Why performance isn’t everything

Is private client investment simply about finding alpha and achieving returns which are “shooting out the lights?” Not according to speakers at the recent FT Inside Wealth Management forum, organised by PWM, in association with Stanford. “The industry is in a really sad state if it concentrates on performance,” said Jack Staley, president of Stanford Group (Suisse) in his opening address to the gathering of 150 leading private bankers at Zurich’s Dolder Grand. “Yes, it is important, but there are other things in life. We need to stop right now and look at how we face our client. We need to say more than ‘we are the best performer in the world,” added Mr Staley, whose group’s philosophy is based on achieving absolute returns, rather than benchmarking clients’ assets against popular indices. One of the priorities in the new age of facing clients is to look at sustainability and what investors can put back into the environment rather than just the returns they can take out, said Antoinette Hunziker-Ebneter, CEO and founding partner of independent Swiss group Forma Futura. She talked about those private clients enjoying “an accumulated wealth so large, they cannot use it up in their lifetime,” who are “looking for philanthropical outlets.” Ms Hunziker-Ebneter, who previously headed up the Swiss Stock Exchange as well as sitting on the board of Julius Baer, said wealthy investors are now targeting mental, social and ecological, not just economic, wellbeing. Investment sectors which create sustainable quality of life - such as medical technology, education, renewable energy, water and microcredits – will become the more attractive assets, said Ms Hunziker-Ebneter. “Companies that don’t perceive these changes as a threat, but recognise them as an opportunity, will be the ones to succeed.” “An organisation’s design is a critical differentiator in an increasingly commoditised world,” said Ian Balfour, head of Swiss and family office clients at JP Morgan. While relationship managers should be rewarded by overall asset flow, investment managers should only be remunerated according to invested assets, not funds held in custody or on deposit, and crucially, should be penalised for excess transactions. In this way, an effective performance management system can influence the behaviour of an organisation to align its interests with those of the client. The increased efficiency of capital markets and commoditisation of finance means, with very little differentiation between equity managers, private bankers need to rebalance client portfolios with absolute return objectives, said Mr Balfour. Enough beta should be found in the correct asset classes, within a more active, global portfolio, before allocating to managers in classes with much higher dispersions, such as private equity and alternatives. Wealth advisers must be versed in structured products for the alpha these can bring to portfolios, claimed Mr Balfour. This was part of a new focus on opportunistic, tradeable ideas, which are not necessarily the core strength of long-term biased asset managers. Speakers, several of them from outside the financial industry, talked about the need to preserve traditional Swiss, client-centric values, even if their groups are taken over by global players. Rolf Jetzer, chairman of Swiss International Air Lines, told of how his company became a subsidiary of German giant Lufthansa. “When we started with Lufthansa, nobody wanted to invest one cent into Swiss [International Air Lines] in 2004. We had to look for partners, and the Swiss economy needed us, but we needed a partner who would help us grow,” recalled Mr Jetzer. “We decided to integrate ourselves before they integrated us, as we are small and they are big. Mergers killing value is a common thread of history.” Mr Jetzer has no qualms of pursuing Swissness as a mark of quality. “We need to be more Swiss, and need to make sure, that even if our companies are run by foreigners, they can do better. Swiss [International Air Lines] is more profitable than Lufthansa today. Pursuing quality is a continuing process.” “Swissness,” said Tilmann Spohr, chief client officer at Bank Sarasin, is about “tradition, trust, peace of mind, innovation and product development.” For speaker presentations, see www.ftglobalevents.com/wealthmanagement

Jack Staley, Stanford Group