Bank Leu

"Innovation", said Peter Drucker, the management thinker and educator, "is the act that endows resources with a new capacity to create wealth." This remark seems to capture the essence of what defines success in almost all business activities. But successful innovation invariably leads to imitation or some form of emulation. As such, a central issue for business strategists is to find ways to maintain their competitive advantage. In wealth management, for instance, investment concepts can easily be copied and key staff lured away. A look at institutions such as Bank Leu, however, shows that competitive advantage can be maintained if an organisation has the right strategy and values in place.

"A willingness to go that 'extra mile' is what differentiates us from many other wealth managers."—-Manfred Wergen

Manfred Wergen, Bank Leu's Head of Private Banking for Austria and Germany explains: "A referral is the most important customer acquisition tool that we have. Indeed, wealth management can be compared with a romantic liaison. In some ways it is like 'love at first sight'. If the prospective client is convinced that the relationship manager has the competence and the dedication to look after his or her interests and is on the same 'wavelength', then you have the basis of a good relationship. Because of this strong element of human interaction, success in private banking eventually comes down to 'people skills', which include being able to develop an empathetic relationship and strive to do more than what is obligatory. This willingness to go that 'extra mile' is what differentiates us from many other wealth managers, and it is our advantage within the highly competitive wealth management industry."

"In addition to our people, the combination of our infrastructure, our network and how it functions internally is a key competitive advantage." —Adrian F. Leuenberger

"In addition to our people," illustrates Adrian F. Leuenberger, Member of Bank Leu's Executive Board, "the combination of our infrastructure, our network and how it functions internally is a key competitive advantage. We have a service structure where each department treats the other as a client. We call this serving 'internal clients'. For us this is a holistic approach. If you look at how traditionally-run Swiss private banks manage client relationships, you will notice that they have certain similarities with the way independent asset managers operate. They have 'star' relationship managers who look after everything for the client-both at the private level and the investment level. Although this still works extremely well for a certain client segment, it tends to have gaps where specific skills are missing. So what we try to do is create a mix between specialists and generalists. We all know that it is not possible to have a single person who is an expert in all the needs of a client. So we position our relationship managers as generalists who each have one or two areas of specialisation. They are our window to the client and have a good fundamental knowledge of the products and services that a client would need. The relationship managers, in turn, are supported by specialised groups within Bank Leu, the Credit Suisse Group or third parties who are experts in specific products and services. Such clusters with distinct skills and industry knowledge ensure that our clients receive 'best of class' products which could either be from us, our group or from external sources. This not only makes the wealth-management process more transparent, but also ensures that the clients have access to the right people whenever the need arises."

"For instance," adds Wergen, "to serve specific client groups such as artists, writers and actors, relationship managers might require different skills than they would need for, say, a client who has made his fortune in machine tools or the food industry. The distinct client groups might not only have different interests but also different objectives and investment preferences. At the same time, if you look at the present generation of HNWIs and UNHWIs (high net-worth and ultra high net-worth individuals), many have an international background and education, are technology-savvy and are proactive in their wealth-management approach. For serving such clients, we again have people with a different mindset."

With approximately 600 employees and CHF 34.1 billion in assets under management, Bank Leu is a mid-sized wealth manager. Its market standing and reputation, however, have a far larger footprint. There are several reasons for this. First, it has inherent strengths in products such as alternative investments, advisory services and asset management geared to the needs of wealthy individuals and families. And second, it has a solid record of continuity . Founded in 1755, it has a long record of uninterrupted banking services in Switzerland . As the oldest bank in the country, Leu et Compagnie, as it was known then, has evolved from an institute for foreign investments into one of the leading addresses for private banking and wealth management. From the earliest days the bank has served the rich and the powerful: the Austrian empress Maria Theresia was one of the bank's first clients.

