Swiss private banks are courting the wealthy with deals open only to a select few. The only problem is that few wealth managers are equipped with the necessary expertise.

Bank am Bellevue CEO André Rueegg had a sobering realization after the bank closed its brokerage and corporate finance activities last year in favor of wealth management: private banks don't win new clients with a standardized offering.

Rueegg is going a less conventional route: club deals for private clients. The transactions are hand-picked by private bankers for a small circle of wealthy clients. Investments in start-ups, infrastructure, or real estate have proven especially popular.

Double-Digit Returns

The entirely private nature of club deals in wealth management is what sets them apart from better-known private equity or other private market transactions: clients aren't buying a financial product from a private bank. Instead, they are co-founding a club, usually a vehicle, in which a particular asset will be managed.

Typically after several years, the assets is sold, the club structure dissolved, and clients hope for a double-digit return. As the hunt for yield in a low to negative interest rate environment accentuates, wealthy investors are hungry for any type of deal which promises them more.

A Secretive World

At least some of the appeal of these deals is that they are even more secretive than the already opaque world of private equity. Few private banks even publicly disclose that they offer club deals. Sallfort Private Bank launched a line, and carved out the business following its recent merger with Geneva-based Banque Heritage.

EFG International also offers what it calls investment clubs, and Zurich-based Rothschild & Co lures clients with a co-investment opportunity which it pitches to clients as managing money alongside the eponymous French-British banking family which traces its wealthy roots back to the 18th century.

Even wealth giants UBS and Credit Suisse are active in the market for private deals, but clients don't become members of a small club: instead, they typically invest in a vehicle or a fund managed by the bank.

Flexibility a Necessity

In a true club deal, banks don't charge their clients fees; the provider is party to the deal as a co-investor. Italy's Mediobanca, which has offered its clients club deals since last year, typically takes a 20 percent share of the deals it takes.

This necessitates private banks to be enormously flexible, but also requires them to have a high level of expertise and access to the venture networks – high barriers for niche wealth managers.

Popular Property Investments

Three Genevan banks – Banque Pâris Bertrand Sturdza, Bordier and Reyl – pooled their private market investments three years ago in investment boutique Hermance Capital. Co-founder Jacques Chillemi told finews.com: «As a wealthy client I would be very careful with club deals offered by private banks.» Most firms simply lacked the necessary expertise and investment opportunities often ended up at those banks because nobody else had shown an interest, said the expert.

The best-known and most firmly established segment of club deals is real estate. Firms such as Acron, Property One Partners and Corestate Capital Group are leading providers in this segment in Switzerland. 

Simple Due Diligence

Corestate Capital Group for instance counts on Rainer-Marc Frey as one of its customers. The company itself takes a ten-percent stake in the deal, private investors participate with at least 1 million euros ($1.14 million) and the average return is 26 percent.

The investments on average last a little longer than three years, a comparatively low figure compared with other private market assets. The fairly simple due diligence procedure and development opportunities also speak in favor of real estate club deals.

Customers Expect a Return

The successful business established by firms such as Corestate are a reason why private banks increasingly show an appetite in entering the market. But pressure is also coming from the client side. Rich private banking clients typically are active as entrepreneurs and as such they love to invest in such as spirit instead of simply buying products provided by the banks. And that's also a reason for why they chose such specialists.