CHECK-UP CLIENT INFORMATION OF PRIVATBANKIERS REICHMUTH & CO, INTEGRAL INVESTMENT MANAGEMENT CH-6000 LUCERNE 7 RUETLIGASSE 1 PHONE +41 41 249 49 49 WWW.REICHMUTHCO.CH MAY 2014

EDITORIAL THE PROFIT IS IN THE PURCHASE PRICE In recent years, the financial world FEW ATTRACTIVE BUYING OPPORTUNITIES AT PRESENT has been preoccupied with crises and how to deal with them, and a typi - ne year ago, controls on the move - Buy low, sell high cal trial and error process has en - Oment of capital were introduced for As the saying goes, the profit is in the sued. There now appears to be some - the first time in the Eurozone, namely in purchase price. Investments bought cheap thing of a fresh dawn emerging for Cyprus. A new bank bail-in model was are more likely to turn a profit than the banking sector, and the ground also tested at the same time, which tar - ex pensive ones. However, equities are rules for the future are becoming geted client deposits. This model has usually only cheap when things don't clear er. Although we take little plea - since been declared as the future stan - look so good. This was the case in Italy sure in what in some cases is excessive dard for bank bail-ins in the Eurozone. a year ago, but today more so for Russia regulation, we are nonetheless pleased Fast forward twelve months, and there or the emerging markets. In such a phase, to see this degree of clarity. After all, is jubilation as Greece returns to the ca - the risks are undeniable, but as long as this is essential if we are to be able pital market, issuing a new 5-year bond the problems are common knowledge once again to focus our services with a yield of under 5%. And this not and the weak hands are flushed out of strictly on the needs of our clients, even two years after private investors the markets, this is often an attractive without having to continually won - had 'voluntarily' taken a 90% haircut on entry point – particularly if there is no der what might be reinterpreted ret - their assets. Greece's debt burden is ne - fundamentally negative change in the roactively in the future. vertheless still at 175% of its GNP, general environment. around 70% higher than before the fi - We see less progress being made when nancial crisis in 2008. Against the back - Positive PMIs it comes to tackling the sovereign debt drop of the rescue packages, investors While the economy in the US seems to problems. These continue to hold the apparently believe the promises being be faring better, Europe is stagnating, central banks in their thrall, and the made by countries and central banks. is sluggish, and Japan is experi - trial and error process is still ongoing menting. Purchasing managers indexes here. For us as your private bankers, burning holes in pockets (PMIs) are a popular yardstick for gau - our biggest challenge lies in identify - This poses a dilemma for value-oriented ging where the economy is heading. Val - ing the implications of this process, so investors. Although the numerous state - ues in excess of 50 indicate that things as to ensure the greatest possible cer - ments and promises have had an effect are on the up. This chart shows that neg - tainty in achieving your investment on the financial markets, do you really continued on next page objectives. see any viable solutions going forward? One year ago, Italy had no government, the expectations of its economy were CONTENT low, and likewise the valuations of the n3 The Big Picture n3 «Portfolio of the Future» Italian stock market index. The and n4 Investment Policy a possible exit hung over Italy like the n5 Market Outlook sword of Damocles. Since then, Italy's n6 Swiss small & mid caps in high demand Jürg Staub stock market has gained 50% and yields n7 Hedging strategies for equity investors General Partner on Italian government bonds have fallen . n8 Change is the only constant

MAY 2014 / CHECK-UP s n

o measure this risk with the traditional i

t MSCI WORLD AND PURCHASING MANAGERS INDEX a l u c l

a Indexed, 01.01.1996 = 100 yardstick of volatility. It's common c

n 240 w o

/

g knowledge that profit lies in the pur - r e b 220 m o o

l chase price. This is easy to understand B

: e c r

u 200

o intuitively, but most people still feel more S

180 comfortable following the crowd and want confirmation before making a move. 160 However, buying something that is 140 already expensive in the hope of being

120 able to sell it at an even higher price is

100 pure speculation, and often misfires.

