SINGAPORE (Oct 7): In April, when Asian Private Banker announced assets under management by private banks in Asia for 2018, LGT Group was placed No 10 with AUM equivalent to US$56 billion, or about a quarter of the private banks’ total AUM. The top two private banks in the league table were Swiss giants UBS with US$357 billion and Credit Suisse with US$205.1 billion. A third Swiss bank, Julius Baer, was in fourth place with US$111.9 billion.
LGT (Liechtenstein Global Trust) Group is not a Swiss bank. It is based in Liechtenstein, which measures just 160.8 sq km (smaller than Singapore), and is bordered by Switzerland to the west and south, and Austria to the east and north. Its AUM include assets under custody/administration and exclude loans.
Unlike the Swiss banks, LGT Group is held by one shareholder, the Princely Family, after which Liechtenstein (which means light stone) is named. LGT Group comprises mainly private bank LGT Bank and an asset management arm. LGT Bank is one of the few pure private banks whose credit quality is rated by both Moody’s and Standard & Poor’s. LGT Group is owned by LGT Group Foundation, whose creditworthiness is fundamental for the strong rating, which is based on balance sheet and earnings strength. The Foundation Board meets at least four times a year.
Prince Philipp von und zu Liechtenstein is chairman of the Foundation Board and LGT Group. “In the old days, it was normal for families to have a family constitution or charter, like a foundation that belongs to the head of the family, who is the eldest son, and the eldest son of the eldest son. The [eldest son] looks after the foundation in an intelligent way, to invest it, help family members who are less fortunate, and hands it over to the next generation,” he explains to a group of journalists from Asia in a recent presentation in the boardroom of LGT Group’s headquarters in Vaduz, Liechtenstein.
“We were in finance very, very early on, and the first Prince of Liechtenstein and his three brothers put all the family’s belongings under what is today a foundation,” Prince Philipp continues. The Liechtenstein family charter dates back to the 17th century.
Skin in the game
Why would investors in Asia choose LGT Group over the Swiss giants or an Asian bank? “It is important for clients to see that the owner has his own money in the bank. You can’t run away or jump ship, and we have no golden parachutes,” says Prince Philipp. As he sees it, CEOs stay for five or 10 years, then leave with a handsome payout. “It’s the ruling Prince’s money, and he doesn’t get any money from the taxpayer, and that’s important for clients.” The ruling Prince Hans-Adam is Prince Philipp’s older brother.
LGT Group’s corporate structure is flat and uncomplicated. “It’s the stability; we’re careful, and that makes an interesting environment for clients. They can look to the history of the family that’s been in finance for 500 to 600 years,” Prince Philipp says. For the family, the tradition is for the eldest son to be the hereditary Prince, and the second son is likely to run the bank. Prince Hans-Adam’s eldest son, Prince Alois, is the hereditary Prince and Prince Hans-Adam’s second son, Prince Maximilian, is CEO of LGT Group.
Therein lies the difference between LGT Group and other private banks. LGT Group is owned by one family with skin in the game. The likes of UBS and Credit Suisse are run by CEOs, have an investment banking business and are listed. LGT Group focuses only on private banking for highnet-worth individuals and institutions, and asset management with largely institutional customers.
Asian expansion
Prince Philipp values stability and the rule of law. “We’re the only country in Europe that hasn’t changed its borders in 300 years. So, our neighbours should be very happy,” he jokes at the recent media briefing. “We are one of 11 countries with AAA rating by Moody’s and Standard and Poor’s,” he says, referring to the highest sovereign ratings accorded by the world’s leading ratings agencies. “Rule of law and high stabi lity make us efficient.”
He could easily be referring to another small state half a world away. Singapore is one of the 11 countries with AAA rating, and has the highest sovereign rating — AAA — by Moody’s, Standard and Poor’s and Fitch Ratings. It too is an attractive destination for businesses and MNCs because of its political stability, rule of law and forward-looking regulators such as the Monetary Authority of Singapore. No surprise, then, that Singapore is one of LGT Group’s two booking centres in Asia — the other being Hong Kong.
Clearly, Asia — with the world’s fastest-growing affluence — is an increasing focus for expansion, but LGT Group is selective. “The list of countries we’re in [is growing]: Japan, India and Thailand. We look very carefully at what’s important for us and the clients. We want to be present in countries with solid economic growth and solid rule of law. There are some countries without this and we are not so much participating in [them],” Prince Philipp says.
