PRIVATE BANKING/WEALTH MANAGEMENT

Bank Sal. Oppenheim jr & Cie Luxembourg

"If we believe that a particular investment concept makes sense for our clients, we try to find solutions which we would also use for our own investment needs." —François Pauly

In the competitive dynamics of wealth management, innovation is not driven by products alone, but increasingly by creating and benefiting from the right opportunities. Wealth managers that understand this build their strategies around a profound knowledge in three core areas: managing client relationships, asset allocation and risk management. For them, private banking is about optimising wealth preservation and growth. Although everybody says this, few do it as well as Sal. Oppenheim, the leading independent private bank in Europe. The group, headquartered in Cologne, also includes Germany's BHF-Bank and manages approximately euro 140 billion in client assets.

When Salomon Oppenheim jr opened his doors for business in 1789, George Washington was inaugurated as the first US president; the storming of the Bastille marked the beginning of the French revolution, and the first steam-powered cotton mill was installed in Manchester. Although the world has gone through immense changes since those days, from Sal. Oppenheim's perspective, what hasn't changed are the bank's fundamental values which have enabled it to prosper and remain family-owned.

So what are these values? As an investment advisor and asset manager, Sal. Oppenheim sees itself first and foremost committed to look after the interests of its clients. With this standpoint, new ideas are encouraged and the proverbial 'not invented here' syndrome has no place in the bank's corporate values and practice. As a result, lots of fresh air blows through the organisation, creating a momentum that has enabled it to develop a unique approach to wealth management that is not easy for competitors to match.

François Pauly, the CEO of Sal. Oppenheim in Luxembourg, explains, "There are two facets to our bank: on one hand we have tradition, and on the other we have innovation. For instance, in 2005 when we invested in a bank in China with Deutsche Bank, the decision partially reflected our natural affinity to new markets and our desire to get a direct feel for this emerging opportunity. This is the same with our products. If we believe that a particular investment concept makes sense for our wealthy clients, we try to find solutions which we would also use for our own investment needs. Our approach is different to that of the global banks, in that we do not develop such investment products internally. If there are good products in the market, we get them and they are then tailored to our requirements. This is a fundamental difference between us and many of the global banks, especially on the consulting side of our business where we feel we can only be objective if we look for the best available solutions, irrespective of the provider.

For example, in the top-end of the German market, we offer wealth management advisory services where we are not the primary bank, but function as the advisor. In this specific activity we can have 20% of a client's assets at Sal. Oppenheim and 80% with different banks and asset managers. As advisors, our objective is to find and recommend the best investment opportunities. For instance, if a client wants to make private equity investments in life sciences or biotechnology in Europe or the US, we do the due diligence and give advice on selecting the asset manager. Depending on what the client wants, we can manage the relationship or only look after the reporting and controlling. The advantage of our reporting is that we take the monthly reports from several asset managers and put them together in a single report. Because we use the same standard reporting tools for all the investments in the portfolio, our clients can easily compare the performance of the different assets and determine whether they meet the required benchmarks or not."

Although this data aggregation sounds simple, it is not easy; especially as many such diversified portfolios have assets with several banks and managers who might be using different criteria to measure performance. In addition, there are often other components in the portfolio such as real estate, rental income etc. Sal. Oppenheim offers such services to family offices and ultra high-net-worth individuals who have investable assets of euro 50 million or more.

"To all our clients," says Pauly, "irrespective of the type of mandate, we recommend products that are not only based on their risk profile, but also take their preferences and understanding into account. It does not make sense to put something into a portfolio that the client does not relate to or is not happy with. Having said that, what we always look at is ways to diversify risk. One way to do this is to have some products in the portfolio that do not have a correlation with the economic cycle. This is why we believe that in the long-term, clients in the ultra high net worth category for instance, should have between 5 to 10% or even 15% exposure to hedge funds."

"When we serve our different client groups," he adds further, "from the family office and the ultra rich (UHNWIs) mandates to the rich professionals (HNWIs), we first need to understand their objectives, expectations and their stage in the wealth cycle. Is it a family where new wealth is being generated through its own business, or is it a family with wealth in the second or third generation, where wealth preservation is a higher priority? Understanding the time horizon is equally important for developing a banking relationship. Because many of the investment products make sense only over a five or ten year period, we need to understand what the client's priorities over this time scale are. Call it long-term vision or financial planning, but it is necessary to have this long-term component. The wealth management process also becomes smoother when the client and the banker have a similar viewpoint. So if there is a downside, then the client is prepared to understand it.

