 So, let me now introduce to you Mr. Stefan Pixel. Mr. Pixel is the head of the Asset Management Division of Bonn-Continuble-Wass, and he is a member of the Executive Board. As I already mentioned, Bonn-Continuble-Wass is our corporate sponsor, and again, we are very honored and privileged to have their corporate sponsorship, especially for this very first event that we are offering here in Lausanne. And as I mentioned, it is an important milestone. The society continues to grow in membership, and we are extending our reach to this lovely part of Switzerland. So with that, I hand it over to Mr. Pixel. Thank you, Philippe. Good morning, everyone. Welcome to Lausanne. On behalf of my bank, I'm very pleased to welcome you here, and I congratulate the CFA Society for the foresight to hold the first meeting of this Continued Education Seminar in Lausanne. Bonn-Continuble-Wass, of course, does not only believe in continued education, that's why we are very pleased to associate ourselves with the CFA Seminar. We also believe very much in the relative growing importance of, how should I call that, the greater Lausanne area as a hub for asset management. I think the turnout today proves that we have a good number of CFA alumni, active or not so active, possibly. So I think the fact that we are holding this meeting here today will help them to reactivate and to bring them back on track as was necessary for their continued education effort. And of course, there are also, we broaden the scope of the invitees, so we have people who are not yet CFA alumni, but active in the asset management business. As I said, this area is doing well, it's a growing area economically, and asset management is a reflection of it, of course. For those who wouldn't know that this is an area of a triple A rating, one of the few. The bank is a one with a double A rating without state guarantee, one of the very few in the world. And economically, we have what I would call today, sort of the Silicon Valley of Switzerland, around and along the Lake of Geneva. So all this helps us, of course, grow the business, and as an asset manager, BCV and as a Canton Albank is maybe a little bit atypical. We usually want to say what is a Canton Albank must be savings and loans exercise. That's not so much the case for BCV, of course not that also, but in terms of asset management, we still have roughly 85 billion Swiss francs which are entrusted on the bank in the asset management and securities business. So that means it's not huge, but it has a good size and which allows us to do some intelligent stuff. And there, I think it's also our idea to assume our responsibility in this area to sort of give our people in the first instance the opportunity to be exposed to speakers of the quality as we have them today. I think that's very pleasing. But also invite all our friendly competitors and people in the business to gather, to have an exchange of intelligence and a change to be stimulated by hopefully interesting discussions and presentations. Now, I don't want to be longer. I think you didn't come to hear me, but you come to hear the speakers on the panel. And with this, I will show an interesting hour or so, and I hand it back to Philippe. Thank you very much, Mr. Vixels. So we have a very distinguished panel of speakers here. Mr. Dealer will introduce the individual speakers. I've already mentioned that Mr. Jenkins and Erwin are members of the Board of Directors. I would also like to mention that Bayard Bidman has spoken at a number of our events here in Switzerland for a society including our forecast dinner. So he's quite familiar with our activities and we're always honored to have him speak at our events. So thank you again, Bayard, for joining us. And obviously, Mr. Dealer, being a CFA charter holder, also has a connection to the Institute. So we're very honored to have him as our moderator. So now let me just introduce formally Mr. Dealer. Mark Dealer is the Editor-in-Chief of Finanzen Wirtschoff, which is Switzerland's premier financial newspaper. Before assuming his current position in January 2012, he was Deputy Editor-in-Chief Director and Head of the International Section of the Paper. Prior to that, he was the U.S. Editor of Finanzen Wirtschoff based in New York for five years, from 2003 to 2008. Mr. Dealer holds a degree in Business Administration from Zurich University of Applied Sciences and a degree in Journalism from New York University. And as I just mentioned, we're very pleased to have him as a charter holder to moderate this event. So with that, I hand it over to you, Mark. Thank you very much. Thank you very much, Philippe. Thank you, Mr. Bixel. Also from my side, a very warm welcome. It's a pleasure and an honor to be here on this beautiful day. Last week, just a week ago, we celebrated the fifth anniversary of the downfall of Lehman Brothers. Now, you're all in the investment business. I don't have to tell you how demanding and how turbulent the times the past five years have been. What we have seen in those five years was central banks going to places where they never have been before. We've seen instances of central banks influencing financial markets like we've never seen it before. In May, a mere mumbling of the word tapering by Fed Chairman Ben Bernanke sent a shockwave through many emerging markets. So we've seen and we've felt with our own money and with the client's money that we're working in with how demanding and how difficult investing has become. Financial repression, a low yield environment. These aren't just theoretical terms anymore. These are facts that we all have to deal with. So what's the way forward? What's the way forward for the asset management industry? Where do we go from here? I'm very honored to be joined here on the podium by three distinguished gentlemen. Just a quick back of the envelope calculation tells me that we have a combined more than 100 years of investment expertise. So I'm very much looking forward to their speeches afterwards the podium discussion. We will also open it for questions from you afterwards. So without further ado, I'd like to introduce the first speaker on my very far right, Mr. Robert Jenkins. He's a professor of finance at London Business School. He's worked for many years in the banking industry. For 16 years, he was working with city group, where, among other positions, he held head of trading and sales in Dubai, in Bahrain, Switzerland, and Japan. He also worked with Credit Suisse, where he was the chief investment officer of Credit Suisse asset management in Japan. He was the COO of Credit Suisse asset management responsible for the UK at Central and Eastern Europe. From 1997 to 2009, he was with FNC asset management in London. First as the CEO, and then as the chairman. He was, after that, the CEO of Combined Torex Capital in London. He was the chair of the Investment Management Association in the UK, and the co-chair of a group that had a look at the future of the asset management industry in the UK. He served a stint at the Bank of England's Interim Financial Policy Committee before assuming his position with the London Business School. As Philip already mentioned, Professor Jenkins is a member of the Board of Governance of the CFA Institute. Next to him is Roger Irwin. He's the global head of investment content at Towers Watson. He's held that position since July 2008. From 1995 to 2008, he was the global head of investment practice at Towers Watson and its predecessor companies. He joined Watson-Wired in 1989 where he built the firm's investment consulting practice where he grew a team of 400 professionals worldwide. Roger Irwin is involved in the Towers Watson thought leadership group, and as also mentioned, he is a member of the Board of Governors of the CFA Institute. Roger Irwin is also an author of numerous papers on asset allocation policy and manager selection. And last but not least, on my near right is Bayard Whitman. He's the CEO of TCMG Asset Management. He's looking back on a long career in the asset management industry in Switzerland. He spent more than 10 years with UBS before moving to Claryden-Loy, a unit of Credit Suisse in 1995 where he held the post of CEO, investment products, chief investment officer, and a member of the executive board. In 2007 he moved to Julius Baer where he also was CEO of investment products and a member of the executive board. In 