Zurich-based Julius Baer Group has appointed Philipp Rickenbacher as chief executive effective Sept 1. Bloomberg.
Zurich-based Julius Baer Group has appointed Philipp Rickenbacher as chief executive effective Sept 1. Bloomberg.

Banking

Julius Baer starts probe after ex-wealth manager’s arrest

The private bank is not being charged, chief executive Bernhard Hodler said on Thursday

Bloomberg

August 24, 2018

Julius Baer Group has started an investigation after the arrest of an ex-employee who has since admitted to participating in a billion-dollar scheme to launder money bilked from Venezuela’s state oil company.

The private bank is not being charged, chief executive Bernhard Hodler said in Zurich on Thursday, declining to comment further. His comments came after Matthias Krull, 44, a German resident in Panama, pleaded guilty to one count of conspiracy to commit money laundering. He was arrested in July and charged with using real estate and fake investment schemes to conceal $1.2 billion embezzled from Venezuelan crude producer Petroleos de Venezuela.

Authorities in the US and Switzerland are probing how billions of dollars were embezzled from PDVSA, as the oil company is formally known. Switzerland in 2016 seized $118 million in bank assets linked to a Venezuelan businessman who has admitted to bribing PDVSA officials to steer about $1bn in energy-supply contracts. Krull, a senior relationship manager at Julius Baer based in Panama at the time of the alleged money laundering, faces as much as 10 years at sentencing, and has agreed to cooperate with prosecutors.

The Zurich-based bank enjoyed stellar growth through high-profile acquisitions and a hiring spree under former chief executive Boris Collardi. His successor is seeking to replicate that success through increasing relationship managers at the same time as managing risk as know your customer and other regulation becomes increasingly complex.

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The company said in June that some bankers had left amid a strategic realignment of Baer’s Latin American unit. The exits from Switzerland’s third-biggest wealth manager included Krull, Bloomberg reported at the time. Krull was one of five senior Julius Baer bankers in the Bahamas and Panama that were set to join smaller Swiss rival Gonet & Cie. Marc Sulser, who oversaw the business with wealthy clients in the Andean region and central America for Julius Baer, also recently left the company.

Julius Baer and local rivals such as Credit Suisse Group have been growing in the region through acquisitions, partnerships and hiring. Earlier this year, Julius Baer acquired 95 per cent of Sao Paulo-based Reliance Group and is also looking at ways to build an operation in Argentina.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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