Whether it is providing bespoke credit facilities for real estate investors or bosses of listed firms, finding bespoke investment opportunities for UHNW entrepreneurs, or financing for English Premier League football teams, Investec Specialist Private Bank is making its presence felt. What is especially striking when one walks into their offices in say Gresham Street in the heart of London’s old financial centre, is how young and entrepreneurial the bank feels. That is quite deliberate. There is a distinctively New World feature to this bank.

While it may not be a household name among the mass UK public in the way that HSBC or Lloyds Banking Group is right now, the bank’s eye-catching zebra logo is increasingly recognisable. The bank’s “High Five” savings account is regularly advertised in the print media and the internet, for example. The firm is also a significant sponsor of sporting events, such as the annual Derby horse race and Investec Challenge international rugby in the UK. This is not a bank that is shy about promoting its image.

The specialist private bank has already come a long way in establishing its presence in a relatively short time. In terms of its development in London, it started in the early 1990s to develop as a bank with a distinctly entrepreneurial culture and unstuffy image. Recruits are encouraged to develop business ideas that can fit with the Investec ethos and staff stress the bank’s flat hierarchy and flexibility.

Entrepreneurial

The focus on entrepreneurial clients is one of its most distinctive qualities. The firm is a partnership of six key specialisations: specialised lending, structured property finance, wealth management, trust and fiduciary services, growth and acquisition finance and specialised banking business. The spread of specialist services is intentional – the bank is determined that it will not be unduly exposed to any one type of business risk and enjoys a broad range of revenue streams (a strategy that looks very wise given the problems of some financial institutions recently).

Investec Specialist Private Bank is a nimble player; its relatively modest size compared with some of the bulge bracket banks is a positive feature, not a drawback, executives say. Another word that comes up a lot is “niche” – it says it prefers to out-think rather than out-muscle its competition.

To pull that kind of business strategy off, Investec does not have a strict hierarchy – there are no titles on business cards. People who join the bank with ideas they wish to develop are given the space – subject to certain financial constraints – to do so. And that flexibility means that staff can serve the specialist private bank’s target client base: ultra high net worth individuals, active wealthy entrepreneurs and high-income professionals, sophisticated investors and owner-managers of mid-market firms.

Some numbers

Like most of its peers, the specialist private bank, along with its parent, has not been able to avoid all of the problems associated with the financial turmoil, but having not been a big player in the sub-prime mortgage market or the associated securities, it has managed to stay in reasonable shape.

In late January, Investec said its net operating income, after expenses but before loan impairments, had increased by 1 per cent in the nine months to 31 December 2009 from the same period a year before. As at 31 December, the capital adequacy ratio of the bank was 15.2 per cent, as measured by UK rules, it said, giving it a relatively robust base. (Investec is due to issue more details on 17 March, including figures for Investec Private Specialist Bank).

The specialist private bank has a sizeable payroll, if relatively small compared with a Bank of America/Merrill Lynch or Credit Suisse, for example. At the end of March 2009, the firm, in the UK, Europe and Channel Islands employed 545 individuals. Throughout the entire Investec group, there are about 6,000 employees.

In Europe, Investec Specialist Private Bank has offices in London, Manchester, Guernsey and Jersey, as well as Geneva, Dublin and Zurich.

The UK and Europe head of Investec Specialist Private Bank is Steve Heilbron. The six key divisions are then headed up by the following people: Paul Stevens (Structured Property Finance); David Drewienka (Specialised Lending); Avron Epstein (Growth and Acquisition Finance); Wayne Preston (Specialised Banking); Robert Gottlieb (Wealth Management); Xavier Isaac (Investec Trust); and Stephen Henry (IBCI).

Private wealth management (PWM)

Investec offers services including portfolio investment management for ultra-high net worth clients, structuring, cash management, alternative investments and income provision.

Over the last two years, the bank has spent a great deal of time, energy and resources on recruiting quality individuals, whilst significantly bolstering the businesses' systems and investment processes. The team provides an independent wealth management service with less than 2 per cent of clients assets invested in "in-house" product. The business says it seeks to differentiate itself through having its Investment Practitioners as both the client's relationship manager and technical professional. Each IP targets a maximum of 20 clients with investable assets in excess of £10 million. The firm says this " high-touch, low volume approach” ensures high levels of personal service. The PWM division employs a team to quantitatively and qualitatively choose suitable investment products, including access to institutional private equity and structured opportunities for its product platform. Investments are then, via a rigorous global investment process, blended together to produce a bespoke investment solution for each client.

A specialised philosophy

WealthBriefing recently spoke to a number of individuals at Investec to find out more about how the banking units sit alongside one another. In the island of Guernsey, for example, Investec has three businesses: Investec Trust (Guernsey) Ltd, Investec Bank (Channel Islands) Limited and Investec Asset Management Limited. The first two businesses are part of Investec Specialist Private Bank.

Investec Bank Channel Islands, or IBCI, operates as a full bank in Guernsey although its principal activities and indeed its niches are around yield enhancement from a deposit perspective and wealth management for local intermediary and private clients.

In addition, IBCI has a dedicated local treasury resource aiding these activities and providing foreign exchange services to clients.

