David Bailin, global head of investments at Citi Private Bank, talks with Global Finance about the worldwide growth in family offices and how investing globally can boost portfolio returns.
Global Finance (GF): How does the private bank fit into Citi’s overall operations?
David Bailin: Citi Private Bank is part of the Institutional Clients Group, which makes perfect sense because our clients are more institutional than retail. And the services we offer, such as providing trading and structuring transaction solutions, are institutional-quality. The private bank has 12,000 ultrahigh-net-worth clients and manages approximately $460 billion in total assets. Some 70% of our business is international, and I spend a disproportionate amount of time outside the US.
We have over 400 family-office clients, covering one to three generations, who made their wealth operating businesses around the world. Our minimum account size is $25 million. Our clients benefit from Citi’s research, including insights into where money is moving and what consumers are doing in global markets.
GF: What kind of advice are you giving wealthy families in the current environment?
Bailin: Families always have a local bias global markets when they invest. By investing globally, US families could have done twice as well as they did with a US-only portfolio since 1950. We compared 6,000 locally invested portfolios with global results. The global portfolios almost always outperformed.
At the beginning of 2018, we advised clients to rebalance their portfolios to add more global equities and reduce fixed-income exposures. We think that global equities will do reasonably well for the next several years. That said, asset allocation is most important, and active versus passive investing is becoming more important. Outside the US, more active managers are able to outperform ETFs; the farther away you get from the US, the less efficient [the ETFs] are.
GF: What is new in the family-office marketplace?
Bailin: Family offices and outsourced solutions are most mature in Europe; but the trend toward family offices is global. The family-office movement is growing in the US, although I see many large families without them. We see a wide range of investment strategies within family offices. Those without a family office often favor their operating business; they know their business and don’t see the need to diversify. We look at their wealth portfolio in its entirety.
GF: What are some of the ethical challenges you face?
Bailin: As a fiduciary, you always need to do the right thing for your client. We have a giant Chinese wall and we operate more independently than not with Citi. Meanwhile, as a result of new global regulations since the financial crisis, the historical norms of privacy within private banking are dying.
Private banking is a great career. Building and retaining talent is extremely important. To do this, you must have an ethical environment and a culture in which people like to work. I like working with the people across Citi, and the private bank is a fast-growing part of the larger organization. Over just four years, we have added 3,000 new clients.
GF: Is global growth becoming less synchronized?
Bailin: Yes. We are seeing growth rates vary across regions. Investing globally is more important for investors in an unsynchronized environment. It creates portfolio diversification that reduces risk.
There are different scenarios involving a potential US trade war with China. But if there is a trade war, a lot of other countries will benefit. We like small and medium-size technology enterprises across Asia, for example.