PMI USA 46 54 55 55 55 49 47 56 58 51 44 43 45 54 52 49 60 61 57 52 55 52 51 53 49 50 33 46 55 56 58 57 53 51 50 53 57 Price corrections or price bubbles PMI CH 47 46 50 56 59 55 51 53 63 64 59 47 41 49 46 44 54 58 55 52 57 64 67 63 62 54 36 41 56 64 62 53 50 48 50 51 55 In the current environment of highly ac - 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 tive central banks and increasing state ative PMI values (below 50) mostly mean tually all markets – bonds included – in - interventionism, we gauge the risk of attractive purchase prices for equities, to speculative markets. corrections as being roughly as high as and vice versa. The index is currently the risk of a price bubble forming. Given po sitive. Although this is good news Is still mobile? the glut of money and rates with regard to economic performance, it Government debt is a deferred tax. around zero, people are desperately see - is not necessarily positive for the equity Wealth can move from one place to ano- king investment opportunities. Almost markets. Looking to the past, it was ther, and is therefore not as easy for go - all of them are currently backing equi - mostly better to invest in equities when vernments to tax as real estate, for ties, this despite the fact that many val - the PMI values were in the red. example. The impending introduction of uation methods indicate this is a rela - the automatic exchange of information tively expensive market. That said, equi - Anything but is aimed at changing this. And if other ties seem a better option than bonds There are increasing calls worldwide for countries follow the US lead and tax since they at least offer the prospect of to become even more their citizens wherever they are in the real value preservation, even in an infla - expansionary to prevent possible defla - world, then these citizens' wealth would tionary environment. And they are ex - tion. Deflation is only dangerous if debt suddenly be as immobile as houses. posed to less of a restructuring risk than lies in the hands of private individuals, This would of course make wealth ea - bonds. Even in the event of a renewed fi - since the latter are seldom able to play sier to tax. We believe the more correct nancial or sovereign debt crisis, they for time. However, since the financial cri - approach would be to reduce excessi - would be the better instrument, although sis it is states that are the biggest debt - vely high sovereign debts through re - prices would fall sharply to begin with. ors and they have many means of mak - structuring. This would affect the inves - After all, with equities you have a share ing adjustments, as the example of Ja - tors concerned, but would also pose in a company that produces products and pan has shown. Southern Europe is more of a threat to the system given the services, particularly when they are not caught up in deflation because of the key role of government bonds for banks, hampered by state interventionism. EUR. Since unemployment in southern insurers, and pension funds. The taxa - Keep some cash at hand so that you can Europe is much higher than it was in Ja - tion option is thus becoming increasin - take advantage of share price correc - pan, the former is scarcely likely to be gly probable, in addition to higher infla - tions. Over the long term, the profit is al - able to handle deflationary pressure as tion. ways in the purchase price. easily as Japan for so many years. Expensive financial markets A world without interest Looking at the opportunities for inves - When interest rates are at zero, invest - tors at present, you quickly see that ma - ment success hinges solely on price mo - ny asset classes are expensive, real vements. People who bet on price chan - estate among them. If prices rise more ges used to be called speculators. The quickly than earnings or profits, then current zero interest rate policies of the the risk of a correction increases. Ho - Christof Reichmuth major central banks have thus made vir - wever, it is now no longer possible to General Partner

