Hardly any other bank has grown as strongly in recent years as LGT from Liechtenstein. Under the chairman Prince Max, she focused on Asia, sustainability and private equity and did everything right. But the Ukraine war and inflation demand the bank of success.
Depending on the perspective, very close and yet at a distance: the Prince’s Castle is within sight of LGT’s headquarters in Vaduz.
Is this where the success came from? If you get off the bus in “Vaduz, Städtle” and follow the busy Herrengasse to the headquarters of the Princely Bank LGT, you may not really believe it: around the bank’s sand-colored headquarters are inconspicuous, older houses; bulky air conditioners on the facades greet passers-by. Vaduz is no comparison to the City of London or Zurich’s Paradeplatz.
But appearances are deceptive. Inside the Prince’s Bank, the post goes off. LGT has grown faster than any other large Swiss private bank over the past ten years: assets under management have climbed from CHF 87 billion to CHF 286 billion. In 2021 alone, LGT brought in CHF 25 billion in new money; almost as much as Credit Suisse, which is six times larger. In the difficult first half of 2022, LGT kept its assets constant thanks to an acquisition and CHF 6 billion in new money, as announced on Thursday. They even increased profits by 20 percent to CHF 217 million. Meanwhile, the competition has lost its feathers.
“In the last ten years we have recognized the important megatrends and implemented them well,” says the Chairman of the LGT Group, Prince Max von und zu Liechtenstein, quite soberly. The statement suits the down-to-earth demeanor of the 53-year-old nobleman, who mostly bikes to work.
The younger son of Prince Hans-Adam II has shaped the course of the bank as CEO since 2006 and replaced his uncle Prince Philipp as chairman in 2020. Prince Max initially had other career plans, far away from Vaduz. “When I was the age my son is now, it was absolutely clear to me that I would never work in the family business.” But things turned out differently.
Recognized the issues
His first years at LGT were turbulent. The bank got caught up in the German tax affair, and Liechtenstein soon committed itself to reforming the financial center: In March 2009, the Liechtenstein government announced that the country would in future apply the OECD transparency rules and focus on a white money strategy. This brought a few difficult years for the Liechtenstein financial center; but also clarity, while many Swiss banks were still maneuvering. LGT in particular focused on the right issues over the next decade and has recently been able to harvest the fruits of this realignment.
First, that was an early focus on Asia. Because of its young, growing and increasingly wealthy population, the continent is regarded as the ultimate future market for asset management. LGT has been represented in Singapore and Hong Kong for some time, but also in Japan and Thailand. At the end of 2021, it bought the Australian wealth manager Crestone Wealth Management. In the previous year, the Asia region already contributed around a quarter of the Group’s operating income with CHF 528 million. For comparison: in 2011, LGT as a whole achieved operating income of just 709 million francs.
Secondly, LGT focused early on on private markets, i.e. on investments in companies and assets that are not listed on the stock exchange. This business was initially set up for institutional investors, says Prince Max. However, private customers have also recognized the advantages of this asset class for some time. In addition to the Schwyzer Partners Group, LGT has probably dealt with the topic most efficiently in this country.
The fact that LGT opted for private equity early on also has something to do with Prince Max himself: he learned the business from scratch at JP Morgan Partners before returning to Vaduz. His experience with company takeovers probably also helped LGT to successfully complete its own acquisitions. In asset management, LGT was one of the most active buyers: in 2017, for example, it acquired ABN Amro’s Asian business, and in 2021 it took over UBS’s Austrian business.
Buying other banks or parts of them without good advisors and customers leaving is difficult. As the figures show, LGT has undoubtedly done it quite successfully. Prince Max does not want to overstate his role as a dealmaker. LGT now has a broad base in this area, he says. “But without a doubt, I enjoy the area.”
Thirdly, LGT has been involved since 2009 in the area of so-called impact investments – investments that promise a measurable improvement, for example in the achievement of climate targets. “Al Gore received the Nobel Peace Prize in 2007 for the film ‘An Inconvenient Truth’. The knowledge of the need to take action against climate change was already there at the time,” says Prince Max.
Step by step, LGT built up a separate impact investment company with Lightrock inside and made it legally independent in 2020. Initially, only the royal family itself invested in Lightrock, later they opened the investments to third parties.
And that would be the fourth ingredient for LGT’s success: customers can “invest like a prince”. The concept also works for other well-known banking families such as the Rothschilds; it definitely appeals to rich families around the world who want to secure their wealth for generations to come. In addition, bankers’ conflicts of interest are reduced if they always invest alongside their clients.
The Crown and the Bank
The downside: If an investment fails, the customers are dissatisfied and the personal business suffers. After 2008, the tax affair also made negative headlines for both the bank and the Princely House. As elsewhere in the Swiss and Liechtenstein financial centers, the guidelines have been tightened significantly since then.
Today, LGT should be more than the princely bank. “When I entered the bank, the first thing I did was make the crown in the logo smaller, relative to the letters LGT,” says Prince Max. The crown hasn’t completely disappeared, however. Prince Max’s children themselves do not work at the bank; however, as his own example shows, this does not mean anything for the future.
The royal family also has the luxury problem that LGT’s strong growth could result in a concentration of risk; that too large a proportion of their assets are tied up in their own bank. Prince Max says that the question is always given importance. Recently, for example, when LGT made Lightrock legally independent or when the bank sold its headquarters on the Rue du Rhône in Geneva to a family foundation, but will continue to operate there.
Rough headwind
At present, however, LGT is challenged by all megatrends. Asia is suffering from the fact that its strongest engine, China, is still sputtering: ongoing corona restrictions, problems in the important construction sector and great uncertainty about Taiwan.
“Asia will continue to grow faster than Europe and America,” said Prince Max, expecting LGT to manage more client funds in Asia than in Europe in the foreseeable future. But growth will shift from China to India. Good diversification within Asia therefore remains important for the bank, as demonstrated by the acquisitions of Crestone in Australia and Validus in India.
Private equity, on the other hand, is challenged by the turnaround in interest rates; Alternatives to the long-profitable but illiquid asset class suddenly look better again. Prince Max, however, expects that private equity will continue to gain market share and generate better returns, although “probably not to the same extent as in the past”. However, some players who aggressively pushed their way into the market got a bloody nose this year.
Finally, Russia’s war of aggression against Ukraine has upset energy markets. A secure supply of gas and electricity seemed to push the climate crisis out of investors’ minds. However, Prince Max sees no reason to move away from impact investing: “The road to sustainability will not be a straight line because there will always be counter-reactions. But the topic is so big and complex that it won’t leave us any time soon.”