From the Alps to Asia

From the Alps to Asia

The tiny Principality of Liechtenstein punches above its weight in the financial world, and is building more business bridges to Asia.

Vaduz Castle is the palace and official residence of the Prince of Liechtenstein. Roland Korner
Vaduz Castle is the palace and official residence of the Prince of Liechtenstein. Roland Korner

Nestled between Switzerland and Austria, the Principality of Liechtenstein is one of the world's smallest countries with an area of only 160 square kilometres and some 38,000 inhabitants.

Despite being completely landlocked and with no airport, international train station or port, it is among the richest countries globally with GDP per capita twice that of the United States. It is also a financial centre, thanks to its open, stable and competitive economy.

Home to 4,000 companies and with 14 licensed banks, Liechtenstein stands out as one of five debt-free states in the world and one of just 11 to hold AAA ratings from Standard & Poor's and Moody's.

"We are one of the 11 with no public debt. Everything is stable here. We have an economy that is well diversified, and a constitution that is very similar in a certain ways with Switzerland's if you read it," HSH Prince Philipp von und zu Liechtenstein, the chairman of LGT, told a group of foreign journalists at LGT headquarters in the capital city of Vaduz recently.

Industry and manufacturing is the largest economic sector of the Alpine state, generating 40% of the country's gross value added and employing 40% of the workforce. Other sectors are general business services including consulting, marketing, architecture (28%) with agriculture and households accounting for 8%.

While Liechtenstein is little known outside Europe, even those who are familiar with the country are often surprised by the entrepreneurial spirit that has taken firm root tase since its founding in 1719. Today, the family-owned businesses of Liechtenstein, including LGT, are making efforts to expand their economic ties with Asia, in recognition of its growing affluence and economic importance.

"The list of countries we are in (is increasing): Japan, India and Thailand," said Prince Philipp, now 73 and the younger brother of current reigning Prince Hans-Adam II. "We want to be in present in countries with solid economic growth and solid rule of law. We look very carefully at what's important for us and the clients."

THE PRINCELY HOUSE

Owned by the Princely House of Liechtenstein through the Prince of Liechtenstein Foundation, LGT (Liechtenstein Global Trust) is the world's largest family-owned private banking and asset management group. Its assets under management amounted to 198 billion Swiss francs in 2018, and it employed more than 3,400 people worldwide. In the first six months of 2019, assets rose 8% from the end of last year to 215 billion francs.

For generations, the Princely Foundation has been at the forefront of the country's economic development as an active entrepreneur. As the owner of large estates, the group traditionally focused on agriculture and forestry as well as wine production. Its members accumulated entrepreneurial experience and management and administrative know-how, and applied it to their entrepreneurial activities in production and financial services.

LGT has extensive experience managing wealth across 30 generations. Since its establishment in 1930, LGT Bank has grown from a regional bank into an international private banking player with a presence in 20 locations in Europe, Asia, the Americas, Australia and the Middle East.

"We were in finance very, very early on, and the first Prince of Liechtenstein and his three brothers put all the family's belongings under what is today a foundation," Prince Philipp explained.

"In the old days, it was normal for a family to have a family constitution or charter, like a foundation that belongs to the head of the family, who [passes it on to] the eldest son, and the eldest son of the eldest son. The eldest son looks after the foundation in an intelligent way, to invest it, help family members who are less fortunate, and hand it over to the next generation."

In Asia, LGT has two booking centres -- one in Singapore and another in Hong Kong. In March it opened an office in Bangkok and in June it announced the acquisition of a majority stake in the Indian wealth manager Validus Wealth. A month later, LGT Group acquired the management organisation of Aspada, an India-focused impact investment fund, and a majority stake of Aspada's sole shareholder, Soros Economic Development Fund.

Aspada invests in commercially scalable, high-impact businesses in food supply chains, healthcare, education and financial services in India. It currently manages a portfolio of more than 15 investments totalling over US$100 million in invested capital.