2 CHECK-UP / MAY 2014 THE BIG PICTURE OUR SCENARIO ANALYSIS IN A NUTSHELL

CONSENSUS STAGFLATION THE DEBT CRISIS IS OVER DEFLATION Time heals all wounds Chances abound in Europe Back to recession Growth continues to pick up slightly in Growth remains low in the industrialized Most emerging markets return to their Growth does not recover. Reforms fail to the US, EU, and Japan, and takes a turn countries. Unemployment rates remain former levels of competitiveness on the materialize. Despite expansionary cen - for the positive again in southern Eur- high, and unit labor costs rise in northern back of currency depreciation and tral banks, it is not possible to push ope. The Eurozone remains intact, but it Europe as a result of regulatory interven - strong domestic consumption. The high - long-term interest rates below growth will take some time before the imbalan - tion (minimum wages, bans on redun - er interest rates and low valuations are rates. Countries' debt burdens continue ces are corrected. rates and in - dancies). Negative real interest rates also attractive for financial investors. to mount. There are two possibilities for terest rates remain extremely low in all help to push newly created Capital flows turn around, asset prices Europe: 1) Take the joint path and show industrialized countries; the ECB may money into the economy. The flight into pick up, and capital spending increases. solidarity in dealing with the debts. This possibly lower its key interest rate real assets intensifies and leads to asset The synchronous economic upswing in lowers interest rates, but growth impe - again. The Fed continues to taper its price inflation. Wages and prices begin the US, EU and Japan is bolstered fur - tus is lacking. Credit growth remains ne - bond-buying program over the coming to rise, and in particular an inflationary ther by the recovery in the emerging mar - gative. Falling prices and positive real months. Long-term interest rates rise spiral takes hold in Japan. The develop - kets , and gathers pace. In the slipstream interest rates sweeten the pill for pri - slightly. The exchange rates among the ment of the emerging markets is a mixed of the boom in northern Europe, the cri - vate individuals. The savings rate rises, major currencies remain relatively sta - bag. All in all, growth declines and the sis hit countries in the Eurozone are also and capital spending declines further. ble. The limit of CHF 1.20 vs the EUR currencies weaken, thus leading to im - able to recover, and benefit from rising Europe finds itself taking the Japanese guaranteed by the SNB remains in force. ported inflation. Higher inflation world - capital spending and the general sense course, and slips into a lengthy stagna - Mixed showing in the emerging mar - wide, coupled with interest rates being of a fresh beginning. The world is able to tion phase. kets; growth will flatten off on the kept low, helps to curb the real burden of grow its way out of the debt problem. 2) Despite all efforts to the contrary, sou - whole but will remain higher than in the government debt. thern Europe does not become competi - industrialized countries. Debt reduction tive and northern Europe is unwilling to is postponed into the future. provide further guarantees for their counterparts to the south - the result is debt restructuring and currency union exits. Economic growth in Europe collap - ses. Europe slips into a depression.

INVESTMENT IDEAS : INVESTMENT IDEAS : INVESTMENT IDEAS : INVESTMENT IDEAS : - Dividend stocks worldwide - Global leaders among equities (glo - - Cyclical stocks, in particular in the in - - Long duration bonds - Hedge funds (e.g. long/short equity) bal, pricing power, little regulation) frastructure sector - Selectively hedge funds, e.g. short - Equities in southern Europe and - Precious metals - Equities in southern Europe and credit emerging markets - Selectively hedge funds (e.g. macro emerging markets - Gold as a store of value in the event or long/short equity) - Foreign currencies of currency reforms - Real estate - Hedge funds (e.g. distressed securities in southern Europe and emerging markets) Probability 12 months 45% Probability 12 months 35% Probability 12 months 10% Probability 12 months 10% Probability 24 months 35% Probability 24 months 45% Probability 24 months 10% Probability 24 months 10% Probability 36 months 25% Probability 36 months 50% Probability 36 months 15% Probability 36 months 10%

«PORTFOLIO OF THE FUTURE» DIVERSIFIED AND FUTURE-ORIENTED – ADAPTED TO THE CURRENT MARKET ENVIRONMENT POT 1: POT 2: POT 3: % WHAT COMMITMENTS PRESERVING VALUE SEIZING OPPORTUNITIES RETURN* VOLATILITY * 39% Cash & Money market or cash in 0% 1% fixed-income home currency investments Short-term corporate Inflation-linked govern - bonds ment bonds in EUR, USD, 0-2% 5% and SEK

1% Structured products EUR-Banks, FX Asia 5-10% 20% 35% Equities Stocks with high divi - Gold mining stocks 4-8% 15% dends and low valuations Italian equity index from the sectors food, Japan energy, pharmaceuticals, Pilatus and telecoms from our Undervalued Emerging Global Leaders list Markets (China, Russia) 2.5% Real estate Switzerland Asian REITs 4-6% 15% 15% Alternative Matterhorn 3 / 24 or 6-8% < 10% investments third-party products Reichmuth Himalaja 6-10% < 15% Reichmuth Macro 6-10% < 15% 7.5% Precious metals Gold (physically) Silver ETF 8-10% 15% Total 3-6% approx. 6%

*Expected average values over a 5-year time horizon – no guarantee MAY 2014 / CHECK-UP 3 INVESTMENT POLICY MAY 2014