In March, LGT Group opened a local office in Bangkok and, in June, it announced the acquisition of a majority stake in Indian wealth manager Validus Wealth. In August, LGT Group acquired the management organisation of Aspada, an India-focused impact investment fund, and a majority stake in Aspada’s sole shareholder, Soros Economic Development Fund. Aspada invests in commercially scalable, high-impact businesses across food supply chains, healthcare, education and financial services in India. Aspada currently manages a portfolio of more than 15 investments totalling more than US$100 million ($138.6 million) in invested capital. LGT Group plans to expand in Japan, where it is holding an art exhibition.
The acquisition of ABN AMRO’s private banking business in Asia and the Middle East — completed in May 2017 — gave LGT Group a firmer foothold in Asia, as it boosted its Asian AUM by CHF20 billion that year. In June 2017, LGT Group bought Paris-based private debt manager European Capital Fund management.
Globally, banks have to adhere to strict anti-money laundering and know-yourclient rules. Both Singapore and Liechtenstein are signatories of the Common Reporting Standards (CRS) for the automatic exchange of information (AEIO), an international standard agreed upon by Organisation for Economic Co-operation and Development countries and which came into effect in 2017.
“The biggest challenge for LGT is not different from any other banks. There is a huge amount of regulations, which makes life not easier. Banks have to manage it and do the best we can, and all the time we have to check regulations. We’re extremely careful who we take in as clients because we have to have a screening process,” says Prince Philipp.
In 1HFY2019 ended June 30, LGT Group announced group profit of CHF155.6 million ($215.7 million), down 11% y-o-y. Net asset inflows for the first half rose 16% y-o-y to CHF5.8 billion. Compared with end-2018, AUM rose 8% to CHF215 billion. As at June 30, LGT had a tier-1 ratio of 20.3% versus a regulatory minimum of 13%, and its cost-to-income ratio stood at 72.6%.
LGT Group’s loans to clients of CHF20.2 billion are mainly collateralised loans against pledging of custody accounts and mortgages focused on residential properties mainly in Liechtenstein and Switzerland, in combination with private banking assets. As a result, credit losses have always been very low.
The banking group’s tier-1 ratio is also higher than most commercial banks. “Our banks [in Liechtenstein] have no lender of last resort like the Swiss National Bank,” Prince Philipp says. Thus, LGT Group has to hold a lot more capital and have stricter lending standards than the Swiss banks.
Princely Portfolio long term and expensive
In addition to LGT Group, the foundation also owns wineries, agricultural assets including vineyards and paddy fields, real estate in the form of two palaces in Vienna and a castle in Liechtenstein. Among its art collection are paintings by Dutch masters. The Liechtenstein Princely family owns 40 paintings by Peter Paul Rubens who painted in the 16th and 17th centuries. With some 1,700 paintings and sculptures, the Princely Family’s art collection alone is believed to be worth billions of Swiss francs. Add to that the CHF4.3 billion in equity from LGT Group and you have arguably the richest royal family in Europe. Unlike other royal families, the members of the Liechtenstein Princely Family all work — they have day jobs.
“You might see the ruling prince walking around buying his newspaper. Anyone can approach him,” Prince Philipp says. Not just that — there is true democracy in Liechtenstein. According to Prince Philipp, the people can direct the ruling prince to change the law; [with a referendum and elections] the people can send the government packing, they can send parliament packing; and if there are sufficient signatures for a referendum to vote for a republic, the people can send the prince packing.
LGT Group’s private clients have the opportunity to co-invest in its Princely Portfolio, along with the Princely Family. The banking group has managed the Princely Portfolio since 1998. The Princely Portfolio’s strategy is to achieve reasonable, longterm asset growth with only slight fluctuations in value. The main investor is the Princely Family and clients of LGT Group; and the bank’s employees can also co-invest in the portfolio. “The Princely Portfolio is not for all clients. It’s a long-term investment and highly diversified. To be cost-effective it is expensive, and you have to have a long-term horizon,” Prince Philipp cautions. Returns have been commendable so far. Prince Philipp cites as an example that CHF100 invested 15 years ago would have seen a return of CHF500 today, translating into a compound annual growth rate of 11.33%.
The Princely Portfolio is perhaps the main differentiator between LGT Group and its peers, and could continue to attract Asian clients to the private bank over time