In May 2017, its acquisition of Netherlands-based ABN Amro's private banking business in Asia and the Middle East gave LGT Group a firmer foothold in the region, adding 20 billion francs in assets under management. The following month, the group bought the Paris-based private debt manager European Capital Fund management.

Currently, LGT Group aims to expand to Japan, where the Princely Foundation is currently staging an art exhibition which runs to next summer. Built up over 400 years, its collection comprises European masterpieces that span five centuries including 1,700 paintings and sculptures.

According to the chairman, being a family-owned business makes LGT stand out when compared to Swiss giants, such as UBS, Credit Suisse, and Julius Baer, and Asian banks. While those banks have CEOs, who usually leave after a few years with a handsome payout, LGT is run by the same family of the ruling prince with his personal money in it. That gives clients confidence about its long-term stability.

"We have skin in the game. Can't run away," Prince Philipp said. "It is important for clients to see that the owner has his own money in the bank. You can't run away or jump ship, and we have no golden parachutes.

"It's the ruling Prince's money, and he doesn't get any money from the taxpayers. That's important for clients."

Prince Maximilian, the second son of Prince Hans-Adam II, is the CEO of LGT Group. And while the likes of UBS and Credit Suisse offer investment banking business and are listed, LGT focuses only on private banking for high-net-worth individuals and institutions, and asset management with largely institutional investors.

He pointed out that advance planning is vital for family businesses to pass their success on to the next generations. "Nearly 80% of family businesses have disappeared after the third generation because nothing has been planned beforehand," said Prince Philipp. "If you wait too long, the next generation [ends up having] arguments. No agreement, and in the end the company will be dead."

When asked about the challenges LGT is facing, the Prince named regulation. "The biggest challenge for LGT is not different from any other banks," he said. "There is a huge amount of regulation, which makes life not easier. Banks have to manage it and do the best we can, and all the time we have to check regulations. We are extremely careful about who we take in as clients. We have to have a screening process."

Malbun, a ski-resort village in the municipality of Triesenberg, is the main holiday resort destination in the principality. Martin Walser

TOURISM & WINE

Given its Alpine setting, it is difficult not to be captivated by Liechtenstein's picturesque beauty. Its mountainous terrain makes it a perfect spot for outdoor activities, whether one wishes to absorb the breath-taking views of the Princes' Way Hike or engage in exciting winter sports.

For culture lovers, the country has the Liechtenstein Museum of Fine Arts and Liechtenstein National Museum, while those interested in history can view the Vaduz Castle and Gutenberg Castle. Located on a rock shelf about 120 metres above the Municipality of Vaduz, Vaduz Castle has been the permanent place of residence of the Princes of Liechtenstein since 1939.

Renate Bachmann, head of Tourism at Liechtenstein, said the country's 38 hotels accounted for approximately 154,000 overnight stays last year. Of the 650,000 tourists whop made a stopover in Vaduz for two to three hours, 300,000 are from Asian countries, mostly China, Taiwan, Hong Kong, India, Korea and Japan.

"We expect a further growth (of tourist arrivals from Asia)," she told Asia Focus, citing a forecast from the World Tourism Organization. "The UNWTO expects growth of at least 5% for the next five years and also there is a trend that people are getting more interested in unknown areas besides the famous travel regions in Europe."

Given Liechtenstein's passion for wine, tourists can visit a wide range of vineyards where they can taste and purchase a wide selection of wines. The climate is ideally suited for cultivation of grapes for white wines including Riesling and Gruner-Veltliner, and reds including Merlot and Zweigelt.

HSH Princess Marie von und zu Liechtenstein, who heads marketing and sales for The Princely Wine Cellars, said the family actually has its roots in Austria, where it has a much bigger vineyard.

"(It was) 600 years ago that this business came into our family," she said. "We had the ability to buy lands a bit north of Vienna and the border of the Czech Republic. The family used to have much more land in the Czech Republic but we lost it after the Second World War. Only 40 hectares of land were left to the family in Austria as a vineyard."