Economy Switzerland Germany Italy US Japan China GNP in USD bn 631 3428 2015 16245 5960 8227 GNP growth 1.7% 1.4% -0.9% 2.6% 2.6% 7.4% Unemployment 3.3% 6.7% 12.6% 6.7% 3.6% 4.1% Expectations 12 months Switzerland Germany Italy US Japan China Economy 

Interest rates Switzerland Germany Italy US Japan China 3-month Libor 0.02% 0.29% 0.29% 0.23% 0.14% 5.5% 10-year govt. bond yield 0.9% 1.4% 3.1% 2.6% 0.6% n.a. 10-year swap rate 1.2% 1.7% n.a. 2.8% 0.8% 4.7% Inflation 0.0% 1.0% 0.4% 1.5% 1.5% 2.4% Expectations 12 months Switzerland Germany Italy US Japan China 3 months interest rates  10-year interest rates    Inflation 

Stock markets SPI DAX MIB SPX TPX HSCEI Index level 8168 9366 21550 1862 1167 10080 Performance 1 year 16% 25% 45% 23% 5% 2% Performance 5 year (p.a.) 13% 15% 7% 19% 9% 5% Performance 10 year (p.a.) 7% 9% 2% 7% 2% 11% Valuations SPI DAX MIB SPX TPX HSCEI Price/earnings 2014 16.2 13.1 15.7 15.9 12.9 6.9 Shiller P/E 25.5 20.6 12.7 24.6 23.2 19.0 Price/book 2.4 1.7 1.2 2.6 1.1 1.1 Price/sales 1.8 0.8 0.6 1.7 0.6 0.8 Dividend yield 3.2 3.0 3.1 2.1 2.1 4.6 Profitability SPI DAX MIB SPX TPX HSCEI ROE 14.2% 11.5% 5.8% 14.8% 8.7% 17.3% 10-year profit margins 10.0% 4.4% -0.8% 9.5% 5.2% 10.6% Current profit margin 8.9% 4.6% 5.1% 7.6% 2.9% 10.9% Drivers SPI DAX MIB SPX TPX HSCEI Monetary policy Positive. Positive. Negative. Positive. Strongly positive. Negative. SNB must take lead ECB key rate set ECB key rate set too Reduction in QE BoJ has only just Government wants from ECB. Minimum much too low high for Italy, lending program. begun with to curb exchange rate policy. for Germany. not functioning. QE program. credit growth. Expectations 12 months SPI DAX MIB SPX TPX HSCEI Stock market  

Currencies EUR USD JPY CNY Current exchange rate 1.22 0.88 0.86 0.14 Purchasing power parity 1.25 0.91 1.08 0.14 Influencing factors and forecasts EUR USD JPY CNY Monetary policy EUR-minimum exchange rate Reduction Strongly Less restrictive. in bond buying expansionary. Controlled in the US should appreciation support the USD. vs. the USD.

Interest rate spread (carry trade): no change no change no change rising, but no open market Current account: 13.0% Germany 7.4% Italy 0.8% -2.2% 0.7% 1.5% Expectations 12 months EUR USD JPY CNY Currencies 

Legend:  = increasing  = strongly increasing  = neutral  = decreasing as of: April 17, 2014

