Citi Private Bank’s Lisandro Chanlatte’s goal is simple: to build client portfolios packed full of ‘sleep-at-night money.’ The chief coordinator of investment ideas and research for the firm’s Latin American clients tells Michelle Abrego about their high conviction plays and why global is the new sexy.
It’s easy to get caught up in numbers, ratings and grades to measure success in the world of finance and investing. But for Lisandro Chanlatte it’s all about sticking to your convictions.
An avid reader drawn to true stories of innovation and leadership, he says the lessons from How Will You Measure Your Life? by Clayton Christensen have influenced every facet of what he does.
In short, the book says that if you forego one of your principles ‘just once,’ you’ll likely do it again and regret where you end up. ‘It’s easier to hold to your principles 100% of the time than it is to hold to them 98% of the time,’ says Chanlatte, the head of Latin America investment counselors at Citi Private Bank in New York.
‘Stick to your core principles and your values, [whether it’s] decision-making, managing clients’ money, taking care of someone on your team, making sure your team’s needs are being addressed, or being flexible.’
This steadfast belief in sticking to one’s principles is what guides his 50-strong team – spread across New York, Miami, Houston, Mexico City, São Paulo and Geneva – as it coordinates investment advice with his group’s private bankers for their $30 billion Latin American client base.
‘If you have a good team that’s driven and empowered then you don’t need too many rules and you hope that they drive the results on their own sense of excellence and values.’
His main responsibility is passing down the house view of Citi Private Bank’s global investment committee (GIC), led by Steven Wieting, to his team and to ensure they have access to the right tools to implement those views within their clients’ portfolios.
‘The core investment message is being driven consistently to the team, no matter where they sit, no matter where they are,’ he says.
‘On a biweekly basis I run a high conviction solutions call for investment counselors. We brainstorm around what type of investment vehicles we want to implement through and discuss what type of strategies we would like our clients to be focused on.’
‘Investment counselors are often on the road, so they might miss things. My job is to reinforce what our message is, what our view is, what has changed, whether a product is no longer on our high conviction call, on a watch list – communicating so things are clear.’
Born and raised in the Dominican Republic, Chanlatte was determined to go into banking from a young age, even though he only had a vague idea of what it was until he got a college internship with JP Morgan in the late ‘90s.
‘We don’t have developed financial markets [in the Dominican Republic], so it’s tough to do finance there,’ he says. He jokes that his dad, a doctor like the rest of his family, still thinks he’s an economist.
After stints with JP Morgan and Citigroup in New York, an MBA at Harvard and spending time in real estate private equity, Chanlatte joined Citi Private Bank in 2011 to lead the Latin American branch of the firm’s Investment Lab – the team dedicated to analyzing clients’ portfolios for opportunities and risks. Two years later he was appointed head of investment counselors for the region.
Within Chanlatte’s 50-person team, 25 are investment counselors who help build the client portfolios, acting as liaisons between Citi’s institutional investment research teams and the private banker or client. They help the client decide between two options: discretionary management, which is offered by the Citi Investment Management Platform unit, or the managed investment route.
If the client chooses the latter, the counselor then builds a tailored portfolio using the GIC’s asset allocation blueprint and populates it with suitable investment solutions, whether mutual funds, private equity, hedge funds, real estate or select securities.
For mutual funds, the traditional investments and manager research team run by Don Marchesiello ensures due diligence is performed on all mutual funds the counselors might want to access. The same process is carried out by other teams for private equity, real estate and hedge funds.
‘These investment counselors are then making the decision whether that investment strategy makes sense for what that client is trying to accomplish, without having to worry about whether that structure is approved,’ Chanlatte explains.
‘It’s always based on our views from our global investment committee... you don’t start with a star product or a star manager. You start with building a portfolio and then you see what you have on your platform. We have a lot more managers than we use.’
Citi’s high conviction ideas
- US: Blend of value-oriented all-cap and concentrated growth managers (includes tech, biotech, media and fintech)
- Europe: Blend of core Europe with continental Europe ex-UK managers
- Emerging markets: Global emerging markets manager that uses macro and ESG metrics
- Asia: Opportunistic growth-biased manager that can allocate broadly across Asia ex-Japan
- Core fixed income: Blend of a structured credit and ABS manager, a core bond manager with a market blend duration and a US investment grade corporate specialist
- US and European loans: A floating rate component that shields from rising rates while offering lower volatility
- EM local currency: Call is based on higher real rates in EM fixed income and given that most managers are investing in EM debt through hard currency credits and FX overlays
When it comes to picking mutual funds, investment counselors have two lists to look to for guidance: the Focus list, a broad list of about 40 funds that have been vetted and complement Citi’s investment strategy, and a more concentrated version known as the High Conviction list, made up of about 16 funds.
