pictet briefing - perspectives...

PICTET BRIEFING

NOVEMBER 2014

ENTREPRENEUR SUMMIT PICTET WEALTH MANAGEMENT

THE INNOVATION PARADIGMJACQUES DE SAUSSURECHRISTOPHE DONAY BEÑAT BILBAO-OSORIO TYLER BRÛLÉ YONATAN BURSZTYN OSKAR HARTMANN RORY CELLAN-JONES YOSSI VARDI

FROM WEALTH CREATION TO WEALTH PRESERVATIONJONATHAN GOODWIN FRITZ DEMOPOULOS JOSÉ MARIN EDWARD WRAY PIERRE-ALAIN WAVRE GEORGE COELHO NEIL RIMER MICHAEL WAND YVES BONZON EDGAR VAN TUYLL JEAN-CLAUDE ERNE

A SENSE OF RESPONSIBILITYNAVEEN JAIN ETIENNE EICHENBERGER STEPHEN DAWSON NICOLAS MÉTRO BERTRAND CESVET VINEET BEWTRA ALEXANDRE SEMBOGLOU SARAH MARQUIS MARC PICTET

Editor – Ninja Struye de SwielandeRapporteur – John WillmanPhotography – Aurélien BergotDesign – Together Design

CONTENTSTHE INNOVATION PARADIGMPictet in a nutshell p2The positive shock of the new p4Sources of national competitiveness p8Innovation in practice p10The start-up nation p14

FROM WEALTH CREATION TO WEALTH PRESERVATIONSuccessful exits — what’s next? p16Opportunities in private equity p19Entrepreneurs tend to share common behavioural biases when making investment decisions p22Land or brains? p26Failing to prepare is preparing to fail p28

A SENSE OF RESPONSIBILITYInnovation in philanthropy p30Leveraging philanthropy p32Structuring philanthropy p36

ANOTHER PERSPECTIVELet your soul touch the earth: go walking p38

POSTSCRIPTMarc Pictet p40

INTRODUCTION

I am delighted to introduce this Pictet Briefing, which presents the highlights from Pictet’s first Entrepreneur Summit, held in Geneva in September 2014. This one-and-a-half day event was

designed to bring together entrepreneurs to describe their different and unique journeys and speak about how they had solved the challenges along the way. It also provided an opportunity to discuss the new questions that arise once success is achieved. Entrepreneurs with over 26 different nationalities and from all five continents joined us for the Summit.

The programme started with a welcome from our Senior Partner, Jacques de Saussure, which was followed by sessions discussing the importance and nature of innovation. Some of the entrepreneurs shared their keys to success while others set out the decisions they had made after exiting from their businesses.

In the afternoon, the focus was on wealth creation vs wealth preservation and why the latter is sometimes more challenging for entrepreneurs. Private equity, public markets and different investment paradigms filled the afternoon, with financial and family governance wrapping up the day. Also, participants discussed the next big megatrends and the investment opportunities they were currently looking into.

The second day focused on philanthropy, sharing the achievements of entrepreneurs who had applied their business skills to solving global problems. The Summit concluded with an inspirational speech by the adventurer Sarah Marquis who has realised her dreams by walking across continents.

I hope that you will enjoy reading about the remarkable speakers at this unique event, and find their experiences stimulating.

Philippe BertheratManaging PartnerPictet Group

Pictet in a nutshellSenior Partner Jacques de Saussure welcomed the entrepreneurs to the Summit and described how Pictet has maintained its entrepreneurial spirit over more than two centuries

I want to suggest that there is a connection between a group of mainly first-generation entrepreneurs and a 200-year-old bank with a

strong family connotation. It is that we like to see ourselves as a 200-year-old start-up, and we try to encourage and maintain an entrepreneurial spirit.

This is perhaps strange, since we have to offer qualities that many would see as the opposite of entrepreneurship: stability, solidity and trust in a very highly regulated industry. Our mission is to offer clients sustainability in their businesses, their finances and their families across the generations, which requires a long-term perspective. Our business is a slow one, which involves developing relationships with clients that can take years and may last for years.

Yet we are essentially a service organisation: we are advisers to our clients. Although we have banking operations, our business model and culture is more like those of consultancies, law firms and other professional service providers. We have to be innovative to build an even stronger firm to pass on to the next generation.

We do have family connotations: the brand of the firm is the name of a family which has been associated with it for most of its 200 years of history. But we are not a family firm: new

PICTET WEALTH MANAGEMENT Entrepreneur Summit 2014 2

THE INNOVATION PARADIGM

partners are elected by the existing partners, with no family ownership or influence.

We elect them in their late 30s or early 40s, and they start with a small percentage of the firm. Some of them need to borrow from the older partners so they can join the partnership. The cash flow generated by the firm is reinvested to grow their position, but when it has grown enough they can start to pay back the older partners. Free cash flow does not come until they reach their 50s and then some may be lent to the next generation.

For this to work, we have to find people with the right expertise, the right personality

and the right age. If all the partners were the same age, we would all retire

together, and there would be no succession process to transmit the firm’s experience, values and the capital to the next generation.

The firm has also built up very substantial value which is kept in the circle of a small group of people who can protect the fantastic jewel that we have inherited. Our mission is to transmit this jewel to the next generation – in a way, we rent it, enjoy its cash flow while we work, and then pass it on. This gives us a long-term perspective which is very different from that of a listed company.

We like to maintain the family aspect: clients

appreciate the multi-generational stability and values.

But we also have to attract the talent we need. So if one of the candidates for

partnership is related to an existing partner, that partner must withdraw from the selection discussion and decision. It is not always easy, but it has worked up until now.

One consequence of this model is that we must earn a return on equity

that is sufficiently high to generate the cash flow needed to invest in the firm. We have achieved a good return, although conditions in the business are getting harder because of the cost of regulation and other developments.

Some of you may ask yourself why we have recently converted to a limited partnership. A partnership in Switzerland is formed of individuals who do business together, and this model is not always well understood in other countries. If we open a branch abroad as a partnership, we become legal and tax citizens of those countries, so we opened our foreign enterprises as limited companies.

And since a partnership does not have the tax advantages of a holding company in Switzerland, we could never meaningfully attach those other entities to the mother organisation. Also, regulators abroad don’t understand partnerships – they like to see the checks and balances of the separate management and board in companies. So we’ve created a holding company in the form of a corporate partnership which preserves the rules of succession while giving us more flexibility.