2009 he founded Diner Partners, which now is part of TCMG, one of the very few pure play asset managers we have in Switzerland. Without further ado, I'd like to give the word to Professor Jenkins. Thank you. Great. Can you hear me? Is this on? Is it on now? So, mesdames et messieurs, bonjour et soyez les bienvenus. Out of courtesy to my British colleague, I will continue in English. On behalf of the Board of Governors of the CFA Institute, I would like to congratulate CFA Switzerland for its tremendous efforts in organizing this event, and I would like to thank BESAVE for its kind and generous support this morning. Now, gatherings of this sort represent a multiple opportunity. It's an opportunity to get out of the office. It's an opportunity to network, and it's an opportunity to take a step back and put the daily challenges of our busy lives into a somewhat broader perspective. So with that in mind, I would like to start the discussion today with four very general observations. My first observation is that we should be very careful when using the terms normal or abnormal or extraordinary to describe market conditions. Mark referred to the current challenge with which we struggle today of the low investment return environment. Now, to those who have come to the profession in the last 30 years, the current return environment is without a doubt abnormally low. But if you step back far enough, you can see that such interest rate levels are historically more normal than we might expect. And indeed, from the perspective of the long term, the last 30 years were the abnormal period. And even more dramatically, we can talk more about this in a moment. My second observation is that our financial system remains both fragile and accident-prone. We are working our way through the biggest credit bubble in history. Now, bubbles are not new. They're always the same and they're always a little bit different. They all involve heavy doses of greed, stupidity and leverage. And what distinguishes the most recent episode from all prior bubbles is the magnitude and extent of leverage. Now, ladies and gentlemen, we are not going to abolish greed and we are not going to outlaw stupidity. But we can and must do something about excessive leverage. Globally, and most unfortunately, we have not done so. Switzerland has gone farther than anyone else. But the global financial community has not even become close to what Switzerland has achieved. Indeed, the Basel III rules institutionalize excess leverage. Yes, the reforms do establish a limit on gearing. But that limit established will unfortunately permit the banking bemiths to fund $100 of risk with $97 of debt and only $3 of loss-absorbing equity. But put it a different way, banks can continue to trade in the future at 33 times leverage. I think you'll remember that the average hedge fund is geared at something less than 3 times. So in other words, our interconnected banking system can trade at leverage levels 10 times out of hedge funds. If you add to the mix interconnectedness, trillion-dollar balance sheets, unmanageable complexity and distorted incentive structures, financial instability is almost guaranteed. Again, we can talk more about this with the panel. I know there's been an avalanche of rules. Regulation is a growth business. But let us not confuse motion with movement. My third observation flows from the second. I believe that the days of instant market pricing and limitless securities market liquidity are fading. The great moderation conditioned many of us to underestimate credit risk. But it also bred a generation of traders, investors, bankers and risk managers to presume an unfettered flow of capital and instant access to narrow bid offer spreads. And despite the experience of 2008 and 2010, many continue to assume that at the currently liquid end of the market, liquidity will be free and will be freely available. Short-term traders count on it. Algo trading depends on it. Long-short strategies presuppose that you can go short. Stop-loss disciplines demand that you're able to cover and cover quickly. But here's the thing. Confronted with sudden surges and cross-border flows, elected governments will attempt to intervene in the interests of stability generally and protecting the taxpayer specifically. They may not succeed, but it is their duty to try. Short-selling bans in Europe, bond purchase penalties in Brazil, capital inflow barriers in Korea, outflow restrictions in Cyprus and India are merely a foretaste of the future. I recommend that you send your best and your brightest to the library, to the universities, to the financial history books, and research state intervention in the post-war period because like clean air and water, market liquidity is no longer limitless and no longer free. My fourth and final observation is that the unwinding of the extraordinary central bank policies is going to be a very volatile and rocky road. We all know that. We all feel that. But why? It's important to understand. Central banks worry about four things. They worry about inflation, the economy, financial stability, and political pressure, operating independence. Now think about it. Between 2008 and 2012, all four of these factors pushed in the same direction. They all pushed and pulled in the direction of liquidity injection and easy money. Inflation, that was not the concern. Deflation was on the front pages of every newspaper. Debates about economic growth? No. Depression was what was feared. Financial instability? Panic was in the air. And as for the body politic, they were desperate for any and all measures, however unorthodox, in order to restore confidence and the possibility of economic recovery. That was then. But look at now. When was the last time you heard the word deflation? When was the last time you heard the word depression? The debate now is the speed with which inflationary expectations resume. The debate is how quick and how strong and how sustainable the economic recovery. The politicians haven't changed. If they face election, you can guarantee they want the central banks to keep the foot on the pedal. But central bankers within the central bank are no longer agreed at the outlook for inflation and the economy. They are aware, though they don't admit it, that the financial fabric of the banking industry is still weak and still vulnerable, that the system is undercapitalized, that a rapid rise in rates could upset the entire system once again. So central banks will not agree within themselves what the policy should be, and even if they were to agree within themselves what the policy should be, they will not necessarily agree with their fellows in the fraternity of central banking. So the four factors that pushed in the same direction on the way in are pulling in different directions to different degrees on the way up and out. And this means it's going to be a very volatile. Get in, retreat, try, markets overreact, take fear, move back, change your mind, change your outlook, and that's what we're going to have to deal with. Now, the only thing you can guarantee in such a scenario is that the central banks are likely to do too little, too late, instead of too much, too soon. But on that, you can bet. But in many ways, that's not the first time, is it? Indeed, if you consider all four points and observations, instead of thinking that the future is not what it used to be, you could say that the future actually is exactly what it used to be. Thank you. Thank you very much, Robert Jenkins. Next up is Roger Burrowing. Good morning. Very real pleasure to be here. And my chance to just give you a few thoughts, one or two of them connecting with Bob's views there. Just a quick bio note if I can start with it. I spent the last two years working with just three clients. And the category that I work on is called transformational change with asset owners. The big asset owners that are usually pension funds, I've worked with first cowpers in the U.S., secondly, the rail funds in the U.K. And third, with a UAE sovereign wealth fund of size and stature, which declines to be named. Now, my comment about all of these situations is that they've come to me and to our firm to talk about complexity and a word Bob used, connections. Trying to understand fast-moving changes in the investment industry. And this is my kind of way of picturing complexity and connections. And this picture is