4 CHECK-UP / MAY 2014 MARKET OUTLOOK 2nd TRIMESTER 2014

CURRENCIES INTEREST RATES STOCK MARKETS Exchange rates have remained rela - Interest rates are still being shaped The stock markets have not posted tively stable. The latter could reco - by the central banks' determination any further gains since the beginning ver somewhat, but will tend to lose to keep them extremely low. Since of the year. There have been some ground against the EUR or CHF over the massive increase in money sup - particularly strong declines for com - the long term due to US monetary po - ply has had no inflationary impact munication and biotech stocks that licy being less focused on the goal of thus far, long-term yields have once had previously sca led heights that monetary stability, together with the again fallen toward their historical were difficult to justify fundamen - negative current account balance. lows. The expected rise in interest tally. The volatile side ways trend is rates will not begin until 2015 at the likely to persist. Against the CHF, the EUR moved back earliest. closer to the CHF 1.20 limit guaranteed Equities are fairly valued in terms of the by the Swiss National Bank (SNB). Since The central banks of the industrialized fundamental valuation criteria. Although the Eurozone inflation rate has fallen to countries have been keeping their short- global economic growth will increase virtually zero, continuing with this ex - term interest rates close to zero for some slightly, it is unlikely to exceed the long- change-rate policy would not carry the time. As a result, they can only steer term growth potential. Unemployment threat of imported inflation. The SNB monetary policy by unconventional will remain high, and companies will will therefore persist with the CHF 1.20 means, i.e. above all by buying long-term maintain their good profit margins. The floor for even longer than had been ex - government bonds. The US Federal Re - free cashflows will stay strong, and com - pected. serve will continue to gradually taper panies will be able to allow themselves Regarding the JPY, last year's strong de - off its purchases, while the European high dividend payout ratios without nega - preciation has been brought to a halt Central Bank is once again considering tively impacting their balance sheets. and it has posted slight gains against the purchase of bonds in light of the The high dividends will mean equity the USD. Since the Japanese central mounting threat of deflation. As a re - yields will remain attractive, above all by bank has thus far remained below its sult, the already relatively high yield comparison with yields on fixed-income target inflation rate of 2%, and will use spread between USD and EUR bonds investments. Even though the upside po - every monetary policy means at its dis - will probably widen even further. tential for equity investments is modest posal to achieve this, the JPY will resu - The interest-rate trend among the emer - over the short term, and there is the me its previous downward trend. ging market currencies is very much a threat of temporary share price corrections , The emerging market currencies initial - mixed bag. Inflation rates are tending investments in first-class equities with ly stabilized at their lower levels, and to decline there, too, and falling inter - well-protected yields remain attractive then followed differing paths: while the est rates are therefore on the cards over the longer-term perspective. BRL and INR recovered partly, the RUB over the longer term. However, the inte - For investors with higher risk appetites, continued to weaken. China has aban - rest rate level will remain clearly above there are interesting opportunities for doned its previous policy of a steady, that of the industrialized countries due share price gains among equities in sec - slight appreciation. The emerging mar - to higher economic growth. tors currently beset with crises, such as ket currencies are heavily dependent on Risk premiums on lower-quality bonds companies in the electricity industry, specific political developments, but the have continued to come down. It is ques - certain commodities producers, and long-term trend is heading downward tionable whether these now suffi - banks or non-life insurance companies. due to higher inflation rates. ciently address the default risks. The crisis-hit countries in the Eurozone have been able to place large volumes of new government bonds at low risk pre - miums. Over the longer term, the risk premiums will rise again unless there is significant progress in cleaning up state finances. Dr. Max Rössler

MAY 2014 / CHECK-UP 5 SWISS SMALL & MID CAPS IN HIGH DEMAND INVEST IN SWISS PEARLS WITH REICHMUTH PILATUS

e have been investing in smaller VALUATION COMPARISONS WSwiss companies for some 18 P/E P/B P/S Dividend g r e b

years with our small and mid cap fund m

Reichmuth Pilatus 13.9 1.9 1.4 2.7% o o l B

: e

Reichmuth Pilatus. We now have a broad c r

SPI 16.4 2.5 1.8 2.9% u o network of contacts with entrepre - S neurs, and are in touch with the ma - nagement of many of these firms. Nu - nies into greater specialization. Many A long-term horizon is important merous meetings with managers have of them are now market leaders, and Despite higher fluctuations in prices, allowed us to learn a great deal about generate their sales worldwide. These the Swiss small and mid cap segment the value chains and cycles in various days, Swiss firms play a key role in a has clearly outperformed the SPI over industries. Stock prices for small cap whole range of niches. the long term. Although small and mid companies tend to be more volatile as cap valuations are now no longer cheap, the general market. But this also crea - High cyclicity they are still at least relatively attract - tes inter esting entry opportunities. Many Swiss small and mid caps have ive by comparison with the larger com - an industrial background, and are of - panies in the SPI. Looking at the econo - Management is key ten key suppliers for larger compa - my, we see a slight improvement in Eur - With small cap companies in particular, nies that are exposed to the global ope. Many companies in the small and entrepreneurship is pivotal. Manage - economy. If the latter slows down, mid cap segment have streamlined ment in these companies plays a more specialized suppliers usually feel the their structures in recent years, have important role than in the case of global impact all the more as orders quickly costs in check, and should profit from a diversified corporations, since the im - drop off, capacity utilization declines, pick-up in the economy.