One consequence of this change is that we have lost the privilege of not reporting our financial statements, which we published for the first time in 2009 years in August. It is amazing to reflect that over such a long period, people were prepared to entrust us with billions of their money without ever seeing our balance sheet, total equity and other figures.


THE POSITIVE SHOCK OF THE NEW Christophe Donay, Pictet’s Head of Asset Allocation and Macroeconomic Research, described innovation as a key issue for global economic growth, investment and portfolio management


World population growth is declining, from its peak of 2 per cent a year in the middle of the last century to 0.8 per

cent today – and it is forecast to stabilise by the end of this century. This is bad news, because economic growth depends on two main factors: demographic growth and productivity gains. With declining demographic growth, productivity gains are therefore crucial and they depend on innovation.

Some innovation is local, with little impact on economic growth as a whole. But what interests economists is radical innovation which drives growth, and there are three types:

Technological shocks such as automobiles, oil and the internet.

Political belief shocks, such as when China joined the club of capitalist countries – a disruptive shock that boosted global economic growth.

Cognitive shocks, such as changes in monetary policy style by central banks or in fiscal policy by governments. The switch from Keynesian to supply-side economics since the 1980s has reduced high inflation, raised growth significantly and sparked a new wave of industrialisation.


Capitalism prospers through innovation, which is usually concentrated in one country, or even one city. The first such city was Bruges in Flanders, where the development of the stern rudder between 1200 and 1350 transformed shipping and expanded international trade. Next came Venice with financial innovations such as banks, insurance companies and the stock exchange. Antwerp in the early 16th century developed printing, followed by Genoa with lending and accounting and Amsterdam with the Dutch three-masted cargo ship. The Industrial Revolution began in Britain with the steam


SEVEN SOURCES FOR THE POTENTIAL NEXT TECHNOLOGICAL WAVE

TECHNOLOGY SECTORS POTENTIAL RADICAL INNOVATIONS

INTERNET Mobile appsInternet of ThingsCrowd-sourcing, Crowd-funding, Crowd-teaching

IT/INFORMATION & DATA PROCESSING

Extensions of Moore’s law (new-generation microprocessors)Quantum computingBig Data

AUTOMATION Advanced robotics – automation of manual labour and expertise (artificial intelligence), human/machine interface, drones, decision-making processes

TRANSPORT Driverless vehiclesVehicles powered by new energies

ENERGY Shale oil and gasStorage and management of electric powerNew energies – solar, biomass, wind, geothermal, waves/tidal, hydrogen

LIFE SCIENCES PharmaceuticalsBiotechnology – biomakers, nanobiotechnology, targeted biologic therapies, genomics (DNA decoding), molecular and cellular geneticsNeurobiology (and Neuroinformatic)BioinformaticsImmunologyOncology

SMART MATERIALS NanotechnologiesGrapheneComposite materialsUse of soft matter materials (polymers, proteins)

Source: Pictet Wealth Management

engine, moved to the US at the end of the 19th century with the internal combustion engine and in modern times the microprocessor and the internet. It was only after the disruptive innovation of the Industrial Revolution that growth in global production per capita rose from zero, and it has accelerated into the present era. Today the US is facing a challenge as a centre of global innovation from China, while Europe is between the two with limited capabilities for innovation and sluggish growth.


OVER 20 YEARS, US HOUSEHOLD INCOME HAS RISEN 80 PER CENT MORE THAN EUROPE’S

Source: Pictet Wealth Management

Christophe Donay, who joined Pictet in 2008 as chief strategist of the Wealth Management unit, has 20 years experience in financial markets.


The table on the previous page lists the seven sectors which we believe could be the disruptive sources of the next wave of radical technological innovation. These will offer plenty of opportunities for entrepreneurs and also for investors. And they will also promote economic growth and job creation.

Growth in jobs in mature economies requires a minimum level of economic growth, however: this level is 2 per cent of real growth in GDP to anchor the job creation cycle. The failure to achieve that level can be seen in the underperformance of the European economies when compared with the US. Over the last 20 years, US real GDP growth has averaged more than 2 per cent a year, compared with around 1 per cent for Europe. As a result, the disposable income of US households has risen 76 per cent more than that of European households over that period.

Maintaining real growth above 2 per cent is the main challenge for all developed countries and it requires big and disruptive innovation to achieve that. Today, the mature economies are in a sluggish growth environment of 1-2 per cent

US vs EA DISPOSABLE PERSONAL INCOME

1993100

120

140

160

180

200

220

240

260 Index 1993 = 100

76% in 20 years,i.e. 1.8% per year

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

US Disposable Personal Income EA Disposable Personal Income

and they need to normalise growth around 2.5 per cent. But if there are innovation shocks over the next decade they could reach 4 per cent.

Whether or not this is achieved will have consequences for investors. We believe that returns on European and US equities could double over the next ten years if there are innovation shocks. And this could also substantially raise expected returns on portfolios blending different asset classes. So innovation is key for businesses and for investors at a global level.

PICTET WEALTH MANAGEMENT The Next Generation Seminar 2014 8

technological readiness; and the market size in terms of scale and scope.

Innovation and sophistication factors – whether companies have coherent strategies, and their capacity for innovation through R&D and linkages with research centres.

We assess these factors using 114 different variables sourced from international organisations and also qualitative data from an annual survey of executive opinion carried out by our network of partner institutes.

The latest Global Competitive Index shows Switzerland to be the most competitive economy for the sixth tear running, followed by Singapore. Both countries have very efficient and transparent institutions, very good infrastructure, efficient markets and a stable macroeconomic environment – and both are very good at producing innovations.

The US has risen two places to third position, and is still the world’s innovation powerhouse with concentrations in certain regions. In the rest of the top ten, there are European and Asian countries scoring very highly thanks to their innovation capacity. The first emerging market is Malaysia in 20th place.

Countries which consistently rank highly in the rankings are those that are able to develop, attract and retain talent and can constantly introduce new products and services.

The World Economic Forum’s Global Competitiveness Report was launched in 1979 covering 16 countries. Its 35th annual edition

has expanded to cover 144 economies, ranking them in terms of their strengths and weaknesses when competing in international markets.

When assessing competitiveness, we analyse the institutions, policies and factors that determine the level of productivity of each country. That level in turn sets the degree of prosperity that can be achieved by an economy. The consequences of variations in competitiveness can be seen in the per capita incomes of countries which were similar at the time of the first report and now differ considerably – Korea’s per capita income, for example, is now more than double Brazil’s.

We have identified 12 drivers that determine productivity, which fall into three groups:

Basic requirements – countries need institutions which are reliable, transparent and efficient; adequate energy and transport infrastructure; a stable macroeconomic environment; and a labour force that is productive because of their health and primary education systems.