The time horizon is also a key element in strategic asset allocation. Let us take the example of a person who is 50 years of age, has three daughters, has his own business and has approximately three million in investable assets. On retirement he wants to have a nice piece of real estate and wants to maintain a certain lifestyle with a specific amount in monthly income. On the basis of this profile, we can do a strategic asset allocation that would enable him to meet these goals. We develop such asset allocation models also for smaller clients whose assets are managed completely by us, but with a much higher level of support and closer client-bank interaction than is usually the case with many of the global banks.

An additional component is tax optimisation. Investments from an international taxation perspective can make a lot of sense or no sense at all. For instance, you can have an opportunity to invest in Vladivostok with a potential of a very high rate of return. The opportunity however, will not be very interesting if you cannot repatriate the dividends. But if you could use a Cyprus-based investment company to channel the dividends, then the investment could be an attractive one. These are some of factors we consider in our integrated approach to wealth management."

With this multi-faceted approach, it did not come as a surprise when Euromoney, a UK-based trade publication, again ranked Sal. Oppenheim as Germany's best private bank. In this year's ranking, Sal. Oppenheim was placed on top in ten of the 23 categories. The areas where it scored best included consulting-intensive categories such as family office services and financial services for inherited wealth.

"We have one clearly defined market, which is the highly rich families in Germany, Switzerland, Austria and Luxembourg," explains Pauly. "Their historical and traditional link with Sal. Oppenheim runs very deep."

Sal. Oppenheim's historical market also includes Latin America. It also has a growing client-base in the neighbouring countries such as Italy, Benelux and France. To further increase its European presence, it acquired Services Généraux de Gestion, SGG, a Luxembourg-based asset manager specialising in asset management services for European family-owned businesses. Building on its European strengths, Sal. Oppenheim has also positioned itself as an important player in the growing economies of Eastern Europe. To this end, it opened a subsidiary in Prague last year.

From a wealth management perspective, Sal. Oppenheim in Luxembourg plays an important role. It is the competence centre not only for the group's pan-European and international wealth management, but is also used by many German and European families as a platform for their investment pools. For all practical purposes therefore, Sal. Oppenheim in Luxembourg is an 'on-shore' location for EU residents.

Explains Pauly, "We have many people banking with us in Luxembourg, but declaring their profits in their tax returns filed in Germany or wherever they are based in the European Union. This is why we offer the same tax-reporting tools as in Germany."

"Luxembourg is also the centre of our investment-fund business, where we manage our own funds. We also have a joint venture with Pramerica, a subsidiary of the US-based Prudential Financial. All the funds we distribute outside the US and Italy go through this joint-venture, which is quite successful. For example, in Korea and Hong-Kong there are thousands of independent financial advisors (IFAs) selling Oppenheim-Pramerica funds. We handle all these products from here in Luxembourg, which is the largest fund centre outside the US."

Sal. Oppenheim's competencies are all centred around asset management, investment banking and advisory services. The bank's asset management business is geared to the needs of both private and institutional investors. In investment banking, Sal. Oppenheim's core strengths are in corporate finance and financial markets. To this end, the bank has developed several clusters of expertise within the group. The Luxembourg-based Sal. Oppenheim International, for instance, is the holding company for all of the group's foreign subsidiaries.

Whenever there is need for additional competencies, the bank acquires the necessary skills or concludes joint-ventures or partnerships with the best in the sector. For instance, in November last year, Sal. Oppenheim became a leading player in Swiss investment banking when it took over Ernst & Young's complete Swiss corporate finance team. The core team has now been together for 11 years and has a dominant position in Switzerland. In 2005, it was ranked second in the league table for completed M&A transactions involving Swiss companies.

On another front, Sal. Oppenheim has formed a strategic partnership with JPMorgan for capital market services in real estate investment banking. This alliance compliments Sal. Oppenheim's German team, which is the largest in the country, and will place it in a position of vantage when the German government gives its final approval for Real Estate Investment Trusts (REITs), probably by early 2007.

Looking at the way Sal. Oppenheim has been developing, the bank's future looks good. And if its record of adding value to client portfolios can be taken as a benchmark, then it can surely be said that Sal. Oppenheim will continue to strengthen its position as a preferred source of private banking and wealth management services in Europe.