taken from the U.K. Queen's Jubilee last year. The size of this picture is 100 meters by 75 meters. It was on the River Thames. It was a centerpiece. And what you can see is the man kind of putting the picture up. And the analogy is, of course, how close he is to the Queen's forehead and how little he can see further out. And the key dimensions that he misses are these two dimensions of further out. First of all, to do with how many factors, multiple strands there are out there in a big picture. And secondly, looking much further out into the future. That's why I very much like to talk about in sessions where we talk about the word vision. This is really about being able to understand future trends. And I do stress that's really what the big asset owners are trying to understand because they know the world is changing in a very big way. So just a couple of themes from this and particularly dealing with complexity. Complexity is a factor of life. We have to welcome it. We have to make it our friend. We have to have a competitive advantage to do with it. And really there's two measures that deal with that. And the first is abstraction, which is basically about making things simpler. The Einstein quote is very apt, make things as simple as possible but no simpler. And that is the essence of many of our challenges in the investment industry. And also being prepared to adapt. And Darwin spoke not of survival of the fittest, he spoke of survival of the most adaptable. And how true that is in the investment industry. The essence of what we do is captured by many different things here but I just want to pull out one other word on this list which is culture. And I've spent a lifetime working with asset managers trying to assess their capabilities into the future, into that long-term future. And I come back to pretty much an empirical fact which is that the single most important factor differentiating the future performance of asset managers is the quality of their culture. It's the most enduring, it has the most relevant over multiple periods of time. And it's a people business we all inhabit, why wouldn't it be the most important factor of what we do and how we do things and the way we do things around here, that general definition of culture. So let me just outline how these thoughts sort of come together in the investment world as we see it. Let's think a little bit about pressures on us and represent what I see as the analogy here for how I feel about the investment industry which is the Red Queen race. Everyone is running as fast as possible to stay still. In order to get anywhere you need to run faster than that. And the essence of that I feel absolutely in terms of every year it seems that way and every December the 31st you kind of declare victory but you know that the next day is a more challenging year still. And Bob has referred to one of the reasons for that which is to do with low returns. But I say it really how competitive our field has become and it's competition for returns absolutely but it's also competition for talent. So we talked about new normal very briefly investing in the new world order which is of course really about major changes taking place of course in relation to financial conditions financial repressionary conditions but essentially this is all about a change in geopolitical field it's all about changing demography it's all about changing aspects of natural capital as well. So the other dimension to this is picking up how much the content of our work has changed really largely because investment theory has moved on investment practice has moved on and as a result of both of those points I'm seeing more change in terms of what people do at the moment that I've ever seen previously in my career and this new set of ideas that permeate the investment industry represents perhaps our biggest challenge understanding that many of the foundations of finance need to be kind of put through some sort of re-evaluation and come out with a more effective system of finance one of the points that Bob has raised as well. So it does lead me to some of the sort of medium term issues slightly longer range issues here where I cite many of the same concerns that Bob does in terms of our predisposition to the potential for crisis which has come about because of interconnectedness and the tightness of coupling of our financial system and issues really about our future in the investment industry which actually hover around the word legitimacy how legitimate we can be and aspects to do with sustainability and I really do raise that word in a very broad sense because to me this is all about the intergenerational accumulation of wealth management of risk and accumulation and all of those require longer term thinking and yet we're pressurized by so many short term pressures so it's dealing with those short term pressures but without compromising in respect of long term principles and I do think very genuinely that we are in the early days of reconsidering the potential for resource constraints to be very significant in the next decade of various sorts and obviously we can talk about carbon we can talk about a number of assets that actually could be stranded or could represent externalities in that particular field. So to summarize that I think is to say that as you think about your strategies it's critical I think to have a near term plan and to think that these changes are actually right on us they're fast and really it's all about execution better the decent plan violently executed than the perfect plan that we don't get around to very important kind of principle there but corresponding to the second bounce of the ball and I'm thinking more like a rugby ball if you will as in it's kind of much more unpredictable we have the need for that adaptation over time. I'm often asked to coach asset managers about strategy I build it down to four major principles I think the first principle is so much really is concentrated around multi-asset capabilities versus specializations it's really doing the best of whichever field you're in from that point of view it's not to me obvious that asset managers have to have capabilities in every field the key dimension of organizational strategy is surely about aggregating investment returns more suited to that multi-asset type capability or distribution capabilities again it's specialization that really counts and organizations making up their mind as to where their unique competitive position lies but third I'm going to repeat culture that's really where quality and differentiation and success has the biggest chance of success and I'm going to repeat abstraction and adaptation critical aspects of being successful in these fast changing times now I'm just very quickly going to sort of change gear a little bit and change a bit of my day job hat put that away and speak a little bit more from the heart for the CFA Institute and emphasize something that it appears to me and my fellow Governors that has really been underestimated which is that we turn up at our respective places of work and often don't necessarily recognize the key features of why our profession is so important and its meaningful aspects for every person on the planet and really it is about the investment chain as I put it how it links from savings to investments to capital formation through the economic growth pattern these are statements of motherhood and apropy but we rarely sort of seem to go back to them well enough to understand that we need a stronger investment chain than the one we have at the moment and markets can do that stronger job for effective capital formation and investment institutions can be more effective in their promotion and management of wealth of management of risk and ultimately of drawdown over generations and really this seems to me to be the asset test of good contributions in our industry we all work very hard on increased returns I think most of us work very hard on increased returns okay so that I take as obvious reduced risk goes with that it's obviously a trade off between the two but reduced risk goes with that reduced costs and negative externalities which are forms of costs into the future and the last two are probably the ones we don't think of enough increased trust and lesser agency issues increased trust in our industry and lesser agency issues not things that come to mind so readily