Efficiency enhancers – the quality of higher education and training; the efficiency of goods markets; the flexibility of the labour market; the development of financial markets;

Sources of national competitivenessBeñat Bilbao-Osorio, Senior Economist for the World Economic Forum, introduced the latest Global Competitiveness Index and identified smart investment in skills and innovation as key factors



PICTET WEALTH MANAGEMENT The Next Generation Seminar 2014 9

Dr Beñat Bilbao-Osorio is Associate Director and Senior Economist of the Global Competitiveness and Benchmarking Network at the World Economic Forum.


GLOBAL COMPETITIVENESS INDEX 2014–2015

RANK ECONOMY SCORE RANK ECONOMY SCORE

1 Switzerland 5.7 33 Chile 4.6

2 Singapore 5.6 34 Indonesia 4.6

3 United States 5.5 35 Spain 4.5

4 Finland 5.5 36 Portugal 4.5

5 Germany 5.5 39 Mauritius 4.5

6 Japan 5.5 45 Turkey 4.5

7 Hong Kong SAR 5.5 49 Italy 4.4

8 Netherlands 5.5 52 Philippines 4.4

9 United Kingdom 5.4 53 Russian Federation 4.4

10 Sweden 5.4 56 South Africa 4.4

11 Norway 5.4 57 Brazil 4.3

12 UAE 5.3 61 Mexico 4.3

13 Denmark 5.3 68 Vietnam 4.2

14 Taiwan, China 5.3 71 India 4.2

15 Canada 5.2 81 Greece 4.0

17 New Zealand 5.2 104 Argentina 3.8

18 Belgium 5.2 127 Nigeria 3.4

20 Malaysia 5.2 129 Pakistan 3.4

23 France 5.1 134 Myanmar 3.2

28 China 4.9 144 Guinea 2.8

Source: World Economic Forum

Successful entrepreneurs Tyler Brûlé of Monocle, Yonatan Bursztyn of Totto and Oskar Hartmann of kupiVIP discussed their businesses – and lessons learnt in building them – with Rory Cellan-Jones, the BBC’s Technology Editor

The panel brought together three very different entrepreneurs, operating in different sectors and different regions.

Tyler Brûlé, born in Canada and now based in the UK, has launched two ground-breaking publications – most recently Monocle, a high quality print product at a time when the world was going digital. Yonatan Bursztyn from Colombia bought his first manufacturing enterprise at the age of 28, launched a sportswear line in 1990 and now owns Totto, an international retail chain. And Oskar Hartmann, born in Kazakhstan, founded kupiVIP in 2008, an online shopping club which rapidly became the leading Russian fashion e-commerce company.

Rory Cellan-Jones asked the three to describe the origins of their businesses, and talk about what went right and what went wrong.



Innovation in practice


TYLER BRÛLÉWhy the future is still made of paper

When we started Monocle in 2007, digital was already big in the media space and there had been one cycle of boom and bust. It was clear to us that it had to be a global magazine because we had seen so many companies licensing their very famous brands around the world. But every time they licensed, they damaged their brands, because they were using publishers who could not afford the quality and that chipped away at the mothership. We said let’s assume all of our readers read English, and do one edition for the entire world. That means we have to sell the magazine to advertisers like Rolex just once, and we also create a clubby group of readers around the world and advertisers liked that.

Raising funds was tricky, because venture capitalists and private equity companies were not interested in investing in magazines. But eventually a woman running a Family Office for an old-school Spanish family liked the plan and said it would invest if there were only family

investors at the table. It took another year to raise the rest, but we got a group who were all readers and saw themselves as consumers. Recently we brought in Nikkei as a strategic partner in a deal that represents a 10x return for our investors.

We were able to bring people together who had a long-term view on the media. But we take a conservative approach: we have to be sure that everything we do will make us money. We didn’t venture down the road of an iPad edition because that would have cost us roughly two issues of advertising – and a lot of monthly magazines are getting out of it anyway because of the cost. We’ll let the BBC and New York Times be the pioneers.

Start-up has been co-opted by all things digital, but there are other ideas that can succeed which can’t get funding – and that needs to change. We are thinking about some vertical integration by selling magazines, including those published by others, because buying magazines in shops now is such an awful experience.

‘We are thinking about some vertical

integration by selling magazines,

because buying magazines in shops

now is such an awful experience.’

Tyler Brûlé



YONATAN BURSZTYNBuilding a global brand from Latin America

I’m the youngest of five brothers and my oldest brothers talked about business ever since I was little. As I grew up, I worked with all of them, as I wanted to become the CEO of a company. One of them said that it was better to go straight from manufacturing to retail without distributors and that it was important to build a brand to control the market. So I started manufacturing backpacks with synthetic materials, because leather had become too expensive. We mixed that with fashion, where the brands came from first world countries but we created our own. I learnt that you could compete anywhere by doing it better – if you copy, the best you can be is second.

We have around 500 stores and we are in the process of converting part of our sales to online. Traditionally, Latin American consumers haven’t liked giving credit card details online, but traffic congestion is changing that and boosting internet sales.

Our second priority is to build a global brand: we want to raise the international share of our sales from 50 per cent to 80 per cent by 2020. We are already in Spain and in 2016 we will enter the US where there are 45 million Latin people who know our brand. When we expand abroad, we start with franchises to establish a physical presence. We tell our franchisees to focus on the basics as my father and grandfather did. Just as with Tyler’s paper publication, people still want service and to communicate with a face rather than a keyboard.

We are not interested in selling the business or getting into the stock market. In the last few years, though, people are knocking on the door because Latin America is exciting now, but they just want to milk the businesses. Fashion is always changing, and treating it as a short-term business undermines the brand.

‘I learnt that you could compete anywhere by doing it better – if you copy, the best you can be is second.’

Yonatan Bursztyn

PICTET WEALTH MANAGEMENT Entrepreneur Summit 2014 13PICTET WEALTH MANAGEMENT Entrepreneur Summit 2014 13

Rory Cellan-Jones, Journalist, has been covering technology for the BBC since 2007 and covered the iPhone launch, and the Facebook and Twitter IPOs. Tyler Brûlé launched Wallpaper* in 1996, selling it in 2002 to focus on developing Winkreative, a full-service branding and design agency. He launched Monocle in 2007. Yonatan Bursztyn opened the first Totto store in Colombia in 1989, developing it into a global brand with nearly 500 stores in 22 countries in Latin America and Europe. Oskar Hartmann founded KupiVIP in 2008, an online shopping club selling famous brands at discount. Within four years, it was Russia’s leading fashion e-commerce company.