10-YEAR COMPARISON REICHMUTH PILATUS VS SWISS PERFORMANCE INDEX Attractive portfolio addition Reichmuth Pilatus 280 In the current environment, investors SPI Swiss Performance Index 260 are increasingly seeking investment op - 240 portunities in their home country and 220 currency. Swiss small and mid caps are 200 therefore enjoying strong demand at 180 present. We also see them as an at - 160 tractive addition to portfolios, but real - 140 ize that their share prices will not rise 120

g for ever. We therefore recommend always r e 100 b m o o l taking a diversified approach to in vesting B

80 : e c r u 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 o in small and mid caps, with a view to S using corrections to expand positions. pact of their decisions is much further- and margins fall. Exchange rates are We would be happy to discuss the in - reaching. A stable shareholder structure – another exacerbating factor. The sharp vestment opportunities in this segment often also with a large (family) share - appreciation of the CHF in 2011 forced with you in person. holder as an «anchor» – provides the the SNB to adopt a minimum exchange ne cessary foundation and stability. rate policy against the EUR as Swiss firms were unable to make adjust - Global Swiss firms ments on the costs side so quickly. Many Swiss firms have a high degree of Prior to this intervention, Swiss small specialized expertise and are often and mid caps also lost much more technology leaders. Switzerland has al - ground on the stock market than their ways been subject to very strong cost large cap counterparts. pressure, and this has forced compa - Patrick Erne, CFA

6 CHECK-UP / MAY 2014 HEDGING STRATEGIES FOR EQUITY INVESTORS INDIVIDUAL NEEDS OF INVESTORS ARE KEY

nvestors have a number of possibili - Equity index futures in full in positive markets, but you're also Ities open to them when it comes to Equity futures can be a very cost-ef - less affected by possible share price protecting themselves against correc - fective means of implementing a hed - slumps. tions in share prices. Choosing the most ging strategy. Futures are contractual suitable instrument for this is often a agreements to sell equities on a set A whole host of additional instruments matter of compromise, striking a bal - date in the future at a price fixed in have been developed for hedging strat- ance between simplicity, costs, and for - the present. The gains and losses on egies in recent years – e.g. mini futures, going further upside potential. futures are settled on a daily basis, CFDs, volatility products, and variance i.e. they are deducted from or credi - swaps – but these are as a rule suitable Partial sales and cash reserves ted to the person's account every day only for professional investors. If you The simplest way of temporarily protec - depending on the direction the cho - want to use hedging strategies, you ting your portfolio is to sell some shares sen index has moved in. They are should be aware of their advantages and thus increase your cash holdings. some what more complex for many in - and disadvantages. These are always This option is often the most suitable vestors due to the margin require - investments that run contrary to the ori - for patient investors, who see cash as ments and the daily settlement. It's ginal investment. This also means that an opportunity for future purchases. often also difficult to find contracts if a correction fails to materialize, the suitable for a given portfolio. hedge will have a negative impact on Stop-loss limits performance. With these, equities are sold as soon Put options as they reach a defined stop-loss limit. If you want to keep your opportunities Should I take out protection now? Although popular with many investors, open, you can use put options, alt - The answer to this question will differ this method does entail certain disad - hough these entail higher costs. With from individual to individual. For invest - vantages. If the limit is set too close to these options you acquire the right – ors with a long-term horizon and other the current share price, a slight correc - but not the obligation – to sell shares sources of income, such hedging is tion in the market can trigger sell or - at a certain point in time at a fixed price . superfluous. For investors who want to ders. If the share price then picks up This means you can continue to benefit be able to seize opportunities in more again, the investor has to pass up fur - from rising share prices. However, challenging markets, we tend to advise ther gains. Furthermore, when such option s are complex products, and partially building up cash holdings. For equity investors who get nervous in the event of corrections, it's advisable to COSTS COMPLEXITY TIMING look into the pros and cons of an indivi - Increase in liquidity Low, only transaction costs Low Important dual hedging strategy. We will be hap - py to discuss this with you. Stop-loss limits Medium, loss depending on limit Low Not important

