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December 8, 2011updated 10 Jan 2016 3:26pm

Juerg Zeltner of UBS on Philanthropy, the Eurozone and Rogue Traders

By Spear's

The Snowball Effect

The hills are alive with the sound of… giving? Josh Spero joins UBS’s philanthropy conferencein St Moritz and talks exclusively to Juerg Zeltner, global Wealth Management CEO
St Moritz usually echo with the gleeful slicing of ski through snow, but they were silent for two days at the start of December (as well as unusually snow-less): the energy consumed in throwing yourself downhill was being spent in Badrutt’s Palace fighting some uphill battles.

UBS had conveyed 135 of its UHNW clients and 30 philanthropists — from FW de Klerk to supermodel-turned-activist Christy Turlington Burns ­— and philanthropy advisers to St Moritz for a two-day inspirational confab about how to give, or how to give better and more sustainably for those who already did. The theme of the conference was ‘The wealth gap challenge’, which has become more pressing than ever as European cities experienced the protests of Los Indignados and London in particular saw the enraged unrestrained rioting of last summer.

UBS has run philanthropy conferences nine times over the past five years, everywhere from Switzerland to Mexico, so there is nothing unusual in having one now. What makes the occasion more intriguing — more fraught and necessary, perhaps — is that this conference comes after one of UBS’s worst years, indeed worst run of years.

Having steadied itself after the seemingly unstaunchable asset losses from its Wealth Management unit in 2008-9, it stood sorrier than ever as Kweku Adoboli’s alleged rogue trading — and the consequent $2.3 billion loss — came to light and group CEO Oswald Gruebel resigned. The trade, of course, happened in the investment bank side of the business, but it turned UBS’s reputation to dust. A series of aftershocks, the exposure of other, smaller, rogue traders and risk management failures, has kept the company jittery.

Towards the end of our interview in a private dining room at Badrutt’s Palace, which is furnished in that sophisticated style beloved of ski resorts, urbs in rure, Juerg Zeltner, global CEO of UBS Wealth Management, denies that the conference is a PR exercise: ‘The best way for us to restore reputation is what our employees are doing everyday: competent, market-savvy, taking care of the wealth, trying to move on, be humble and shine with differentiation. No marketing campaign will do the trick for us.

It can be that philanthropy is a topic we raise and others don’t. It might be that we have more resources at work and use them. But it will never be good enough and this is not — to put it clearly — to me this is not an investment to fix reputation — to me the issue is broader.’ He does not deny that UBS has suffered a bad year (‘bad years’, he corrects me), but he asserts that every bank failed in the crisis. The Kweku Adoboli incident was ‘another hit. Yes, but you know even that can happen and everybody was happy it happened with us and not with them. I didn’t say they should and I didn’t say we shouldn’t feel ashamed ­— I say they happen.’ (There is a certain amount of euphemism when he discusses this — he calls it ‘a dislocation’.)

UBS have certainly seen how broadly philanthropy appeals and how important it is becoming to its clients. No other bank organises conferences on this scale, pitching the talks — art as a philanthropic tool, assessing innovative for-profit social enterprises — at such a high level. There has to be a certain level of trust in the quality here, as the conference’s media contingent (me) was not allowed to sit in on the talks or watch via videolink. However, one of the speakers, Barry Nickelsberg, chief development officer for estate and gift planning at the Carter Center (which ‘wages peace and fights disease’ under the former president’s aegis), said he would have paid to attend the conference. He has twice been chairman of the Global Philanthropy Forum yet still said he saw more energy in and learnt more from the first morning’s sessions.

Zeltner says that two-thirds of UBS’s clients are either hot on philanthropy or keen to learn more, and since those clients are, as he says, ‘hundreds of thousands of millionaires and billionaires’, the potential is easy to appraise. One way of channelling its clients’ benevolence and beneficence is through impact investing (as covered in Spear’s 20), where investments are made in companies — say an agricultural business in Africa — which have both social and financial returns. UBS has been helping its clients find these projects, with a sweet spot of $1.5-10 million, while realising that to some the social, to others the financial return is more important. Zeltner comes back again and again to impact investing, evidently seeing it as a realistic way for money-minded people to do good.