OSKAR HARTMANNReplicating successful Western businesses in Russia

Although I was born in Kazakhstan, I decided to live in Russia because I loved the country. I looked for business opportunities, and decided that I wanted to adopt a proven business model such as Starbucks or Vente-privee, the French e-commerce company. But I wasted one or two years of my life failing to convince Western companies to start a business with me in Russia – a market of 140 million people. My conclusion was that Russian consumers would not get value unless local entrepreneurs replicated such businesses. So I started kupiVIP based on the Vente-privee model and I’ve replicated about 20 businesses in Russia – and owning companies is better!

I fully agree with Yonatan on old-fashioned business practices: the most profitable question in business is not what is new, but what will not change. Shopping is the biggest entertainment in the world, and it will never go away. In three years I built a USD100 million TV shopping operation in Russia like QVC, and for years people have said TV shopping would die like the catalogues. But it

gives people more and has continued to grow and one German company worth EURO100 million ten years ago is a billion dollar company now.

Entrepreneurship is a constant flow of problems. Your receive emails that start ‘Unfortunately...’ And when nobody wants what you create, that is also very painful. But one in a hundred is a success and that makes it all worthwhile. Also, I now understand why companies won’t go international: most successful businesses are local. I analysed 4,000 richest families in the world and found there were only 100 business models – 80 per cent of the 10,000 biggest businesses in the world are still local.

Entrepreneurs always find it hard to understand investors, but there are now lots of ways to fund a business – family offices, private equity, venture capitalists, business angels. Fifty years ago, this didn’t exist, and a lot of stupid ideas get funded now. But I think the world is good as it is now, though I’d like to see more investors coming to Russia.

‘I have found that the most profitable opportunities are not in new business models but in established models that

customers like.’ Oskar Hartmann

The legendary Israeli investor Yossi Vardi discussed the reasons behind the entrepreneurial success of his country in an interview with Rory Cellan-Jones



THE START-UP NATION

Rory Cellan-Jones You have 40 years’ experience of investing in mainly high tech start-ups in Israel. I was told recently that more venture capital had been invested in Israel’s technology sector last year than in the whole of Europe. Why has it become this extraordinary place for entrepreneurship?Yossi Vardi First of all, I don’t think Europe is a good comparator – it still has a lot to do. The simple reason why a lot of money is going to Israel is that people are doing very nicely from their investments there. For example, the instant messaging software developer Viber was acquired by Rakuten for USD900 million in February 2014. The community-based navigation app Waze was sold to Google in 2013 for more than USD1 billion – and to show you what an astute investor I am, when they offered me five years ago to enter it for USD5 million, I said they were crazy. And there’s a list of companies ready for exits of around USD1 billion.

Twenty years ago, it was all about external investment in Israel, with Intel basing a lot of research there. What changed that made it the place where every young Israeli wants to be an entrepreneur?There are still a lot of investments from different countries – we have over 300 large American and European countries here, and also Far East and Japanese companies. But I think there was inspiration by example after there were some successes.


You have to understand that in my country, from the age of five mothers push you: ‘Is it too much to expect a Nobel Prize after all we have done for you,’ they say. Forty years ago, Israelis excelled in agriculture an industry, but now it is high tech.

What do you look for as an investor?I realised long ago that ideas are overrated – lots of companies have the same ideas. There are three important factors I look for: the first is talent, which is the one thing that separates you from the rest of the herd. The second is that I want to invest with nice people, because at 72, I have no bandwidth to work with not-nice people. Number three is that they must be frugal at the early stage – if they burn the money, they will go nowhere and will keep needing more money.

How do you know if someone is talented?Teachers don’t know, parents don’t know and their grades are no indication. Their peers know, so I have a panel of former investees – I have invested in some 80 companies – and they know.

Lots of places want to be the next Silicon Valley, but doesn’t it take a long time to build that culture?We don’t want to be Silicon Valley: we want to be Israel – very fast with ideas, very fast with deployment. Scaling is a different story, because it’s difficult to conquer the world from a small country in the Middle East – you need to a network of offices and managerial talent. So the combination of Israeli start-ups with US and European companies which buy them works extremely well.

Yossi Vardi is Co-Chairman of DLD, whose annual Digital Conference is Israel’s largest hi-tech gathering. He has 40 years’ experience of co-founding, leading and participating in building more than 60 hi-tech companies. He was the founding investor of Mirabilis which created the popular ICQ instant messaging programme.

Jonathan Goodwin of Lepe Partners led a discussion on the next steps for successful entrepreneurs with Fritz Demopoulos of Queen’s Road Capital, José Marin of IG Expansion and Edward Wray of Betfair

Jonathan Goodwin began by asking the panel to discuss the exits they had made from their successful businesses, and whether they had

any regrets about them.Ed Wray said he had left Betfair, the online

sports betting business he had co-founded in 1999, two years after floating it on the London Stock Exchange in 2010. He is still the largest shareholder. ‘An IPO is not an exit, but it may be the beginning of that process,’ he said. ‘The IPO was a real eye-opener: as a private company, you can make mistakes and get on with it, but suddenly there is a lot more scrutiny. My biggest regret is that we weren’t ready for that, and should have taken wise counsel first.’

After co-founding Qunar, China’s largest online travel website, Fritz Demopoulos was chief executive for seven years. Three years ago, the majority of the business was sold to Baidu, the Google of China, which provided a lot of traffic and killed off their direct competitors. Qunar was listed on Nasdaq in 2013, and he also remains a shareholder. ‘We have no regrets, but I sometimes wonder whether we should have brought in financial investors and stayed independent.’

José Marin co-founded an eBay for Latin America in 1999, and made a first exit early on with a cash in/cash out round of USD50 million from Terra. Later eBay made an approach which –


FROM WEALTH CREATION TO WEALTH PRESERVATION

Successful exits — what’s next?


as market leader – they rejected. EBay then bought their smaller competitor, took the market lead and merged the two. ‘It was not such a nice exit, from a company that is today worth USD4 billion-plus, but we learnt a lot from it. My partner and I have gone on to build businesses in different countries and have made over 140 angel investments which has kept us close to the market and entrepreneurs.’

Ed Wray has also made some angel investments, some very good, others not so – the bad ones come through first, he acknowledged ruefully. The most enjoyable thing he does now is working with Funding Circle, the peer-to-business lending site. ‘The majority of what I do is talking about the mistakes we made, which are the most important thing you learn as an entrepreneur.’