Futures Low, modest transaction costs Medium Important

Options High, cost of premium High Verry important

automatic sell orders are triggered, you have to know your way around strike this can have a negative impact on di - prices, terms to maturity, and volatility. versification. However, if the stop-loss Technical financial knowledge is essential limit is set well below the current share when it comes to choosing the right price, the loss will mount until the options. Seasoned investors may also positio n is actually sold. use a combination of different options. If you use option strategies with your equity portfolio, you don't participate Beat Bühlmann, CFA, CAIA

MAY 2014 / CHECK-UP 7 CHANGE IS THE ONLY CONSTANT REMY REICHMUTH ABOUT THE PRIVATE BANKER PROFFESSION

ack in the midst of the financial cri - mented, the reasons for decisions have the front-office staff. We try to limit Bsis, Karl and I were on our way back to be set down in writing, and every in - the amount of internal and administra - from a client meeting one day when he vestment selection has to be transpa - tive work. Internal papers should be no said pensively: «Sometimes I think I rently traceable over many years. The more than one page long, for instance. owe you an apology for getting you into urge for ever more regulation concerns Many of our risk management checks private banking.» I was taken aback, me. This is well intentioned with a view are implemented directly in the bank- and assured him that I'd chosen the pro - to protecting investors – but ultimately ing system. And we also outsource a fession of my own free will – and that I it does scarcely anything to their real lot of things that are not part of our core come to work happily every day. But benefit. Amid the glut of legislation, business, or where we can't add any what was the reason for his statement? keeping an eye on what is really impor - value. tant becomes more difficult. Mutual Banking as a profession trust is being replaced by a safety-at- I believe we have thus been able to put The standing of bankers has suffered in all-costs mentality. At times I get the the necessary adjustments in place for recent years. Unfortunately, there's impression that an asset manager has our client relationship managers to con - been no shortage of reasons for this, be to spend more time dealing with laws tinue to focus primarily on the clients it the bailouts of overindebted banks than asking whether something is real - and their needs. Our structure as a fa - with public funds, a raft of fraud scan - ly right for the client. If you're of the mily business, with a long-term philo - dals, or excessive bonuses, to name view that the authorities know better sophy spanning the generations – with - just a few. The financial industry lived than the individual, that's a good devel - out having to be accountable to the beyond its means for a long time, and opment. If you see things differently, stock market every quarter – may be to the shakeout of the sector – which is you will dislike this development. our advantage in this regard. healthy in my view – has a way to go yet. There are still too many banks with - It's the client that counts – and only And so I can continue to focus on the out a clear profile of their own. And the the client true essentials: interesting discussions financial sector in Switzerland will Banking as a profession has changed. with clients, identifying their expecta - shrink further. Difficult times for our But that wasn't what was giving Karl tions, objectives and individual needs, profession? pause for thought back then, but rather defining the most probable market sce - his «personal identification with the narios – all in keeping with our credo Serving the state client». If the environment makes it more «bringing people and money in harmo - While bankers were once primarily difficult for us to put the client at the ny», i.e. selecting the right investment «the client's confidant», they have now center of everything we do, then that is strategy for each individual. also become «the tax police». The rea - a bad development. son for this lies in the monetary system. Balancing these different aspects in my The central banks print money, supply Everything is in flux job presents fresh challenges every day it to the commercial banks, and these «Change is the only constant», Heracli - – something I find as enjoyable as it is bring it into circulation. The monetary tus is supposed to have said in around satisfying. system makes the banks the extended 500 BC. In my view, this remains parti - arm of the authorities, and thus a con - cularly true today for entrepreneurs. trolling mechanism of the state's fiscal Thanks to flexible and 'breathing' struc - jurisdiction. For example, my work also tures, we have been able to position makes me a tax enforcement officer of ourselves in line with the environment. the USA. What does this mean in real terms? It means that we only select employees Trust versus safety-at-all-costs who have a keen sense of the service The administrative part of our job has mentality. For example, our colleagues therefore increased markedly in recent in the back office are also prepared to years. Every discussion has to be docu - go that extra mile for their clients, i.e. Remy Reichmuth, CFA

8 CHECK-UP / MAY 2014