Citi senses opportunity in rise of next generation

“Every industry goes through a tough cycle and now it is our turn,” says Catherine Weir, head of the 500-strong Swiss operation and overall boss of the global family business unit for Citi, gazing out across Lake Geneva from the bank’s waterfront offices.

Yet there is an acknowledgement that Citi has already been through the worst of times, when forced to take-up a US government bailout back in 2008, since paid back. And that the problems with the US tax authorities shared by most Swiss banks do not really affect her operation. Inflows and growth at Citi have in fact been well ahead of industry rivals during 2012.

As far as Ms Weir is concerned, Citi is finally back to where it belongs after bolstering capital and liquidity. “We have returned to where clients around the world expect to see Citi,” she says.

Private banking development cannot be separated from institutional expansion, particularly the transaction services franchise, which helps other banks, believes Ms Weir, even though Citi long ago sold its asset management division. “We are always prepared to work with other financial institutions. If they want to rent part of our worldwide highway, we are eager to have these discussions,” she says.

Citi’s Swiss operation has become gradually more streamlined over the years, as servicing functions have been delegated to regional hubs in operating centres including Singapore, Poland and Ireland. 

The emphasis will be increasingly on managing assets of families representing the growing portion of Citi’s $300bn (€225bn) private wealth pool, overseen by Ms Weir, as part of the initiative she heads. “Family offices have been a topic which has been on and off the agenda for a decade in private wealth management, with varying degrees of emphasis and everybody does it differently,” she says.

Citi’s approach is borne out of the mining of data, which suggests that of the $6tn in private client assets under management globally, $5tn will be passed from one generation to the next by the end of this decade, with that number surging to an incredible $25tn within the next 20 years. This trend will be driven by growth of assets in developing markets of Asia, the Middle East and Latin America, where the majority of successful businesses are family-owned, believes Ms Weir.

“As the generations transition in a family, it is very important for the founding generation to steward in the next generation,” she says. “This is true whether executing the charitable trust or informing investment decisions. Everyone in the family has an important and valued role to play – which evolves over time.”

In order to grow what Citi calls its Next Generation segment, the bank is putting prospective family heirs and leaders through regular seminars and networking events around the world.

‘Next Gen’ bootcamps allow these youthful scions to build up knowledge and abilities in global finance and wealth management, while building up networks and partnerships with their similarly privileged peers, exploring possible joint business and entrepreneurial opportunities under the bank’s watchful eye. Smart phone apps and a private social network have been introduced to help these clients engage with each other and the bank.

Previously, new graduates in their twenties and thirties would have returned to their home countries after studies and work placements, but this time is different.

“Now they are staying abroad a little longer,” explains Ms Weir. “This accelerates the creation of family offices, especially as these people are interested in new markets, new tools and technologies.”

European families will also be keen to create a Chinese strategy for their business. “Typically, they will send a son or daughter to Hong Kong to put a pin down,” she says.

Activity in this arena also involves bringing families together to co-operate on investment projects. “A client might say to us: ‘I am interested in cement; do you know anyone in the cement business in Africa?’ We will tell them we have a couple of clients that may be interested. We are able to connect like-minded business families in this way.”

An increasing part of her work, she says, involves putting wealthy families in touch with those from other regions, with families in Russia and Eastern Europe, for instance, particularly keen on investing in Asia.

Building on strengths

Rather than trying to attract these clients – in times recently gone by – through secrecy-led services and tax-friendly structures, it is time for the Swiss industry to highlight its asset management expertise to this family clientele, says Ms Weir.

“Switzerland needs to focus on its expertise in asset and wealth management, where they have some fantastic talent. Very few countries have this. Where else in the world do you see 20, 30 or 40 years’ of asset management expertise?” she asks.

Apart from London and the US, there are no other global jurisdictions enjoying the type of depth of talent residing in Switzerland, believes Ms Weir, who puts the ongoing attractions off a Swiss base down to a heady cocktail of talent, tradition and technology. “This is a unique feature of Switzerland, which must be optimised and amplified,” she adds.

Among the benefits for family businesses of running their own office or investment operation, Ms Weir cites specialist private equity and real estate strategies, direct investments and the ability to buy and manage “lifestyle” assets, such as planes, boats and residential properties.

Currently, many family offices are using illiquid positions in real estate and private equity to diversify holdings and counterbalance equity positions in what is becoming a multi-asset environment. Philanthropy is also becoming an important priority for many private investors.

Co-ordinating activities of different generations of family members is an increasing challenge, which wealth managers such as Citi can help negotiate. “An old business family may have hundreds of members; an office can help administer these interests,” she adds.

“The new generation typically wants active involvement in their investments. They want to travel to Africa and see where their money is being sent. They want to look at the faces of the children they are helping and meet their teachers to see if they are properly qualified.”

Meeting members of this Next Generation, Ms Weir talks about a highly mobile group of young people who have not yet reached CEO status, but who are fascinated in seeing all aspects of companies they are invested in within private equity portfolios.

They also need advanced asset allocation techniques to help run portfolio analytics, and make sure it is possible to provide the committed regular income to beneficiaries of the investments.

Hedge funds will once more be included in these portfolios, after a period of time when private clients’ interest in this recently controversial asset class has cooled. “After some recovery in equity markets, interest in hedge funds is returning,” says Ms Weir. “But we have taken a very focused approach to manager selection. Hedge funds will play an increasing role in portfolios over the next couple of years. We are looking for managers with a strong track record, good operational capabilities and strong expertise.”

Yet she stresses that there will not be any chasing of returns, something which private bankers were accused of before the crisis, and that there will be a real diversification of portfolios across assets and currencies to assist the intricate long-term approach required by multi-generational planning.

“We are pretty excited about this and Citi’s capabilities are rather aligned with these trends,” says Ms Weir. Heavy involvement in social impact investing and charities leaves banks such as Citi often running to keep up with dynamic, pioneering families. “It certainly keeps us on our toes.”   

Citi won Best Private Bank for Customer Service in the Global Private Banking Awards