Falcon Private Bank’s tenacious high flyer earns the feather in his cap

David Pinkerton, the head of a Swiss-based, Abu-owned private bank, has experienced the good, the bad and the ugly of the financial world and it has taught him to always have hope.

David Pinkerton is the chief investment officer of Falcon Private Bank, the Abu Dhabi-owned, Switzerland-based private banking group, and I caught up with him on a stop in his twice-yearly world tour of the global centres where the bank has clients.

We had been talking about global investment issues. Mr Pinkerton had come across as self-confident, knowledgeable and eloquent in answering questions about US interest rate policy, the economics of Brexit, the outlook for Chinese real estate and the investment, oil price implications for the Arabian Gulf economies and a stack of other important issues.

But there was one matter I hadn’t given him any notice of in my pre-interview agenda briefing: his 31-month battle with the US department of justice over allegations of bribery that could have sent him to prison for 10 years. The charges were dropped in 2008.

“Can I ask you about the controversy you’ve had in your career? How do you think that affects clients’ perception of you?” I eventually asked, fully expecting to be told he’d rather not talk about it.

But instead of going on the defensive, he opened up, and showed an impressive ability to take the positive out of what must have been an awful experience for him, then a senior executive with the giant US insurer AIG, and his family.

“It was a difficult period for us, to be accused of something you didn’t do. But it hasn’t had an effect on my career. In fact, some of the family offices we have as clients regard it as a feather in my cap. It shows you’ve been through something, you’re tough, you’ve got stamina,” Mr Pinkerton says.

The case – which involved accusations of corruption brought against him by an intermediary in an Asian country – did not leave a permanent cloud on his global investment horizon. “I suppose it gives you a certain caution about emerging markets, but the fact is I survived and I’ve still got enthusiasm,” he says.

In fact, the rest of our conversation was marked by a healthy scepticism on almost all investment markets, developed, emerging or frontier.

What I found refreshing about Mr Pinkerton was that he did not push any potential investment as a 100 per cent sure thing but was prepared to admit, even highlight, the possible downside in different investment scenarios. Take America. Falcon answers to the Swiss regulator still, despite being owned by Abaar Investments (itself owned by Abu Dhabi’s International Petroleum Investment Company), as well as to the Dubai financial regulator by reason of its listing in the Dubai International Financial Centre.

So it chooses not to look for investment clients in the United States. But it is, of course, interested in the US investment scene, as the biggest economy in the world and a huge asset base his global clients will wish to tap.

“US growth is proceeding slowly but surely, but the investment opportunity is getting narrower. Last year, corporate earnings growth was flat overall and outside the biggest corporates it was down around 4 per cent.

“We see some attraction in certain sectors, like biotech, health care and some parts of technology. Oil and gas services has had a tough time and though it’s looking better now it still needs consolidation,” he says. Much depends on the next potential increase in interest rates by the Federal Reserve, which many commentators are predicting for next month.

“I think it will happen, but not until the July Fed meeting. If the Fed just looked at the US situation, they’d probably increase next month, but there are a number of global risks, of which Brexit is the biggest, that will probably push it into July,” he says.

Was the Fed right in its timing late last year, I ask. A historic change in rates policy in December was followed by an equity market rout and another drop in the oil price.

“The critics say they’re behind the curve and there is a credibility issue, but that’s the point: the Fed is looking backwards and the equity markets are looking forward,” he says. Mr Pinkerton believes the British people will probably vote to stay in the European Union at the referendum next month, mainly for economic reasons.

“People usually vote on the basis of their economic future. But you could argue that it’s in their long-term interests to vote for Brexit. The sterling devaluation that would follow would help British exporters a lot, in goods and financial services,” he says.

He is currently underweight in British assets because of the Brexit threat, which also overhangs his view of European equities, where another Greek crisis could be on the cards.

Regional markets in the Arabian Gulf are driven by the oil price and by government spending, he says, and while the oil price has improved, he still thinks it will never again get back to US$100, barring a major geopolitical incident. So instead, he likes specific assets in the region’s markets, rather than the equity indexes.

“In Abu Dhabi, for example, Etisalat is a good bet on the regional market; in Dubai, some real estate and financial assets. Dubai has a great economy in some sectors, like tourism. But I get the feeling across the region that the pace of growth is going down, not up.”

He warned against dramatic changes in the region’s foreign exchange structures. “I don’t believe the dirham would be able to take a depreciation or a depeg. It would compress growth and increase inflation,” he says.

He and Falcon are looking closely again at Saudi Arabia, in light of the transformation strategy being pursued there and the big equity markets event, the planned initial public offering of Saudi Aramco.

“It’s obvious they want to generate liquidity and cash to help fund the new sovereign wealth fund. But they are going to need decent financials and that depends on the oil price. So I doubt they will cut production.”

On the IPO itself, he thinks Aramco will probably have to be sold at a discount to existing oil companies to make it attractive to international investors, and will also have to be listed on an international market such as London or New York, as well as the Saudi Tadawul.

Falcon offers its clients a “local boutique with a global platform”, Mr Pinkerton says, with the result that most of its high net worth customers are encouraged to diversify away from the activities that made them rich in their local markets.

“You wouldn’t recommend that a local entrepreneur gets further into oil or energy, for example.” Real estate in big European and American cities remains an attractive proposition, he says.

Clients can be assured, at the very least, of his commitment. His experience in America eight years ago taught him one vital lesson: “Never give up. Always have hope. Hardship will not daunt me.”

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