He added that he had started Betfair because he was fed up with working in a large business and wanted to see if he could do something different. ‘I worked 16-20 hours a day, seven days a week and it was all-consuming. I loved it, but I couldn’t do that again – I’m married with three kids and you can’t be that selfish. There’s more balance now, and I want to give something back through philanthropy which is also an interesting intellectual challenge.’

‘An IPO is not an exit, but it may be the beginning

of that process.’ Ed Wray

Fritz Demopoulos said he had been involved in three successful start-ups in China. He enjoyed building businesses and would like to do it again – he is looking around to find a new business he can get excited about. But he admitted that he might prefer to be a chairman rather than an operating chief executive again in China’s brutal business environment. ‘Also, my family is really important to me, as are philanthropic activities, so I’d like a little more balance.’

Jonathan Goodwin asked Neil Rimer, the venture capitalist who was in the audience, how entrepreneurs should manage their exits without destroying value. Rimer replied that it was something for the investor to think about when first investing.

‘Some entrepreneurs don’t have long-term objectives or the capability to scale up. Our job is to find guys who are passionate about the business, half crazy and think their business can be a USD10 billion company – and partner with them. The life of our investment is only a short portion of the company’s life, and if the chief executive and founders have the ambition to be there, they don’t have to exit in 10 years when the venture capitalist does.’


A questioner asked the panel what he should do about his business partner who wanted to accept an offer and exit the business when he did not: ‘I feel guilty blocking it – so should we take the money?’

‘My family is really important to me, as are philanthropic activities, so I’d like a little more balance.’ Fritz Demopoulos

José Marin’s advice was not to worry about offers if you are doing what you love. ‘If you want to do other things, then sell!’

Fritz Demopoulos said that they had turned down the first of six offers they had received for Qunar before selling to Baidu – despite family pressure to accept it. ‘I didn’t want to sell so early: we were on the way to creating an empire in China.’

Concluding, Jonathan Goodwin said there was no simple answer about when to exit and what to do afterwards. ‘It’s about a journey, and having the right people around you as you make the transitions.’

Jonathan Goodwin is Managing Partner of Lepe Partners, a merchant bank created to help media, consumer and internet entrepreneurs and chief executives grow their businesses.

Fritz Demopoulos is Managing Partner of Queen’s Road Capital, a private equity firm focused on digital opportunities in global emerging markets.

José Marin is Managing Partner and co-Founder of IG Expansion which creates one to two companies a year in emerging markets. Edward Wray co-founded Betfair in 1999, which was listed in London in 2010. He is a Director of Funding Circle and LMAX, the world’s leading exchange for FX.



Pierre-Alain Wavre, CEO of Pictet Investment Office, discussed wealth creation in private equity with George Coelho of Good Energies, Neil Rimer of Index Ventures and Carlyle Group’s Michael Wand

Opening the discussion, Pierre-Alain Wavre said that Pictet had around USD21 billion of funds committed to

private equity and venture capital, including USD2.1 billion over the previous 12 months. Fifteen years ago, the total had been USD10 million, which had doubled in the second year and the amount committed had accelerated over the last five years. Venture capital accounted for only USD1billion of the total, though it had been higher as a percentage in the boom years.

He then asked George Coelho, who had been an investor through all the different waves of venture capital, about changes in the investment environment. Coelho replied that his investments had ranged from aerospace, investing at the start in a German low-cost airline founded by a former Luftwaffe pilot,

then moving on to technology, software, and now the internet and broadband.

‘Entrepreneurs don’t change – they interact and behave in similar patterns. It’s very predictable. Very few entrepreneurs have ever told me about making lots of money: they always talk about great ideas. If you build something great, everything else takes care of itself.’

Turning to Neil Rimer, Wavre asked why venture capital had outperformed private equity recently, after years of underperformance. ‘You can’t talk about venture capital as an industry,’ said Rimer. ‘It’s more of an art which rewards the best managers. If you look at the top decile or quartile globally, the class has made returns more than commensurate with the risk over the years. But investors who can’t get into the top group look down the list where the managers don’t have the skills.’

OPPORTUNITIES IN PRIVATE EQUITY



His priorities when investing were first the entrepreneur and then the market, he said. He added that there were lots of good investments that don’t meet the venture capital model and are better supported by business angels.

Wavre then asked Michael Wand to describe how Carlyle had recovered after he joined the firm in 2001, following the dotcom bust in which it had lost a lot of money. ‘We changed the strategy to focus on what we thought we were good at, creating probably the first tech buyout fund in Europe, looking for equity investments of USD20-50 million in companies with enterprise value between 40 and 100 million, profitable or on the brink of profitability.

‘We’re often seen as less exciting, because we look for quirky businesses with decent

20 per cent annual growth which are never going to be USD1 billion companies. People set them up 15-20 years ago, and they’re often very local: we try to take them to the next growth phase, perhaps crystallising some value for the founders, angels or local venture capitalists. We might internationalise the businesses, taking them to the US or Asia.

Carlyle had found its niche, he added, while others served other parts of the market. One consequence of this was that exits did not need always to be an IPO. Asked by Wavre to comment on the observation that different types of investors brought different things to the table, Rimer said that there was a growing trend of companies not going public as much as they used to.

‘Very few entrepreneurs have ever told me about making lots of money: they always

talk about great ideas.’ George Coelho


‘Companies can stay private and reach significant size, and being public is not all good. There are other paths to partial liquidity before going public – Facebook and Spotify, for example. But IPOs may suit a company if the investors are capped out and don’t want more dilution, or if funds are needed for acquisitions.’

An audience member asked whether the scope of venture capital in technology had expanded. Rimer replied that it had: from the early days of low-level hardware, software and services, ecommerce had grown and with ubiquitous infrastructure, every sector of the economy was open to disruption. ‘Things that were unthinkable ten years ago now have a big bullseye on them.’

Pierre-Alain Wavre set up the Pictet Investment Office, dedicated to very large wealth owners, in September 2010.

George Coelho is on the Management & Investment Committee of Good Energies, a pioneering clean-tech investment company whose venture capital activities he manages.

Neil Rimer, Managing Partner of Index Ventures which he co-founded in 1996, has invested in Betfair, Genmab, FundingCircle and many other market-defining companies.

Michael Wand is a Managing Director of Carlyle Group and Head of its Europe Technology advising group which advises on growth capital and buyout opportunities.