but I'm going to argue that every individual in the finance industry might wish to look at that list and say yes I'll make a difference in relation to at least one of those points and hopefully it's more than one so this is about perhaps a system that could do a better job with many of those features and again that is something that actually passionately motivates me through being a governor of the CFA Institute so just the closing slide is just to remind you that there is a very interesting CFA Institute project that's in passage here you actually see it quite a lot in relation to advertisements in the Economist and it really is making a statement first of all of look not everything is perfect in the world of finance and there's a broken spoke here and it is actually a very costly broken spoke and sometimes we kind of don't tell a story with enough energy and with enough passion and the CFA is in the early stages well it's actually moving quite fast now to describe what we call the financial ecosystem again I'm going to go back to that word connections the ecosystem describes the subtle connections by which there is something going to thrive in our world that actually serves the deeper purpose of finance and so some solutions are searched for here a blueprint for a new and sustainable financial ecosystem because our current system actually has elements that are not exactly sustainable in it and I do call out here that it's very interesting to sort of be part of the CFA definitely on a passage here that's not quite working it's kind of a little bit animated but let's settle it yeah key dimensions of the CFA kind of moving from a sort of troubled parent to a thought leader helping the industry with its thoughts and also adhering to enlightened self-interest principles which are so important and really that is stronger trust stronger respect and stronger integrity in our industry thank you for making it this far and I'm happy to sit down we'll look forward to the panel as well thank you very much thank you very much Roger Irwin and finally Bia Wittmann good morning it's really a pleasure to be here in Lausanne and I agree with quite most of what my two colleagues said but that doesn't mean that we won't have an interesting discussion I started in this business in 85 and if you read the last five years what is being written and being said and being done or not being done you could get easily depressed but I can say that I'm positively inspired like in 85 I think we live in a very exciting inflection point in our industry and I think it was important to also say something to the importance of the investment management industry linking savings with productive investments when the whole value chain related to it when you can enlarge it to society and to basically everybody on the planet I think our industry has been pretty lousy at transporting that value to society so that's one thing so let me now drop five thoughts on you more related to the asset management industry then to capital markets because on capital markets I have a pretty easy attitude I set up a company in spring 09 and took my cash and put it into equities so you can assume that I have a constructive view on us emerging out of the mayhem of 2007 and 8 and the only thing I'm really amazed is how negative people globally still are about this emerging growth and investment opportunity here never forget that the risk has two dimensions risk is incurring a loss obviously and everybody is frightened to do that especially in the pose of a weight world but risk is also losing an opportunity but I think the general sentiment is still not there in the US it has changed I must say the last six to nine months when you look at fund flows and how the financial system has been rehabilitated if you look at Europe the Anglo-Saxon world dreaming of the breakdown of the Eurozone that's one thing and you have investors of course buying bonds relentlessly and until today and shying away from equities so my view is firmly positive for the next two or three years now let's come to the thoughts five things asset management is a global business that's the first thing and that sounds trivial and I think if you look at the CFA Institute and what just the CFA Institute has done the last 20 years for example and if you look at the members and the national breakdown of the members you can probably just very very clearly and strongly see how this thing has been globalized and so I think your institute has been clearly at the forefront of globalization but I think the real world is lagging behind a bit then the second point is if you want to be sustainably successful in asset management then you have to focus on what you do and that means care about where client needs are and where capital market opportunities are don't care so much what your competitors do because that's not very helpful I think and then it's also interesting to note that if you look at the top 30 asset managers in the world in size and in sustainable success 80% of them are independent groups typically partnerships sometimes like in the US they are listed 20% of them are parts of banks that doesn't mean that you cannot be successful running an asset management business within a bank or within a financial conglomerate having said that but you know it's very important that you know you have a separate culture a separate strategy and you know that it's not linked to any kind of retail banking and investment banking activities for that matter because the culture is not transactional but it's really a fiduciary culture assuming fiduciary responsibility for clients and delivering returns and managing risks so that's an entirely different culture then the the third point is I indeed think that especially in Switzerland and in Europe we have an absolutely unique and historic opportunity to build successful asset management businesses why? two reasons first we have in a post-08 environment still a mimic economic growth we are barely accepting now recession territory so people have completely other things on their mind then you have the banking system the leveraging still in Europe it's being rehabilitated system security is here now but you know there's a lot of change in business models and strategy refocus recapitalization etc so that means that typically banks will tend to be providers of business opportunities in the asset management space then furthermore you have of course also individual boutiques but for individual boutiques especially in a European context that's rather the exception to the rule unlike in the Anglo-Saxon world because it's not treated as a separate discipline the regulatory requirements have gone up massively even in the last two three years you know contrary to what politicians are telling people and therefore investor defensiveness also has not helped because investors wanted security basically and save counter parties and we're not so worried about returns and until a few months ago they got yield strategies in place and now that's a big question mark moving forward here but there's a unique opportunity you look at valuations of financials in Europe they are trading in their lowest quintile prices as well sentiment is terrible of course and regulatory changes are forcing financial institutions to change their business models number four point asset management is a business and therefore has also to be run as a business you know the greatest investment idea the most intelligent engineering skill doesn't make a successful asset management business you know you have three dimensions one is content that's clearly key you need to differentiate by results by managing risks etc from your competitors the second is clients be close be interactive you know and of course the traditional European business model of captive sales channels was really not fostering a lot of innovation or risk taking for that matter and the third thing is something which is the most boring thing for bank management or asset management business management is of course corporate services and corporate management but it is absolutely mission critical and you know you talk about finance, risk management, IT regulation, compliance and all these things you know there is absolutely you know no room for tolerance you know to be sloppy in these matters and I think many players in our industry are learning this the very hard way for the