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Not all philanthropy is profit-making, of course. So why do the wealthy give? ‘If you go back in history and who started to do it, the industrialists who realised the wealth pyramid is not nicely distributed wanted to have social balancing roles. In today’s world, the clients I talk to, most of them think that they have more responsibility with their money — they cannot just sit on their balcony and do well while seeing these huge imbalances.’ If you add the tangible effect of these imbalances, the need and the desire become more urgent.

The financial crisis has played a role too — when you have seen money come and go so easily, so dramatically, it puts into perspective its purpose — but Zeltner emphasises more the examples peers have been setting, if Bill Gates and Warren Buffett can be said to have peers.

With the rise of charity auctions, where the charity can often be the last thing chosen, after the brand of champagne and which artists are going to sell their off-cuts, it is evident that philanthropy has become fashionable. In that this means more people are paying attention to it and giving money to good causes, it can only be helpful, but the problem with fashion is that it comes and goes, and perhaps one day philanthropy will be so last season.

That’s why there should be no rush to start a foundation or blow your patrimony at once, says Zeltner: ‘Our experience is let’s start small, one or two or three years, to see whether that fashionable impact kicks in. That risk exists. That’s why you want to be careful people don’t just throw money at it. It’s something you really have to think through, work out the priorities.’
  Illustration by Phil Wrigglesworth

WORSE THAN FASHION, though, is the threat that governments withdraw from funding important causes because they think that philanthropists will take up the slack. The corollary of this, of course, is that ‘important causes’ become subject to the interests of the philanthropists, and it makes the wealthy even more influential than they already are.

‘No, I don’t think we replace the governments —what the private sector is trying to do is add to what the governments are doing. You’re right, there is a danger that the rich get richer, the poor get poorer — that is a phenomenon of this world, let’s just not fool ourselves. The billions of people that will be added to this world are growing in markets where we will struggle with poverty. It’s just a fact.’ That is precisely the reason why the wealthy have to act, he argues, but he does concede that the acceleration of the wealthy away from the rest is something worrisome.

When I ask about whether UHNWs are using philanthropy to repair their reputation — again, not inherently a bad thing — or how else they should go about it, there is a surprising response: ‘You can make it simple, first by paying taxes — it’s a good starting point.’ Zeltner is full of surprises: when talking about if China will spend its surplus in Europe or at home, he praises the Politburo’s ‘effective’ investment strategy.

This has brought us on to Europe, which, on the day we meet, is rampant after concerted central bank action, a tab of Viagra for the markets. Nevertheless, we’re still at a crisis moment, aren’t we? ‘I’m very worried,’ he says softly. ‘There is, I admit, a small likelihood, still small but no longer zero, of a big catastrophe. We’re already beyond that — we have a problem. We have a huge problem. The question is, “When will be that decisive action?”’ The reason why none has yet been taken is clear: ‘Because everybody hates the financial system per se today, it’s extremely difficult for the politicians and central banks to intervene. It’s not that these people don’t know [the solution], but they don’t know how to sell the solution to the people.’

What the markets want is a eurobond and the socialisation of debt around Germany’s shoulders. The euro won’t survive intact, he sighs, whether it’s a year or a little longer: ‘Look at Greece. Greece has to leave the euro. Greece has defaulted. If they do it now, it’s extremely costly, because there are still funds to come down the road. Come 2013, I’m not sure whether I conclude the same thing. Can the developed European countries say anything against it? No, because they need that money.’

The European crisis has an important bearing on the business at hand: doesn’t philanthropy disappear in such vulnerable circumstances, let alone after a catastrophe? ‘That’s not what I see in real life. You see a slowdown but you don’t see “I cannot”. It is not that this topic will go away — the relative importance of the topic or the relative capability to do what your heart wishes for might be somewhat slower, but it will not go away.’ Indeed, impact investing is providing exactly the returns that people seek, if you can take the illiquidity for several years.

It was possible to see the energy Barry Nickelsberg talked about as the conference guests stood around the lavish buffet at lunch: the tall, thin women in crisp white shirts forsook aggressive slouching for animated enthusiasm, the speakers mingled, giving more advice. Nickelsberg told me he was sure people would go away and be changed by the conference. Energy is one thing, though — action another.
Josh Spero is Spear’s editor

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