‘We’re often seen as less exciting, because we look for quirky

businesses with decent 20 per cent annual growth which are never going to be USD1 billion

companies.’ Michael Wand

‘You can’t talk about venture capital as an industry, it’s more of

an art.’ Neil Rimer

Managing the liquid part of wealth is simple but not easy, according to Yves Bonzon, Chief Investment Officer of Pictet Wealth Management. The rules are straightforward, but it is difficult to stick to them over time


ENTREPRENEURS TEND TO SHARE COMMON BEHAVIOURAL BIASES WHEN MAKING INVESTMENT DECISIONS


A mentor once told me that wealth managers are in the education business: our job is to help clients avoid mistakes and make better

decisions. For example, investors should stick to their long-term strategy and ignore the short-term noise – to avoid the temptation to buy gold because some criminals in Ukraine have shot down a civilian plane. Western intelligence services had no clue that the USSR was about to collapse a few weeks before it happened, so investors cannot make informed decisions on such news events.

However, entrepreneurs are an extremely difficult group to educate in financial matters, because they are clever, successful and sometimes lucky people. As a result they are affected by several syndromes, including overconfidence: that can be rash, because public markets are very uncertain, and there is no longer the information edge that insiders once had.

Patience is also a virtue, because the time horizon is key to successful investment. Warren Buffett once said that the markets were a voting machine in the short term, but a weighing machine in the medium term. These days there is too much capital dedicated to beating the market average, from over the next microsecond all the way through to three years. If you have the ability to take a five-year view, which is one of the competitive edges of private wealth owners, you can create value in your portfolio of public assets.You also have to be disciplined. The shorter the

time horizon, the more uncertain the future. If you invest in a strategy which aims to make an 8 per cent annual return, the likelihood that you will get close to that target is much higher over ten years than over the next day, the next month or the next year. If you look at your investment every five minutes, it’s a 50:50 chance that the stock has ticked up or ticked down. Looking at your portfolio too often is extremely harmful, and the mobile technology which gives access to information all the time is very detrimental to performance.

Public and private markets provide different sets of opportunities for investors, who should be harvesting risk premiums when building their portfolios. In public markets, for example, you can accumulate term risk premiums by investing for the long term, credit risk premiums by investing in riskier borrowers and equity risk premiums where the return is not guaranteed. In private markets which cannot be traded daily, you can try to harvest illiquidity premiums by tying up your investment.

Once you have gathered the returns from the market – beta – you can try to do better by searching for alpha. Investors try to time the markets or pick securities, but these are very uncertain. You might be able to get an edge by processing information faster than public markets or by being in the deal flow of private markets ahead of other investors.



Yves Bonzon joined Pictet in 1989. As Chief Investment Officer for Pictet Wealth Management, he is responsible for investment strategy and the Investment Platform unit. He is a member of the Wealth Management Executive Committee and manages the investment portfolios of several private clients.

But there is a price to pay: if you want abnormal returns in the medium term, you may have miserable returns over the short term – something hard to cope with for many investors.

So when building a portfolio with no preconceived ideas, you can start with a balanced asset allocation that reflects secular market trends, study the risk premiums available and add more strategic assets, select tactical securities and then go into private markets with investments such as private equity and real estate.

It is also important to understand the current environment, and every decade is characterised by a different economic and investing environment – as the chart shows. In the 1990s, the best approach in a raging bull market was to index, the Nasdaq and the Swiss markets were among the best regions, and the dollar was strong. In the 2000s, it was hedge funds, emerging market

SECULAR TRENDS

EVERY DECADE IS CHARACTERISED BY A DIFFERENT ECONOMIC AND INVESTING ENVIRONMENT

1960’S 1970’S 1980’S 1990’S 2000’S 2010’S

ECONOMIC ENVIRONMENT

Bretton Woods Floating FX

Oil shock

Inflation

Disinflation

Plaza

Arbitrage

Fall of Berlin Wall

Globalisation

Internet

E-trading

EMU

Great global imbalance

China’s rise

Structured credit

Managed Western de-leveraging

Nominal GDP and asset price targeting

EM discrimination

EUR 2.0

INVESTING ENVIRONMENT

US Nifty Fifty stocks

Small Caps

Oil stocks

Gold, Swiss Franc, Japanese Yen

Government bonds

Nikkei

Hang Seng

Indexing

Nasdaq

Swiss Equities

US Dollar

Hedge funds

Emerging Market equities

Commodities

Euro

Tactical asset allocation and risk factor based strategic asset allocation

Developed quality blue chips

US Dollar

Emerging Market debt

equities, commodities led by gold, and the euro. In this decade, it is developed market equities, the dollar and emerging market debt.

To conclude, beware of preconceived ideas and fixed recipes that have worked at some period in the past. The future is uncertain, so diversify by sources of return, strategies and risk. Passive investing is a portfolio tool, but you still have to choose the best index to replicate. Control your costs and spend wisely for active solutions. And do not mistake volatility for risk, as many investors do.

Source: Pictet Wealth Management, CIO Office

Q&A ARE THERE TRENDS IN THE STOCKS ENTREPRENEURS LIKE TO INVEST IN?Entrepreneurs like club deals with people they know. They like concentration because they made their money with a very big bet that was extremely successful! But they tend to forget that it’s not repeatable, which is where we can help. And because it’s simple but not easy, they are easily bored with public market investing where trading is a waste of time and resources.

HOW DO YOU ASSESS AN INVESTOR’S RISK APPETITE?That’s a difficult issue, because it’s not fixed. Their risk appetite tends to increase with good returns and tremendously decrease after declines. We have to convince them that falls present great investment opportunities, but entrepreneurs often worry when the value of their portfolio drops. I always say that the price of sleeping well is prohibitive – the return you leave on the table is much higher than you think, and compounds over the medium term.

Two investment paradigms alternate in surprising cycles, according to Edgar van Tuyll, Head of Quantitative Strategy for Pictet Wealth Management

There are two ways of investing in asset classes, countries, sectors or individual investments, which alternate over time in

terms of best performance. Value strategies buy assets when they are cheap compared with their fundamentals, like Japanese equities. Growth strategies buy assets when their fundamentals (or market prices) are growing rapidly – for example US Biotech stocks.

This presentation focuses only on growth assets, where there are two sources of strong growth: emerging markets and technology. Emerging markets effectively reflect the geographical theme of land: their growth is usually associated with credit and property booms in developed markets which then consume more emerging markets production. Technology is the innovation theme of brains, defined broadly from railroads to smartphones.

Bloomberg data shows that of the 30 richest people in the world, seven come from technology and telecom. Many of the rest are in consumption, retail and property – developed market sectors which lead to emerging market booms.

