THE PHILANTHROPIST: Why have ZKB and StiftungSchweiz launched the performance index for charities?
CHRISTOPH WEBER: The index will help create transparency. It shows what profits can be achieved, what investment strategies can be used and what the differences are between individual charities. These topics are becoming increasingly important.
TP: Why now, of all times?
CW: In Switzerland, many wealthy individuals are part of the baby-boom generation, and we are now at the stage where baby boomers are beginning to think about their wills. They will pass down around 80 to 90 billion Swiss francs a year, and this generation doesn’t necessarily have a large number of children. Baby boomers are asking how they can invest the assets at their disposal so they can be of use in the future. Within families, this leads to discussions about possibly investing the money in charitable projects, for example. This market will grow: it’s an ongoing topic that will remain with us for the next ten to 20 years.
TP: And this is where the index can help?
CW: These people want to do something good. As a bank, we’re in contact with these customers, and we want to support them. They want to make donations, and we can help them create as much value as possible – along with good returns. Transparency is key. As with pension funds, we now have an index for charities so we can make this a reality.
TP: Is it possible to compare the investments made by charities and those made by pension funds?
CW: They have a lot of similar criteria in terms of their needs.
TP: Such as?
CW: Both focus on the long term, both want their wealth to be preserved, both want security. Pension funds are tightly regulated, and charities are familiar with rules in the form of their charitable regulations.
TP: Are charities grateful customers of a bank?
CW: Good question. It depends on your perspective, but it’s demanding in any case. As I mentioned, charities want to protect their capital. At the same time, they need their returns to be as big as possible, which means that we’re confronted with somewhat opposing objectives.
TP: Is this a major challenge, particularly when interest rates are low?
CW: More and more, charities need to get to grips with the question of what risks they can (and want to) take. Having a high percentage of shares means bringing volatility into the portfolio. When cash earned five, six or even seven percent interest, the situation was rather different, but nowadays, just keeping money in cash isn’t an option for meeting a charity’s objectives.
TP: How long will this situation last?
CW: The negative interest situation could last for a long time: we’ve established a ‘new normal’.
TP: What does this mean for charities?
CW: Charities are in a particularly exposed position, as are all the traditional institutional investors that need security. Liquidity is not the only thing that’s affected. The same situation applies to bonds, as we see bonds with a certain security level and duration bringing negative returns.
TP: But conversely, shares have developed well in 2019?
CW: Yes. We are seeing shares bringing good dividends. Instead of a bond with interest, you can invest in a share that pays out dividends, but you need to be prepared to bear the fluctuations of a portfolio like this. That said, bonds are not safe from fluctuations either. Charities need to adapt certain investment rules (and this is key) so that they can follow the right investment strategy for this. However, this means properly assessing the consequences. Not every strategy works for every charity: they need to be considered on a case-by-case basis. This situation requires high-level professional dialogue between the bank and the charity’s bodies. The members of a board of trustees do not necessarily come from the financial sector, and yet they bear a good deal of responsibility for their decisions.
TP: Is it easier to talk to a trustee with a background in the financial sector?
CW: It’s the bank’s job to find the right language. Regardless of a person’s background, we want to help them understand the relevant criteria that they need to bear in mind when making investment decisions. A certain amount of expert knowledge does help, of course, and charities often have representatives that they select on this basis.
TP: Are charities’ trustees willing to make more risky investments because it’s not their money – or are they more timid?
CW: I wouldn’t call it timid: I’d say it’s responsible. Anyone who’s in charge of this issue at a charity wants to do the best for the charity. When it comes to their personal investments, the trustee would possibly pick more risk in exchange for greater performance. However, as a trustee, the responsibility you hold means that charities take a more prudent approach, and are likely to be somewhat more conservative.
TP: And that fits with the image of the charitable sector.
TP: This can also be seen with digitalisation…
CW: …which is why I personally believe that our commitment to StiftungSchweiz is very important. We need to find sustainable solutions for sending money efficiently to where it’s needed. The platform aligns perfectly with our values of being stimulating, responsible and passionate. We want to see something be developed that’s not yet on the market. The StiftungSchweiz platform and the performance index will help boost transparency, encouraging the right decisions to be made, from a qualitative perspective.
TP: Won’t increasing requirements in terms of supervision inevitably encourage charities to go digital?
CW: A modern board of trustees needs to recognise the sign of the times. They cannot wait for supervisory authorities: they need to drive forward the topic themselves with the power of their own convictions. Action is needed in terms of digitalisation and professionalisation, especially with regard to investments, and it is important that people making decisions on these topics are aware of this so they can do so responsibly.
TP: Nowadays, the term ‘responsibly’ is also understood to mean ‘sustainably’ – is the charitable sector particularly aware of these questions?
CW: Charities often, if not always, deal with topics of sustainability, and the people making decisions are just as aware of these issues. In general, we’re currently noticing that institutional investors, especially pension funds, are incorporating this topic into their investment strategies more and more. The financial world has to provide the answers to this.
TP: Is this a short-term fad?
CW: No, this trend is here to stay. We’re doing the right thing by dealing with this topic. It’s not a trivial matter, precisely because lots of people interpret sustainability and protecting nature in their own way.
TP: An ideal topic for ZKB – because you’re not just about earning money?
CW: That’s right. Our objectives are anchored in cantonal law. We have a duty of care. ZKB is obliged to have a sustainable impact, and sustainability is in our DNA. We want to be pioneers in this area. Every day, we really think about how we can align our profile even more closely with sustainable investments. As an AAA bank, we should basically already be an exemplary partner that has this topic at the very top of our agenda.
TP: Have customers’ demands in this regard changed?
CW: Yes. We are really noticing this demand. To start with, it encompassed institutional investors like pension funds, but this topic is now being picked up by private customers via professional private investors and charities. I would call it a megatrend, even though I’m not a huge fan of the term.
TP: It’s certainly not the first that ZKB has seen: the bank is celebrating its 150th birthday.
CW: Exactly. And we want to celebrate it with our stakeholders, in particular, namely the population of the canton of Zurich, by hosting an array of activities both in cities and in the countryside. Some of our customers have trusted ZKB for generations, and we want to mark this special occasion with them.
Christoph Weber has been Deputy Chairman of the Executive Board of Zürcher Kantonalbank (ZKB) since 2008, where he heads up the Private Banking department. Prior to this, he was head of Private Banking North and a member of the Executive Board at Banca del Gottardo. From 2000 to 2006, Christoph Weber was an executive at AAM Privatbank AG. ZKB has a balance sheet total of 170 billion Swiss francs and employs more than 5,000 people. As the largest cantonal bank, it is also one of Switzerland’s biggest banks. It was founded in 1870 as an independent institute of the canton of Zurich under public law, and in 2013, the Swiss National Bank classified it as being systemically important. ZKB is involved in the StiftungSchweiz platform. zkb.ch