first time in their lives but why not turn something which execute corporate infrastructure into a competitive advantage has at large not been done in this industry so run it as a business and then last point it was said before and very rightly so in asset management the most differentiating factor is people and the aggregation of people of course is the corporate culture and you want to have medium long term corporate culture for that you need typically stable processes, setups ownership structures and strategies that has also been rather the exception to the rule in the financial industry globally but I think that's the most differentiating factor but that doesn't mean that there is you know the very idiosyncratic investment team there doing great things not caring about anything else you know we have seen gooms and busts with this business model it doesn't mean that you cannot have institutionalized processes you know and proper functioning infrastructure but you know sustainable and superior corporate culture is absolutely a key to success long term, thank you Thank you very much Baird Wittmann listening to all three of the gentlemen it is clear that we are going through a transformational process we've heard keywords such as inflection points I'd like to start with Roger you have an inside look into asset owners you in your daily work you speak with institutional investors pension funds and so on talking to them do you see that they have adjusted well into this new environment already or are they still in the great moderation environment I think the answer is I think one of the key dimensions to this is that they were quite taken by surprise in the global financial crisis there was rabbits in headlights type of reactions to the global financial crisis and since then there's been a lot of thinking that has taken place and one of the interesting dimensions of this is about what I call the war for talent which is that many of these asset owners were overly reliant on their external asset management relationships they continued to be important but they have been able to put more resources into their organisations and many of the big asset owners have quite large teams now working with external firms doing many things for themselves more directly and where they have those internal teams I think they found the thought process is more easy to achieve and I see some of them really now getting confident that they know more of what will drive the markets into the future and they're more confident exercising their powers relative to the way that they were in the past and one of the ways I look at this is that let's say the decade of the 2000s the very dominant firms were asset management firms it's what I call sort of financial capitalism but what's quite interesting now is that many more discussions taking place about the leading investment professionals professionals at CalPERS at PGGM other big asset owners like that across the world these individuals are fiduciary capitalists and they are I think having quite a significant impact on what's taking place now having seen this eye-opening chart from Robert which really showed that it's not today's environment that might be abnormal it might really have been the 30 years prior to that that might have been abnormal if I generalise it in broad terms we've had a 30-year bond bull market and a generally quite benign environment of lower interest rates and good tailwinds in equity markets now in the longer perspective that might have been abnormal Robert you told us that there was a big leverage bubble you told us there was greed, stupidity and excessive leverage in the system what parts did central banks play and what parts are central banks playing today in maybe blowing bubbles again well I think you're asking our central banks the problem or the solution and I think that no central banker would deny that they were too late in taking away the punchbowl from the party in 2006 the question is have they learned a lesson for 2013 in the UK at the moment and to some extent in the United States there's of course a big debate about forward guidance forward guidance was advertised by the politicians not by the central bankers but by the politicians as promising clarity and certainty for businesses and reassurance about the future central banks don't think of it in terms of insurance and certainty they think of it in terms of offering clarity as to the turning points that they will be looking at to change policy but the marketplace is taking it and the business managers are taking it as an advertisement of certainty and I think the conundrum and the reasonable of the confusion right now is that you cannot have certainty and still maintain credibility as a central bank you cannot possibly tell people that interest rates are going to remain at low levels for two years and be credible in terms of your inflation fighting price stability you can say we think that rates will remain lower for two years but if inflation rears its head or the economy recovers faster than we expect we will raise rates but then that doesn't give the certainty that the market expects so you can have clarity but not certainty you can have certainty but not credibility the market wants all three the market cannot have all three and the result is a lot of confusion and the only other thing I would add is that clearly the fears over continued instability the fears over an economic relapse rates far lower far longer than they would have been at this stage when my son in New York can borrow a 30 year money for a mortgage at a rate lower than the US government was able to borrow for 30 years only three years ago something as seriously wrong my son's a good risk but he's not that good now listening to both Robert and Roger who have said that you will be looking at periods of higher volatility Robert you said the financial system is still very fragile we're looking at terrible times ahead now Bayard you gave a very optimistic view in terms of markets you said over the next two to three years you're very confident does that contrast to your two previous speakers no the analysis is pretty simple and similar but the conclusion is different if we would not have had the central banks intervening you know we would have a real problem the question is only how far do you go and how do you get out of this money printing exercise and this ultra low interest rate policy and you know the future nobody knows but there are two or three ways how we get out of it the easiest and least painful one is that we simply grow out of it we kickstart the motor in the US which has happened and we just gradually grow back to potential output and you know for you know as a consequence we get the same now in Europe with much a long textbook and then you have the emerging markets which have structurally higher growth but of course quickly you have bumps in the road so that's the best case you just grow out of it you know what I'm what I'm amazed at is that that investors have bought bonds since 2009 all the time until three months ago and you know how can you buy this type of bonds G7 government bonds if you see where the inflation rates are and where the growth rates are and you have a 5, 10, 15 year perspective that's the conundrum for me and they shy away from so called volatility risk in equities and that's just a dominating sentiment still I never doubt that central banks when they say you can read the fat minutes they tell us since years now we print and keep rates so low until we get our growth target our employment target and then respecting of course a certain inflationary environment and they just do that and ECB every beginning the only moment then it started to kick in was last summer when Draghi basically said was clear anyway but you could read in the FT every day I mean not every month, not every week every day and on the website probably every hour the demise of the Eurozone a complete crotesque notion so people are so frightened about this monetary printing that they have basically not invested I don't see a problem when I look at the sentiment and the capital flows at this stage now the key challenge is very clearly and that is what the BIS the club of the central bankers wants to achieve is that the national politicians take up from their money printing exercise and engage in structural reform and there I'm deeply skeptic of