Another surprising finding is that bull markets are alternately led by emerging markets and technology. Every 18 years, there is a technology-led cycle of around seven years followed by a relatively shallow recession, then a seven-year emerging market cycle led by property followed by a recession which is deeper because of the excesses of the property market.


Land or brains?


To see if this could be translated into an investment strategy, we segregated four exchange traded fund categories into two groups: IT and biotech equity funds for technology; and frontier and emerging market equity funds for emerging markets. Analysis showed that the best periods for these four asset categories are not the same. So there is an investment opportunity if there is a way to switch to the best performing categories without making forecasts.

We used an equity momentum strategy to make switching decisions – it draws on the interaction of diverse buyers and sellers in financial markets to identify which of land

THE TWO CYCLES ARE MEETING CURRENTLY TO PRODUCE A COMBINED EMERGING AND TECHNOLOGY CYCLE, FOR FOUR REASONS:THE SEVEN-YEAR CYCLE IS SWITCHING to emerging markets just as a 52-year industrial revolution cycle is superimposed.EMERGING MARKETS are becoming increasingly like developed markets. Some parts of China have developed country income per capita while frontier markets are following emerging markets up the ladder.THE DIVIDE BETWEEN THE US AND CHINA is less clear as the US manufacturing boom is increasingly making it a producer for China’s consumers.THERE ARE NEW INNOVATION CLUSTERS developing in emerging markets such as China, India and Russia.


Edgar van Tuyll is Chief Quantitative Strategist of Pictet Wealth Management. He heads a team of six postdocs in physics and mathematics who have been running systematic investment strategies since 2008.

or brains has the upper hand. It then invests 100 per cent in the one asset category that has the strongest rising trend in prices over several months (subject to putting no more than 50 per cent in the limited liquidity of the frontier market ETF). If the best trend is down, or the chosen asset fails dynamic risk controls, 100 per cent is invested in cash.

Backtesting the performance since January 2005, the annual growth return would have been 19.75 per cent (after fees). Although this demonstrates the value of going 100 per cent long in one of the four assets, it must be done systematically to profit from it. But so far, the land versus brains paradigm choice shows signs of very promising performance.

RECENT INDUSTRIAL REVOLUTIONS

1780 – 1830 The factory system (first industrial revolution): textile machinery, metallurgy, steam power, underwear, manually controlled machine tools, guns

1830–1870 Transportation age (second industrial revolution): high volume standardisation, iron rails, bicycles, paper

1870–1950 Age of science (third industrial revolution): Bessemer steel, electricity, internal combustion, running water, aircraft

1950–2000 Computers and internet

2000+ Technology creates revolution of industry and services

Jean-Claude Erne, CEO of Pictet Family Office Services, explained how effective family governance and financial governance arrangements can ensure the smooth transmission of wealth from one generation to the next

It was Ben Franklin, one of the founding fathers of the United States, who said that by failing to prepare, you are preparing to fail.

The importance of preparation for family businesses is well illustrated by the fate of the Busch brewing family – the very innovative and successful creators of Budweiser, America’s first national beer.

Founded in 1852, the family passed through five generations, becoming afflicted by a series of tragic events including a suicide and a murder until was sold to InBev in 2008. The family had become totally dysfunctional – the father of the last family chief executive made all the decisions and did not tell him about the proposed sale. The business was also badly run with no global strategy and the family owned only 4 per cent of the company, without super-voting stock to protect its interests. Family matters and business matters were not properly prepared.

Family governance can help avoid such disastrous outcomes. The wealth cycle usually starts with a business, and as it expands, financial assets grow and the family increasingly depends on them. Entrepreneurship must develop into wealth management. Ensuring a smooth transition from one generation to the next needs foresight, effective governance, planning and proper implementation.


FAILING TO PREPARE IS PREPARING TO FAIL



Effective governance means formalising a family strategy which covers what the family wants to achieve over the generations and how it will achieve those goals. It should include a mission statement and values around all forms of capital – human, intellectual and social as well as financial capital. It becomes more complex over the generations, but it should be kept simple.

Financial governance translates the family strategy into an investment policy with an appropriate organisational structure. The big challenge is to achieve a balance between the sophistication needed by an institutional client and the flexibility needed by a private client.

Jean-Claude Erne is Chief Executive of Family Office Services for Pictet Wealth Management in Geneva. For almost ten years he was Managing Director of Pictet’s Singapore office and Chief Executive of Pictet Wealth Management Asia

The classic set-up starts with a series of businesses as it expands, together with several banks – with risk management tools operated through strong commercial knowledge. But as wealth grows, the platform needs to evolve, with various financial governance models depending on the amount of wealth:• For less than 50 million euros or Swiss francs,

the private banking model with a few banks managing parts of the financial assets

• From 50 to 100 million, the entrepreneur model adds non-financial assets such as real estate, business etc

• Above 100 million, the ultra high net worth individual model has a strategy committee overseeing management committees for both types of asset, with a global investment manager

• When wealth rises above around 1 billion, the model becomes that of an institutional investor with more than one global investment manager.

Converting the family strategy into an investment strategy involves building a strategic asset allocation which reflects the investor’s tolerance of risk. It starts with a wealth analysis of what the assets are, and a detailed budget of revenues and costs. The assets are then invested in three buckets, each with different investment horizons and risk profiles: financing capital to cover living expenses; reserve capital for medium-term needs; and free capital for the client’s specific targets.

Through all this it is important to realise that business success is no guarantee of success in the financial markets. So avoid being penny wise and pound foolish: there are costs in setting up financial governance, and it is worth paying the right price a good outcome.

Naveen Jain, founder and chairman of Moon Express and iNome, says that philanthropists should use an entrepreneurial approach to solve problems in education, agriculture and healthcare

If we want to solve some of the world’s biggest problems, there is no better way than thinking like an entrepreneur. Entrepreneurs look at a

problem from a very different perspective: they identify a big problem, they find a good solution and then they execute it. So the world’s biggest problems are a big opportunity for an entrepreneur. Here is how it should be done, with some examples.

First, define the problem. Many people think that the education system is broken, but it is doing what it was designed to do – creating productive citizens for the rest of their lives. This is now obsolete because our needs have changed: every skill learnt becomes obsolete within ten years with modern technology. The iPhone puts all the information we need at our fingertips and has far more processing power than the computer which landed men on the moon.

Education is still like an old-fashioned manufacturing production line, moving children from station to station, teaching specific subjects and grading them at the end. But the emphasis for teachers should be on solving problems, which requires crossing disciplines. In real life, people get together to solve a problem, but if children do that it is called cheating.

