Dubai: With $374 billion (Dh1.37 trillion) of assets under management globally, Citi Private Bank (CBP) expects a 15 per cent growth in revevues and assets in the UAE this year, even as it eyes investment opportunities in private equity to fund small companies.
“Diversifying from local risks remains a major trend. Clients still tend to favour lower risk capital preservation and income mandates over growth — but this may change with [US President Donald] Trump due to inject fiscal stimulus,” said Mark Mills, head of Citi Private Bank, UAE, and head of Investment Counselling, Middle East.
Last year, the bank’s UAE revenues grew by 20 per cent and outpaced asset growth as trading volumes around the time of Brexit and Trump’s electoral victory picked up.
“Hedging the British pound, reducing duration in financial inclusion portfolios and major sector rotation in equity portfolios were the main drivers. We also had several successful capital rises in public equities and real estate that boosted assets,” Mills said. The bank has added two investment analyst to support clients locally.
After a very difficult 2016, financial assets this year will be not be driven by the fundamentals of the asset classes. Instead, the market may see a shift from monetary to fiscal policy, with a continued rise in risk due to populism, Eduardo C. Martinez, global head of investments at Citi Private Bank, told journalists at a round table.
Martinez sees value in investments in private equity, an asset class which has outperformed public equities and fixed income.
Even though returns on private equity fell from 14 per cent in 2009 to 11.6 per cent in 2016, they have outperformed competing asset classes.
CBP has three investment theories in this. Private equity can act as a intermediary in providing funding to many small-sized companies as banks become more risk averse.
“We expect banks to continue to be under pressure to reduce their size of balance sheet, and to comply in more and more and in return make it difficult for them to fund through lending, and that’s where we see private equity come into space,” said Martinez.
CBP also sees value in providing funding to energy companies and e-commerce firms.
“We saw many energy companies in the US getting impacted by extreme volatility in oil prices. We saw many companies, which were very healthy in terms of cash flow and have access to capital market, getting shut. There’s a space for illiquid investments for private equity,” said Martinez.
CBP prefers upstream companies and may look to invest at an intermediate level, like a warrant or a convertible feature.
Meanwhile, on a medium-risk portfolio, Citi private bank is underweight equities and fixed income, and overweight gold and cash compared to the position four years ago, when it was overweight in equities, and underweight in fixed income.