Citi private bank tackles investment problems in the lab
We talk to Vish Venugopal who heads Citi's investments lab. A new initiative within the private bank, the investments lab is designed to be a problem-solving group.
What is your mandate at Citi private bank?
I have several years of investment management experience, specifically focused on asset allocation, customised portfolio construction and tax sensitive management. My role here is multi-faceted and includes providing product-agnostic advice to clients, and conducting highly customised and sophisticated analysis to help them meet their financial goals.
What is the mission of Citi’s investments lab? How does it help with portfolio construction for a private banking client?
In a nutshell, the investments lab is a problem-solving group; we don’t set limits on our abilities or coverage. We provide the framework for asset allocation recommendations and once that framework has been established, the next step is to recommend products that help implement a client’s financial plan.
In broad terms, portfolio construction generally begins with a long-term strategic asset allocation plan, followed by a tactical overlay (tactical asset allocation) to address current market conditions. Thematic investments, which address conditions likely to persist for some time (18 to 36 months or longer) are included, as well as idiosyncratic special situations investments.
At what stage does the lab become involved with a client’s portfolio?
As early as possible. Once the private banker meets the client and develops a relationship, the lab is brought in to address their needs. Not all clients necessarily require lab analysis; the intention is to provide customised advice to our high-end clients. The lessons we learn from this analysis are then incorporated into our platform. For example, the genesis for our in-house private equity analyser came from a billion-dollar client’s needs. The tool has now been scaled so that it can be used for many other clients.
How does the lab work with other parts of the private bank?
We adopt a team-based approach to problem-solving so we interact with many other parts of the bank as and when needed. For example, if we need to create a customised portfolio construction that involves leveraging a concentrated stock and offers investment diversification with the best fixed-income and cash-management strategies, we work with investment finance, fixed-income product specialists, research teams and investment counsellors to get the best advice for the benefit of our clients.
What is the end-product that the lab delivers?
It is difficult to pinpoint one exact end-product because the lab provides highly customised advice. It could be a presentation recommending an asset allocation plan with appropriate products, or a simple stress test, a study of a particular client issue, and customised solutions for how to hedge concentrated client positions.
How many people work in the lab in the region and worldwide? What kind of background do they have?
We currently have fewer than 10 people working in the lab in the region and fewer than 20 worldwide, but this is a relatively new initiative and we continue to scale up. We recruit the best performers from top schools including Wharton, Columbia and the National University of Singapore. Most of them have advanced degrees and are CFA [chartered financial analysts] charter-holders. We also look at experienced professionals with more than 10 years of specialised expertise and backgrounds ranging from computer programming and finance to liberal arts and estate planning. The entire spectrum of investing is represented by highly competent professionals who excel in their field.
What is the reporting structure of the lab? How is independence and objectivity of the lab maintained within the larger bank framework?
The lab is completely independent; the idea wouldn’t work otherwise. For example, our compensation is not tied to product sales. Our incentives are aligned with client satisfaction: if we offer poor advice, clients will leave. Therefore, we do not report to any product area heads, but rather to the head of the investments group.
How is Citi’s offering different from that of your private bank competitors?
We started the Citi private bank investments lab to offer best-in-class advice and we believe no one else in the industry offers this type of comprehensive service. Beyond the talent in the group, we also leverage Citi’s global footprint and regional scale to generate ideas for clients. One example is our private equity analysis, which optimises an ideal commitment schedule to private equity and then simulates results of projected calls based on non-normal distribution and 20 years of venture economics data. Another is our hedge fund factor model, which employs sophisticated modelling to correct for heteroscedasticity [random variables that appear at different distances from the mean], serial correlation, multicollinearity [where two or more variables in a linear analysis model are highly correlated] and other data biases with the intent to uncover hedge fund strategies that aid the portfolio construction process. The key is that the lab combines deep investment knowledge with a high level of technical expertise to clearly articulate our results and recommendations to both our clients and colleagues.