much less that the UK. We are the most industrialised economy in Europe.”