course but just in Spain last week and I go every three months and I think now it's interesting for the first time really to invest again and it's the kind of smart money which moves into the market the family office and some US private equity groups they start now to buy bank loans but not the large organizations but now it starts but the system is secured but the politicians of course as soon as things get a bit better they will immediately stop labor market reform and this and this and that because they want to be re-elected so the risk for me is not so much the central banks the risk for me is the national politicians which don't take it up really where they should and then would force the central banks to go longer than what is good for everybody into these exercises and also negative but at the end of the day I'm an investor if I have the opportunity to have an expected return of 30 to 50% in European banks for example which still trade in their lowest quintile historically I cannot afford to miss that out so you share the diagnosis of the fragile financial system but you see a very strong put by the central banks that they replaced in financial markets there are two dimensions one is first they can buy whatever they like I respect that people vastly underestimate what central banks can do they are not even close to their capacity that's my view but in the end growth has to kick in and the system has to heal and the central banks Bill White was writing a great paper two years before the crisis broke out in the midst of the BIS and he wrote a great paper again a year ago about the unintended consequences of expensive monetary policy they are all right they see it with their eyes open but of course they are central banks they are not national and elected politicians now seeing that and seeing how important policy of central banks is to keep the system together Roger when you talk to investors what prevents us from falling back to the old habits again of just assuming everything is fine assume liquidity is there and everything and fall into the next trap I think there are very strong behavioural pressures on organisations to club together and I think that Biat there was in a sense referring to the pressure on organisations to continue to invest in bonds at prices that don't seem particularly rational at times I do think that funds are confronting more uncertainty than they've had before uncertainty being different from risk and therefore I would argue quite strongly that what funds are confronting is a measure of not really knowing whether or not these central bank interventions are kind of drawing on future growth I think it's an intergenerational question that funds are looking at and their response to it through their asset allocation has been to me relatively indecisive so far that they've found the uncertainty too difficult because politics is such a big part of asset allocation more so than has been in previous generations and we kind of have a sort of bimodal way of seeing the future at the moment we kind of actually can see a number of bumpy paths to recovery but we can also see some quite adverse scenarios it's difficult to invest for both so I am kind of describing asset allocation at the crossroads and people having difficulty with it can I just add a couple of points so first of all I think there's another dimension to the global institutional asset owners Roger is related to advising some of the world's most sophisticated largest deep-pocketed cutting-edge asset owners but out of the 72 trillion dollars of assets under management and estimated global needs a very large percentage of it that doesn't operate with that level of sophistication and in the United States today in Europe today there are still a lot of defined benefit programs that presuppose and price the liabilities based on an 8% return or a 7% return so I think we should keep that in mind in terms of your other question Mark you asked me were central banks in danger of creating another bubble and Bayock was essentially saying central banks can do whatever they want and it's his job as an asset manager to understand that and I think take advantage of that as best we can the reason I'm a little bit less comfortable about it than Bayock is because of this interplay between inflation expectations and interest rates and central bank policy central banks are pretending that there is not an inflation problem because they are measuring inflation in terms of consumer price index but if you were to add in any shape or form asset price inflation to the inflation calculation you would have a different view of whether we've already exceeded inflation expectations and whether we're already giving the game away and a small rise in interest rates in percentage terms can create a different dynamic in the equity markets and a different dynamic in the financial system Habinomics is targeting 2% inflation if Japanese interest rates were to align with 2% a 2% rise a rise to 2% of Japanese interest rates in Japan would wipe out the entire equity bank basis of the Japanese banking system they would be bankrupt if you mark to market the Japanese holdings in securities to 2% interest rates back then the calculation says that in return to say a 5% yield level in the United States would produce losses on the US banking systems balance sheets just on its government securities holdings and government back securities holdings of 35 to 45% of their capital base so we are on a belief that inflation expectations remain manageable and that in turn is bearing off a measure of inflation which doesn't include the asset price inflation which is going on as we speak so I'm a little bit more cautious it doesn't mean that volatility doesn't produce opportunities on the contrary it will produce more opportunities but it does mean that a lot of basic assumptions under which institutions are running their money and private law managers are running their money may not be appropriate you raise an important point Robert the average pension fund probably doesn't have the sophistication level of a CalPERS also when I look here in Switzerland the average pension fund still is heavily invested in bonds in fixed income paper do that do we need a radical rethinking in asset allocations there Roger would you well I think that the way to see most pension funds is through the sort of dual goals of security and affordability so essentially when you think about both of those goals because funds have to be competitive in their returns to afford the benefits that actually are defined or promised and Bob referred to a number of funds across the world that have that old 7% or 8% discount rate that is premised on the idea that pension funds have to be affordable and security kind of for them might come second that's an interesting dimension but security advances bonds that essentially a typical defined benefit promise in terms of what's being paid to a pensioner is all about a bond like liability so it's not a surprise to me to find global averages this is both the sophisticated funds and the less sophisticated funds has roughly gone in a direction towards about 40% in bonds that figure has kind of largely stayed up there the interesting one is that the exposure to equities has come down because people have been finding their way into other types of investment often referred to as alternatives now the Swiss pension funds have always had their exposure to real estate they've always had I think a certain amount of diversification that's actually held them in reasonable stead so I think that the it's all about each fund working out the balance of risk and reward they can afford given the need to secure assets that's a very tricky balancing act and actually for what it's worth I get rather nervous about funds taking on too much risk and again back to the ones that Bob was referring to US public funds in particular are the kind of the pin up for funds that need that 7 or 8% aren't likely to get it and in the kicking the can down the road that is happening with funding those state plans in the US you do see a slow-motion train wreck at some stage in the future but yeah do you get worried when you look at the typical Swiss pension funds asset allocation today it's a pretty heterogeneous universe and I don't think that investment decisions are just being taken as a function of the sophistication or the