The discrete charm of millions

skylines - May / June 2016

Austria s private banks offer their clients profitable asset management using every trick in the book - personal care in all life situations, coupled with the latest asset management technology.
When Nathan Mayer Rothschild founded the bank that was to bear the name of the famous financial dynasty in London in 1809, the formula for profitable asset management was still relatively straightforward. His rule for investing and increasing his assets was: put one-third in gold, one-third in property, and one-third in shares. And this structure for dividing up what you've got, which dates back to the Talmud, actually worked very well; seven generations later, the Rothschild's fortune is estimated at an incredible 350 billion US dollars. But would Nathan Mayer, son of family founder Mayer Amschel Rothschild, one of Frankfurt's Jewish ghetto, be quite so lucky in this day and age? Today, more than 200 years after one of the world's largest fortunes was founded, Rothschild would be confronted with a series of strange problems. It is no longer the success of companies, their turnovers and profits, that determine whether or not their share prices rise, but the decisions of central banks in Japan, the USA and Europe to keep interest rates artificially low. Because there is no interest to be earned on savings books or bonds, money often has no choice but to flow into the share market.
Gold is no longer a safe haven in a crisis, moreover, but an object of speculation for mafor institutional investors - what is referred to as `smart money?. Until around three years ago, the price of gold was being bushed sky-high by these speculators. Then it collapsed - despite the fact that the world was being gripped by economic crises, war was raging in the Middle East and fear of terror was taking hold in the west. And property? Taxation, particularly in Austria, of property ownership and its use, would only cause Nathan fv1ayer Rothschild to shake his head. All of which is why his successors in the management of large assets, the managers of the country's leading private banks, are so in demand today. How do the most significant private bankers manage the assets of their clients to help them achieve wealth on a similar scale to that of the Rothschilds?
According to Susanne H?llinger, Chief Executive Officer of Kathrein Privatbank, not all that much has actually changed: "In recent years, large amounts of assets have flowed into property values, land prices, apartments and gold." Putting some of your assets in shares, even for risk-averse investors, has also been an entirely reasonable move in the post few years. The low-interest policy of the issuing banks has driven investors' money straight to the stock markets. For years now, Austria's leading private banks have been recommending that their clients increase the proportion of their asset portfolios they keep in shares. At most domestic private banks, asset allocations of around two million euros feature somewhere between 30 and 40 percent of solid blue chips. Investors experienced a bitter disappointment at the beginning of this year, however, as the bottom fell out of share prices too. So is that the end of the stock market boom? And how does it go from here? Should shares no longer make up part of the deposits? After moving upwards for some time, stock markets in developed countries reached their high point in April 2015. The first decline was then triggered by the crisis in China last autumn, since when shares worldwide have lost around 22 percent of their value. Look at the stock market cycles over a longer period, however, and you see an interesting result: according to this, stock market downturns have tended to last around two-and-a-half years, and produced average lasses of 39 percent before bottoming out. Subsequent market recoveries, on the other hand, have lasted six to seven years, and delivered gains of between 53 and (in one case) a whopping 590 percent. The message is clear: if you want to manage your assets over the long term, shares are going to have to be part of the package. As Susanne H?llinger at Kathrein puts it: "We remain optimistic about shares, and prefer the USA, but also like Emerging Markets."
Wolfgang Eisl, Director of Asset Management at UBS in Austria, views the situation similarly: "UBS analysts are of the opinion that the economic dato, which are currently down, actually only indicate a Jull in the middle of the cycle. The latest correction was concentrated on industry, but the service sector is continuing to grow. Everything would seem to suggest we will return to solid economic and earnings growth. That is why we estimate shares in industrial countries will tend to be higher in the next six months." At the Private Wealth Management arm of Deutsche Bank in Austria, meanwhile, Director Christian Ohswald offers the following advice: "In the current no-interest environment, we are recommending to our clients that they position themselves at the upper end of their readiness to accept risk. In the current - highly challenging - capital market environment, however, one should also be absolutely sure to use professional portfolio management. Such an approach means you can react to changed framework conditions and market distortions at any time."
Werner Zenz from Bankhaus Carl Sp?ngler says this: "The core of our portfolios is made up of quality shares with high market strength and a long-term business policy. Even quality shares are subject to market fluctuations, however, and require a disciplined sale strategy." At Bankhaus Sp?ngler, an individual and dynamic sale strategy is estab/ished for each share position at the time it is purchased. As a result, positive price trends are not 'cut of' by early profit-taking. lt is equally important to maintain such discipline when prices are falling. Gold in its physical form should be used as part of a widely diversified investment as an additional means of safeguarding assets - although without a concrete earnings target.
lt looks, then, as if Austria's biggest asset managers are not investing their clients' money so very differently from the way the grandfather of private banking, Nathan Mayer Rothschild, might have done. There' s just one thing that old Rothschild might possibly shake his head about. So-called 'robo advisors' have made real inroads into the financial world in recent years. Clients show on-screen how much they are considering investing, the /evel of risk they are willing to accept, and the sort of earnings they imagine might result. Then they just press 'Enter', and a ready-made investment proposal appears, as if from nowhere, on-screen. Even if it is not quite that simple, of course, and in truth there are highly camplex algorithms behind the robo advisor programs, they would hardly be viewed as a reliable single source of advice at the dignified private banks. As Manfred Huber, Spokesman for the Board of Euram Bank, says: "What is it that sets a small, independent private bank apart from the competition? Certainly not a hymn to digitalisation and standardisation; rather, it's a lived conviction that only personal conversations and 'knowing one another' for years on end can create a basis for entrusting one's assets to a bank over the long term. And that doesn 't just mean the advisors; it means the Board should constantly be in touch with the clients."
lt's also possible to combine modern technology with more old-school traditions in private banking, of course - UBS in Austria is a prime example. UBS Branch Manager Eisl says the following: "UBS uses its advice product, 'UBS Advice', to monitor contractually­guaranteed, pre-defined investment risks in client deposits. lt features special software similar to that now being used so frequently in robo advisors." In this way, the investment monitoring is rationalised, and there is more time for personal discussion. Even at a time of vastly changing modern technology, therefore, private banking remains very much a people business. This is clearly confirmed by the Manager of Kathrein Privatbank, Susanne H?llinger: "Our clients benefit from the flexibility, experience and tradition of an exclusive private bank, which orients its daily activities to core values such as transparency, conscientiousness and honesty, and is not part of a large retail bank." Because even at the time of the Rothschilds, the key clients of a private bank valued one thing above all others: discretion.