‘These are the names we have the highest conviction on – the names that we think will provide the most alpha, that are the most defensive for the environment we’re going into, that are non-secular growth stories.’
Each region’s list is published quarterly, having been built by the managed investment sales team and the manager research team with the benefit of feedback from Chanlatte’s counselors and their clients.
‘If we like [a new] idea, then we need to onboard managers that do that. It could be top-down but it could be coming from the client. They might want to know more about clean energy, artificial intelligence and so on.’
Feedback on what the clients want and need drives Citi’s product teams to make sure they’re finding the right solutions. Client demand has even prompted the bank to add managers for the themes of technology
Another topic that has been setting his team’s minds racing is the Federal Reserve’s monetary policy. While the Fed is looking a bit more hawkish than expected, the US business cycle still suggests it will continue its easing process.
‘This past year we started thinking about strategies that would not be hurt on the fixed income side if rates increased, so we onboarded a senior secured loan strategy,’ Chanlatte says. ‘We wanted to move more into floating rates liability strategies where, if rates went up and you held these underliers, you would benefit from it.’
His group is currently suggesting an underweight to fixed income but Chanlatte says they are favoring local currency strategies as they believe they will continue to remain stable. The group is still finding opportunities in the equity market too, where it is overweight emerging market regions such as Latin America and China.
Over the past few years, big private banks and wirehouses have been cutting resources to the US offshore market and exiting Latin America as they look to focus on profiting from the more transparent, affluent areas of wealth in the region.
In September, HSBC Private Bank became the latest to withdraw from Central American and Andean markets, excluding Chile.
Chanlatte says these movements have seen the private bank grow as it acquires client assets and bankers, as they still cater to more than 20 countries in Latin America.
‘We have been growing the team because we have been expanding our reach in Latin America. As many competitors continue to retreat from the area for many different reasons, we have been trying to capture their market share. We have a strong commitment to Latin America to continue to grow that business.’
In the past year, he has hired six for his team, and in the next 12 months he’s looking to add about another five self-motivated investment experts.
While Citi is happy to tailor solutions to clients’ wishes and regional biases, Chanlatte says portfolios must follow similar, globally diversified asset allocation principles, no matter where the clients are from.
‘This is what I call “sleep-at-night money”, money that is meant to grow 6% to 7%. That’s the goal of the global diversified portfolios. If you can double that wealth every 10 years net of fees and outpace inflation, that’s a very healthy mix.’
Of course, every region has their preferences. Citi offers asset allocation goals for five different risk portfolio skeletons, but also has more than 120 different home-bias portfolios for clients from different countries, incorporating more local exposure.
‘When we talk to a client about a global portfolio for the next ten years, we’re not talking about Latin America specifically. In fact we don’t want them to invest more in Latin America because most of them are hugely exposed.
‘We’re trying to diversify them away but they like Latin America because they feel like they know it very well. The thing is, when things don’t go well, they get impacted double.’
Hedging both fixed income and equity bets has also become an increasingly important play to mitigate risk, Chanlatte says. Over the past few months, with volatility remaining low and valuations high, a number of big name fund managers have laid out their concerns about what might trigger a market drop.
Chanlatte says Citi’s view is that the rally has further to go, but it’s so cheap to hedge right now that it’s worth having that insurance.
‘Even though we have been bullish in terms of getting invested now while the market continues to rise, we’ve been promoting hedging those exposures simply because volatility – which really drives the value and cost of hedges – has been extremely, extremely low.’
For equities, the team is implementing put options in their portfolios and for fixed income rate swaps based on the London Interbank Offered Rate (Libor).
‘Regardless where rates end up, the cost of hedging on the loans side is as cheap as it has ever been. We believe it’s so cheap that if you can fix for five, six or seven years through interest rate swaps it’s worthwhile. Even if you’re wrong, rates have a floor of some sort to the cost of debt.’
This year more than ever, Chanlatte says, it is global multi-asset portfolios that will save investors from any unexpected market turns. ‘Those are the portfolios which will be bell weathered no matter what happens in the world,’ he adds.
This article was originally published in the November issue of Citywire Americas magazine.