A typical vineyard might cover 100 hectares or more in Austria, but the family vineyard in Liechtenstein is just four hectares.

"We have very cold winters and very hot summers in Austria where we produce 60% white wine and 40% red," said the Princess. "Here, we have a totally different climate and that's the fun part to produce wines in two different countries and two climate zones."

Located along the Rhine River, Liechtenstein has a moderate climate than Austria. "Here there is the valley. It is almost like the Burgundy area. And that's the reason we have Burgundy-style wines," she said.

Princess Marie took charge of the wine business in 2012, and has overseen expansion of the market to Asia. The wines won accolades from the Hong Kong International Wine and Spirits Fair in 2017, including two Bronze medals and a Gold for the Grüner Veltliner Reserve Selektion Karlsberg 2015.

There are two reasons for the success of Liechtenstein wines in Asia, she said. "First, I think we have a great story. Wine needs to have a good, fun story to tell. Also we have great products and fantastic quality. Asian customers realise that our white wines, which are not too strong and heavy, go very well with Asian cuisines."

The wines from the family business are now shipped to Hong Kong, Singapore and Taiwan. A distributor has been appointed in Tokyo as the company is making inroads to Japan.

HSH Prince Philipp von und zu Liechtenstein EDDY RISCH

EXPORT-LED INDUSTRY

With the industrial and manufacturing sector contributing 42% of its GDP, Liechtenstein has a surprisingly high degree of industrial activity. Being a member of both the European Economic Area (EBA) and the European Free Trade Association (EFTA), with full access to Switzerland, makes the country a good location for exporting.

The country is home to global market leaders in machine and equipment engineering, plant engineering and construction, precision instruments, as well as the dental and food industries. Among its well-known names are Hilti, Hoval, Thyssenkrupp and Ivocla Vivadent.

Hilti, the global market leader in professional anchoring and demolition systems, has a presence in more than 120 countries with 29,000 employees worldwide. In Asia, it employs more than 4,000 people in 14 countries including Thailand. It operates two plants in China (Zhanjiang and Shanghai) and one in India, as well as an IT Competence Centre in Malaysia, which provides services to the Hilti business globally.

Hilti spokesman Matthias Hassler said Asia Pacific, including Australia and New Zealand, contributed slightly over 13% of total group sales of 5.6 billion francs in 2018. Since 2012, the region's share has been stable at 13-14%.

"The share of this region has been growing constantly in recent years. In 2008, it was below 10%," he told Asia Focus. "One driver is the growing construction output in Asia, which has reached a share of more than 50% of global construction output. This means for us as a supplier to the construction industry, that this market offers a lot of opportunities."

Founded in 1941 by engineer Martin Hilti and his brother Eugen in Schaan, the largest municipality of Liechtenstein by population, Hilti had 15% of its share capital circulated as non-voting shares with the public from 1986 to 2003.

But in 2002, losses in the financial business caused a massive impact on the group's net income. For strategic reasons, the group decided to withdraw from the dual strategy and to focus only on the industrial business. The company went private in 2003 and is now 100% owned by the family.

"Today the company still has a strong financial basis with cash equivalents of more than one billion francs. Therefore, there is no reason to go public again," said Mr Hassler.

For Hilti, he said, being a family-run business is positive in terms of management and public confidence.

"The owner family is interested in the long-term success and further development of the company. That is why the family members founded the Martin Hilti Family Trust which was only possible through a renunciation of inheritance," he said.

"This way, the company avoids foreign influences and does not put maximising profits at the top of the list. In addition, it is not subject to the dictates of short-term market expectations.

"Hilti has created an ideal model in which there is a family in the background that is involved, interested and present, but that also stays far enough away so that the management can run the company without interference."

The Princely Wine Cellars carries on a winemaking tradition that dates back 300 years. Julian Konrad

From its headquarters in Vaduz, LGT oversees an asset management business that employs nearly 3,500 people worldwide, including 850 in Asia and the Middle East. juliansalinas.ch


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