There are two main client types for IBCI: local fiduciary clients are mainly based in Guernsey and Jersey (IBCI has a branch in Jersey, managed by Kevin Allen) with the private clients principally being Guernsey and Jersey residents as well as UK resident non-domiciles.

IBCI is a pretty robustly capitalised business as it has a balance sheet of around £1.9 billion with about £1.4 billion of cash balances held on behalf of local intermediaries. In addition there is around £350 million of cash balances in its private client book, with the balance made up of some corporate monies.

The way in which IBCI works sheds a good deal of light on Investec’s general approach. Its goal is to provide clients with yield-enhancing products for surplus cash balances, above and beyond what clients maybe able to obtain from their other banking counter-parties, says David Fitch of IBCI.

“The fact that we have a local treasury team means that we are not reliant upon a central office to feed us pricing for foreign exchange or deposit business, it means that we can be flexible and sharper in our pricing,” he told this publication.

“Because we manage our own balance sheet and treasury book, this does deliver advantages for clients. For example, if we have a client who wants to exchange dollars for euro, and another client who wants to exchange euro for dollars, then we can match these requests and provide both parties with a sharper price than otherwise may be available,” Mr Fitch said.

“We have a goal to make our clients interaction with us as smooth as possible and to deliver cost effective banking solutions,” he said.

Trusts

Independent of the activities of the private bank are the businesses of Investec Trust Group, which is headed by Xavier Isaac, as mentioned earlier. He took up his current post in September last year, having worked at Investec since 2005. This group operates in six jurisdictions: Jersey; Guernsey, UK; Mauritius, Switzerland and South Africa, employing in total just under 200 staff.

“What is now really driving the offshore trust business is the international regulatory pressure and the move towards greater tax transparency and complexity,” Mr Isaac said in a recent interview.

“There is a flight to quality because clients’ needs are more sophisticated with an increased focus on reputation and risk,” Mr Isaac said.

“Clients are looking for independent advisors and trustees. A business model like ours based on a partnership of choice with our specialist private bank is very powerful. In the increasingly complex offshore world the security, resources and continuity offered by a bank based trustee company are becoming more important. However we are not tied to Investec Bank when making choices for clients, whether for investment management, banking or otherwise. We believe the paramount rule for trustees is to put the client first,” Mr Isaac said.

He added that Investec Trust also acts as trustee often in complex structures. “As trustees, we sit at the family table to understand its background and identify its objectives. We then mobilise our selected network of professional advisors, working in conjunction with our team of trust specialists, to design tailor-made solutions to meet our clients’ needs. The only prerequisites include a sound rationale for the structure and the intelligent management of fiduciary risk and the adherence to regulatory requirements,” he said.

Specialised banking

Investec’s specialised banking team draws in the deposits that fund the lending side of the business. To do this, the team provides commoditised savings and transactional accounts for private clients and small, and medium sized firms with balances from £25,000 and above. Its flagship Investec High Five account is one of the most highly recognised in the market, typically scoring high rankings on portals such as the Moneyfacts website. The same model has recently been applied to its business offering, with the Business High 5, which accepts deposits from £50,000.

Investec has also created bank accounts geared at the pension and trust market, and for legal firms.

Specialised lending, structured property finance and growth and acquisition finance - credit and lending

The area of bank lending – the bread and butter of banking – is something that Investec has made into a specialism with a number of twists. As Simon Hamilton, of the private equity partners and fund finance division at Investec Specialist Private Bank explains, it is not the sheer volume of lending that counts at the bank, but the quality of the deal.

“We are trying to show the uniqueness in what we do in that we are about wealth creation at this side of the bank, not wealth management. We want to talk with active entrepreneurs and work with them as they create wealth for themselves,” he said.

“This is very much the origin of the business. In South Africa, there is not much of a tradition of 'old money'. You have to create it yourself there,” he said, warming to his entrepreneurial theme.

The importance of credit and bank lending to the culture of Investec Specialist Private Bank is demonstrated by the fact that some of the top management of Investec, such as Stephen Koseff, chief executive, sits on the global credit committee, a group that authorises certain levels of loan.

“Having them involved in that business highlights the intensity of our credit process. That allows us to be quite entrepreneurial on the deals we do because we do not have defined credit parameters. That approach defines us as a bank,” Mr Hamilton says.

Other lending areas covered by Investec Specialist Private Bank in London are property, growth and acquisition finance, private and client lending.

The structured property finance team applies creative know-how and specialist sector knowledge to add value and make deals happen, the bank says. The team works closely with clients to structure appropriate funding for commercial, residential and planning transactions.

The growth and acquisition finance team, meanwhile, works with entrepreneurs, management teams and private equity houses to help implement acquisition and growth strategies for their businesses. Using preferred equity, mezzanine debt, integrated finance and/or asset-based lending, this team serves mid-market firms, offering funding packages of between £4 million and £30 million

As for specialised lending, this unit has three sub-sets: sports and media financing – a unit led by Jason Traub, a person with considerable knowledge and experience of financing in sectors such as UK football; strategy and shareholder finance, and private equity and partner finance.

The specialised lending group has seen developments of a number of products, such as lending to people receiving share options in lieu of cash payment, with loans used to let option-holders realise the cash value of their options, using those options as collateral.