cleverness of investors I mean it depends also about the corporate setup how the people who are taking decisions are incentivized whether they are incentivized to manage their career risk or they are economically incentivized whether they are sitting in large organizations or they are sitting in a large hedge fund very different behavior I mean you can assume they are equally clever, equally sophisticated equally educated doesn't mean that the investment decision is the same so they have a multitude of factors Swiss pension funds generally speaking what is positive to be said they have a pretty global scope always by just a small size of the country and the outward looking nature of it so they had always a pretty high equity quarter, typically speaking so regulation I always say that regulation in Switzerland was never a good excuse for bad performance regulation allows you basically to perform for an average pension fund in Switzerland now when you go to special brackets like insurance companies where you have special regulation there's a lot of forced investment into fixed income and fixed income markets are the largest markets in the world, way larger than equity markets and there's a lot of you can call it financial repression regulation to ensure that fixed income is being bought and you know I don't want to see how bond portfolios will do in a rising interest rate environment which you have just described how JGB's would look like when Japanese interest rates go there in equities at least you can take a decision in five minutes to get out in fixed income we know you can forget about that there's totally liquidity so I think Swiss pension fund for that matter are from the regulatory regime pretty flexible to achieve their goals and most of them I think have done a pretty good job doing that. I fear more for the repressed regulation in certain corners of the market they're not allowed to go into multi-asset class strategies and are stuck in fixed income I'd like to open for questions there's a microphone in the room and there's a question in the back I'll bridge the gap Robert you teach finance did you have to change basic tenets of finance i.e. is there still such a thing as a risk-free interest rate or did you have to change basic tenets there? That's a topic in and of itself and in fact in January the BIS held a very interesting colloquium on whether or not we were at the end of a world risk-free rate of return and what would it look like and just to cut to the conclusion I mean the risk-free rate of return underpins 20 trillion dollars of pension liability calculations old sovereign wealth fund portfolio asset allocation optimization assumptions 600 trillion dollars derivative calculations most swaps which all come back to a US treasury or build over US treasury so you can imagine if that begins to be doubted seriously we are in a financial world without a center of gravity question in the back back to the bone topic of transparency we are on the president level of regulations in the UK with the new retail distribution rules in Switzerland where the retail core decided against any hidden fees in discussion of portfolio management unless the clients agrees it's a growth industry regulation it is indeed and given the fact that when you buy a car or even a bottle of milk you don't ask for who makes what kind of money I'm wondering whether first it is sustainable on the long term whether there are really opportunities out of it and whether this is not the end of which sector open architecture open architecture open architecture who would like to have a demo the prediction at the end of the open architecture has been around for a while I would say that across the Rogers remarks there are that you either aggregate the returns or the distribution business and open architecture seems to me would be more important in the future not less important I would add that open architecture has got a value proposition to it so I'm not at the view that I agree with Bob that I see it as a more important component I mean underneath I'm not sympathetic to the idea that cost matter it's a huge challenge for investors and ultimate beneficiaries of investment products to have a net return that is sustainable over time so cost transparency seems to me to be it's a special industry it's a very important component of our work in finance that we carry responsibility and our investors don't always recognise all the components of what goes into return so on that basis I think transparency has gone in the right direction but we have to adapt I think again it's a very critical component that our previous practices led I think to some some degree of easier money than was legitimate and so from that point of view I think we're now in a better industry given those points of transparency the pendulum of regulation will for years to come swing into the same direction more of it I simply take it as a given and I think you can operate, build and grow an asset management business in pretty much any country you just respect what the regulation is and you cope with it so that's my attitude and open architecture short-term I think open architecture is under pressure because of course the big distribution channels are finding very innovative ways all the time to protect their clients in captive channels to protect their bottom line but beyond that very clearly there's future for open architecture and for transparency and for clients choosing whatever they want so but that's a long-term trend are there other questions? maybe a better answer a slightly more complete answer would be from the point of view of the investor open architecture has a great future from the point of view of a bank it will find competition with the platforms in my mind a platform is part of open architecture but from a bank's point of view it's a threat we have gone from the invisible hand operating in the market to the very visible hand of central bankers and financial professionals seem to be devoting a lot if not most of their time to second guessing what central bankers are going to isn't there a lot of moral hazard in this state of affairs when I think there was also a paper but you don't know that Fed might face a lot of in fact losses on its bond holdings where interest rate to increase too fast and that kind of asked whether you get into a situation that's close to a conflict of interest actually the remark is not that the Fed's balance sheet would suffer although it would it's a banking system it's the banking system's balance sheet which would suffer and yes that is moral hazard we've gotten ourselves into a situation where we can't take away the remedy without putting the patient back in the hospital and that's why I believe that although there will be a genuine determined and honest effort by central bankers to do what's right they will constantly step back from from reversing the policies as they should because of the consequences to a banking system that remains highly vulnerable can I take this opportunity you would all be very helpful to me a few questions survey just by a show of hands J.P. Morgan has been in the news a lot lately we've all followed J.P. Morgan how many in the room think that J.P. Morgan is too big to manage how many think that it's not too big to manage those of you who think that it's not too big to manage do you think that the current management is up to the job so thank you we have time for one further question gentlemen you've spoken of a very difficult time that I've spent 5 years crisis mode basically you've spoken governments have attempted to address with more regulation and banks as managers try to address it in any way they could tell other people to get better education improve their skills some banks are forcing the people to take courses and yet most of the clients have spoken to the last 5 years they didn't speak about that was the reason why they distrust the industry I meet a lot of people who think people in the financial industry are people that we can allow our trust the way we used to what would you say we could do to restore trust in the industry Roger certainly the challenge is heavy on us I do think we just got to recognize that the pendulum which was very much for a sort of market fundamentalism in visible hand proved to be badly positioned I don't think there's any doubt that the industry cannot be in aggregate be trusted