Billionaire hedge fund manager Alan Howard paid $59 million for a Manhattan townhouse in March. Just two months later he obtained a $30 million mortgage from Citigroup Inc.
Denis Sverdlov, worth $6.1 billion thanks to his shares in electric-vehicle maker Arrival, recently pledged part of that stake for a line of credit from the same bank. For Edgar and Clarissa Bronfman the loan collateral is paintings by Damien Hirst and Diego Rivera, among others. Philippe Laffont, meanwhile, pledged stakes in a dozen funds at his Coatue Management for a credit line at JPMorgan Chase & Co.
In the realm of personal finance, debt is largely viewed as a necessary evil, one that should be kept to a minimum. But with interest rates at record lows and many assets appreciating in value, it’s one of the most important pieces of the billionaire toolkit—and one of the hottest parts of private banking.
Thanks to the Bronfmans, Howards and Sverdlovs of the world, the biggest U.S. investment banks reported a sizable jump in the value of loans they’ve extended to their richest clients, driven mainly by demand for asset-backed debt.
Morgan Stanley’s tailored and securities-based lending portfolio approached $76 billion last quarter, a 43% increase from a year earlier. Bank of America Corp. reported a $67 billion balance of such loans, up more than 20% year-over-year, while loans at Citigroup’s private bank—including but not limited to securities-backed loans—rose 17%. Appetite for such credit was the primary driver of the 21% bump in average loans at JPMorgan’s asset- and wealth-management division. And at UBS Group AG, U.S. securities-based lending rose by $4 billion.
Borrowing Binge
“It’s a real business winner for the banks,” said Robert Weeber, chief executive officer of wealth-management firm Tiedemann Constantia, adding his clients have recently been offered the opportunity to borrow against real estate, security portfolios and even single-stock holdings.
Spokespeople for Howard, Arrival and Laffont declined to comment, while the Bronfmans didn’t respond to a request for comment.
Rock-bottom interest rates have fueled the biggest borrowing binge on record and even billionaires with enough cash to fill a swimming pool are loathe to sit it out.
And for good reason. With assets both public and private at historically lofty valuations, shareholders are hesitant to cash out and miss higher heights. Appian Corp. co-founder Matthew Calkins has pledged a chunk of his roughly $3.5 billion stake in the software company—whose shares have risen about 145% in the past year—for a loan.
“Families with wealth of $100 million or more can borrow at less than 1%,” said Dan Gimbel, principal at NEPC Private Wealth. “For their lifestyle, there may be things they want to purchase—a car or a boat or even a small business—and they may turn to that line of credit for those types of things rather than take money from the portfolio as they want that to be fully invested.”
Yachts and private jets have been especially popular buys in the past year, according to wealth managers, one of whom described it as borrowing to buy social distance.