"We are strong believers in Swiss jurisdiction and Swiss values," says Leuenberger. "Apart from our offices in Zurich and Geneva , we only have a branch in the Bahamas and representations in Latin America . We therefore see ourselves primarily as a Swiss bank operating from Switzerland . So what makes us typically Swiss? If you look beyond the traditional bank-client confidentiality, one of the core advantages of Swiss banking, and, by extension, with us, is the continuity and reliability. This is buttressed by our long record of peace and neutrality. Here on Bahnhofstrasse, if you could travel through time and go back a hundred years, apart from the advances in technology, you would hardly see any changes. And, I am sure, if you go forward a hundred years and look around you will not see much difference either. This continuity gives a sense of permanence and stability, which is what wealth management, especially from the perspective of wealth preservation and generation-planning, is all about."

Since 1990 Bank Leu has been part of the Credit Suisse Group. Although fully independent (Bank Leu has its own services, research, trading and customer relationship management) it can draw on all the resources of the group, which includes the network, the specialists, investment banking services and products geared towards its geographical client segments. This is of special importance when it comes to serving clients with complex needs. At the same time, Bank Leu also functions as a group specialist for investment products such as Cat Bond Funds, for instance.

Cat Bonds enable the insurance industry to transfer some of the risks associated with natural catastrophes to investors, who in turn benefit from both interest payments and an attractive premium. Due to regulatory factors such bonds are not available for direct purchase by retail investors. Bank Leu's innovation was in the fact that it developed a fund of such bonds and created a new asset class for private investors and pension funds. These Cat Bond Funds can not only be freely traded but also offer attractive returns, uncorrelated with the developments in the financial markets. Bank Leu's first such fund was approved by the Swiss regulatory authorities in December 2001. Investor demand was so good that it had to be closed to new subscriptions a year after its launch. Subsequently Bank Leu launched additional Cat Bond Funds which are again open for new subscriptions. A couple of years ago the Harvard Business School published a case study which analysed the thinking and the management processes that went into the development and launch of this original product.

"We see ourselves as a boutique with specialised skills in a global corporation," says Wergen. "A sort of blue-blooded daughter serving a niche client segment."

Leuenberger adds: "Our philosophy is to treat all our clients in the same way. This means giving them all equal attention and time. However, a person with investable wealth of half a million euros does not seek the same asset management services that a client with say 20, 30 or 100 million does. From our perspective, the definition of a smaller client is not how much money he has with us but what his total wealth is. So, with wealthy individuals, we are willing to start a relationship at much lower levels than is customary. And in due course, after we have proven ourselves, we count on it d eveloping into one which is deeper."

Outside of Switzerland , the European countries are the biggest single market for Bank Leu, topped by German-speaking Europe . In addition, it has three core growth markets: one is Eastern Europe, which extends all the way to Russia and the surrounding countries; then there is Latin America, which has traditionally been an important market for the bank; and it has a fairly important client base in the Middle East . In all these regions, especially for discretionary portfolio management, Bank Leu's main focus is on high and ultra-high net worth individuals and families.

"When we talk to such prospective clients," says Leuenberger, "we look at their long-term objectives, particularly for preserving and growing their wealth, transfer to the next generation and, above all, risk diversification. In some regions risk is a significant factor, especially if you look at many of the wealthy industrialists and businessmen-a large part of their assets are all in one country: plants, real estate and other holdings. This is a massive country exposure and risk in one basket."

In the classical mandates, Bank Leu's portfolio managers base their decisions on a benchmark, which is composed of the most important stock indices. The goal is to exceed the performance. The benchmark is composed according to the clients' risk profile which can vary from a fixed income mandate for a risk averse investor to an equity mandate for a client who is willing to take more risk. Depending on personal choices, a client could make certain restrictions or certain preferences such as precious metals, specific commodities etc. For investors seeking absolute returns with limited risk in both rising and falling markets, the bank has developed an absolute mandate. The objective is to keep client assets as stable as possible during difficult periods and grow them during better times. For clients with specific requirements, such as for family offices, or those based on client-specific benchmarks, Bank Leu offers special mandates, looked after by a separate team within the asset management division.