with all dimensions of this challenge so I think we have to start off with that realistic position in our minds and regulation is to me a price worth paying although effective regulation unfortunately is this oxymoron we can't get effective regulation so trust I think it's a wow of question because I would love to find pieces of the between us Bob and I actually have a little leaflet here which I was going to give a little plug to and maybe we both might add our weight to it the dimension of this challenge to me is captured by individuals joining our industry who are principled and who have a real sense of purpose purpose to the benefit of society and so from that point of view I think it actually goes back to every one of us to work hard within a principled environment and our organizations carry culture to do that and we as educated professionals have the chance to do that as well the statement of investor rights is a CFA initiative which is very very important for individuals and organizations to just do the right thing by the people that they they do their work for do the right thing and it's a it's a very neat bit of work that is I think contributing from the CFA institutes a thought leadership to do something positive for developing this trust I tracked the statistics on the trust that people have for different parts of the finance industry for the banking industry it is still at a low point it has rebuilt a little bit but it is still at a low point and I do think that therefore represents the idea that all too often we are seeing organizations and we've had a simple example here being discussed I think in terms of JP Morgan I do think that we have examples of organizations that can let down the industry at times because they don't necessarily find it easy to maintain sustainable practice. I think it comes back to sustainable practice Bayard and Robert, do you have anything to add? How the industry can regain trust? I really encourage you to take a look at this. If you read 10 points and if you read it your first reaction will be very simple very straightforward almost naive basically it says investors should come first customers should come first and we recognize that financial services organizations serve multiple stakeholder groups executives employees the community the customer more than one organization the question is where does the customer rank and at least for the banking industry financial services more generally the customer perceives that he has ranked very very low and this is an attempt to try and move the customer up the ranks now I'm under no illusions that if you move the customer up the ranks you create tension internally within your organization all of you will find yourselves in a situation where you are torn between doing what your management thinks is right and proper in order to maximize profitability and what is right and proper in order to maximize the welfare of the client and that's an extremely uncomfortable position to be in the question you have to ask and your management has to ask is can these two be reconciled and the answer is they can be reconciled provided the time horizon for the measurement of success and profitability is long if it's short if it's next quarter next year, next two years, next three years for the deferred bonus maturity it's almost impossible to put the customer near the top of the list if you are talking as Bayad presumably is doing with his own business if you are building a business over time if you are the owner of the business partner in the business slowly as opposed to get rich quickly then putting the customer at the top might actually be good for all other stakeholder groups so I think the issue really is the time horizon within which the investment management profession builds and measures its success and will we move that time horizon out? I don't know the answer I know what the challenge is but the final word is yours I very much agree with this and it's not naive at all that's the right way to go that's fiduciary duty there's an interesting lex column today in the FT about that staff still comes before clients in banks and the pretty cynical outlook about it so I share that too and I would start the whole thing regaining trust by breaking up the universal banking system pretty simple okay that's a powerful last word with that please join me in a round of applause for the panelists yes indeed thank you very much gentlemen for the very interesting and very popular remarks I certainly enjoyed listening to your comments and I'm sure our audience as well in order for us to host such an event to have such a good turnout obviously we needed some preparations administrative support we would like to thank certainly our partners for their excellent support in helping us to organize this event as our appropriate sponsor they clearly took this endeavor very seriously as you can see the results are magnificent so we thank you very much thank you there are two individuals we would like to thank in particular who were instrumental in making this truly a success there is Maria Balemate who was involved in the administration she worked very closely with our office in the soup with our staff she put in a lot of hours and a lot of preparation particularly in terms of making arrangements with the hotel, the catering and we would like to recognize her tremendous efforts so thank you very much and as a token of our thanks we have something that we would like to present to you so if you could stand up and the other person that we would like to thank is this gentleman who just stood up Kristin Takushi we offer him a token of our appreciation this is not just for him but for this team of volunteers who have worked very hard in supporting both him and the society in planning this event so Kristin this is something that you can share with your fellow volunteers, thank you very much and so I would like to now hand it to Mr. Vixel who will make the final remarks thank you very much thank you very much for having thank the right people they were also on my list, I think that's exactly right I think without the initiative of Kristin Takushi and his determination to make it happen was on me hoping I would have done it and my assistant they obviously made it happen in a practical way, I think that's good to mention that before we close let me just raise an item which I found important during these presentations and which also comfort us in the cooperation with the CFA society what came out on many instances was the fact that one has of course to master the technicalities and the knowledge of our business that's clear that's the fundamental basis of everything but also that is not enough I think it has to be accompanied by healthy ethics, the proper culture which goes along and also the notion of adaptability there is some verse in certainty I think it's good to have convictions certainties are usually dangerous I think one has to be adaptable if one has, if things develop evolve one has to be able to adapt to a new situation I think these are key values and they only combine make a success in the long run for our clients a question I think we all have to ask ourselves in the asset management on a regular basis and that has been raised by do I make a difference for my client I think that's the reason of being do I make a difference for my client do I keep my promise and keeping the promises is probably the best way of starting restoring trust I think that's what we talk about broken trust is also because clients feel let down because they have been promised a number of things and the promises have not been met I think just keeping the promises is probably a very practical way of climbing up the ladder I think we all have to ask ourselves do I deserve to be paid I think that's probably the bottom line of the question if we don't deserve to be paid we probably shouldn't deserve to be in the business I think that's a simple statement I think if we keep that in mind I think we'll probably put our business forward in an ethical and competent way which I think is a good recipe for the future so all these values combined make for us is that the associated with the CFA is a good thing so I'm very happy about this kickoff meeting it goes on, I think the tournament has been great I'm looking forward to future events of the same kind and I think we will be there to help you if you want