Second, never look at the surface of a problem. Take for example the shortage of fresh


A SENSE OF RESPONSIBILITY

water – most of which is used for agriculture. We should use less water either by using hydroponic or aeroponic techniques, or different types of seeds. And lots of water is used in breeding cattle which are environmentally damaging in many ways. We could modify stem cells from cattle to produce muscle tissue in biofactories and stop using growth hormones.

Third, look for the right business model. People think philanthropy is about giving money, but a business that is not profitable is not sustainable. When a woman asked me for money to build a bigger shelter for women who had been abused, I asked what she was selling and who was her customer. She said the shelter was the product and the women her customers, but I pointed out that those customers do not pay.

I said she should treat the women as the product and the customers as local businesses who could employ them and will be well-served by people who want to keep a roof over their heads. This creates a self-sustaining business model – which is what the woman did.

With healthcare, the problem is that 90 per cent of the people seen by physicians have common illnesses, not rare diseases. Sensors could be attached to cheap tablets and smart-phones to diagnose common illnesses and prescribe treatments. Even in developed countries, nurse-practitioners could diagnose

Innovation in philanthropy


Naveen Jain founded Moon Express which is developing a robotic lunar lander to explore and mine the moon for planetary resources. He also founded iNome, the first company to create the Information Genome of humanity, and the World Innovation Institute which fosters the creation of scalable and sustainable solutions.

patients better than doctors, calling in physicians only when needed and thus reducing costs.

We are living in the most innovative decade ever, but all we hear is negative news which evolution made us focus on for our survival. We can never create a sustainable society by conservation; it should be about creating. Think about abundance, think entrepreneurship and think about solving big problems.

Etienne Eichenberger of philanthropy adviser WISE explored different projects with Stephen Dawson of Impetus, Nicolas Métro of Kinome, Bertrand Cesvet of One Drop, and Vineet Bewtra of Omidyar Network

ETIENNE EICHENBERGER had noticed three trends when advising families and foundations on philanthropy over the last ten years.

• Engagement: people want to go beyond sending a cheque and to be involved in projects.

• Philanthropists are now driven by results, not just supporting good – impact is what they want.

• Philanthropy has become more flexible, providing investment, loans and expertise in forms such as venture philanthropy and social entrepreneurship.

LEVERAGING PHILANTHROPY



Vineet Bewtra, a former investment banker, leads Omidyar Network’s impact investing strategy in and from Europe, and is also responsible for its African education investments.

Stephen Dawson, Chairman of private equity group ECI Partners, co-founded Impetus Trust which pioneered venture philanthropy in the UK. He also co-founded Jacana Partners, an African sustainable investment firm.


STEPHEN DAWSONThere are many different models emerging in the social sector, which provide a richer choice and more sustainable impact. Philanthropic dollars can be used for the R&D element of venture philanthropy, which can then use investment and other tools to create eventually a fully commercial approach.

My starting point as a businessman was to keep away from government, but you can’t ignore it in the social sector – it is a big source of funds and its policies are important. For example, Impetus manages a government fund of £125 million for the Education Endowment Foundation which was set up to help underperforming schools over its 15-year life.

We also provide management support for IntoUniversity which helps young people from disadvantaged backgrounds into higher education. The proportion getting to university has risen from 20 per cent to 80 per cent, but it succeeds because government policy to widen participation has obliged universities to provide cash for scholarships.

We pick organisations at an early stage, help them scale up and make them effective. We provide funding for infrastructure, an investment manager to be a critical friend and pro bono business support to help them build capacity.

VINEET BEWTRAI work for Omidyar Network, which is entirely funded by Pierre Omidyar, the founder of eBay. We come from an entrepreneurial background, and we see entrepreneurship as an agent for the change needed to make the world a better place. We look for disruptive solutions that produce some positive outcomes. Over ten years, we have deployed a little over USD700 million; we are a private investment company, not a foundation, so almost half is in equity investments and the rest in grants.

My focus is education, and we work with entrepreneurs. One is a little tech firm that has developed an engine which does adaptive learning through phones and tablets for people with low levels of literacy.

On the non-profit side, we discovered an organisation that does last-mile work with black kids in townships in South Africa, with outcomes far better than the national average. The kids go on to earn 90 per cent of white wages, compared with the country’s median for black people of 25 per cent. We helped them scale it up by turning it into small pay-as-you-go tuition bundles with after-school human interaction to mentor the pupils for higher education – providing poor families with the same support as well-off families.


Nicolas Métro, who has years of management experience in large corporations, founded Kinome to advance forests as a solution to human and economic development for all.

Bertrand Cesvet, Chairman of Canadian creative services firm SID LEE, is a board member of One Drop which he helped Cirque du Soleil founder Guy Laliberté set up in 2007.

NICOLAS MÉTROKinome’s purpose is to put an end to global deforestation, not by preserving forests but by turning trees into a way of improving lives. While keeping them within boundaries as we do with pandas and rhinos, we make trees a way to feed children, improve access to water and protect crops.

Togo has the highest deforestation rate in Africa. If we can show its people that forests bring water back to the wells, we have a chance to stop it. Trees take time to grow, so we plant moringa trees which grow very fast and produce nutritious leaves after 6-10 months.

To make this work, we have to bring together farmers, NGOs, the Togolese government and the Red Cross which will help us with Mothers’ Clubs. We need the World Food Programme which now understands that rather than importing food they should grow it locally. And we need Nestlé and Danone to use moringa leaves in drinks and bars. All will make money out of this, but it needs grants to start planting, and to create social businesses and distribution organisations.

In Chad, we have convinced Danone to use gum arabic from acacia trees as a substitute for synthetic starch. We haven’t planted a single tree, but we’ve saved millions. Overall we’ve planted 4 million trees and saved 8 million.

BERTRAND CESVETOne Drop was started by Guy Laliberté, the founder of Cirque du Soleil, to tackle the water problem. When we started looking at the problem, we discovered that work on it focused only on access, the crudest form of intervention. We quickly realised that people needed microcredit to let human capital do more. But the missing link was changing the behaviour of communities so that they understand the role of water, and this is where circus is important. Circus is street art, and we used its skills at the micro-community level to change behaviour.

We understood that impact would depend on how many people we could reach, for how long and with what ripple effect through collaboration. We have a project in India which was an investment of USD2 million to impact 65,000 people, but it grew to a USD80 million project involving many others and the government.

Collaboration is harder than we hoped. Cirque is a collaborative project bringing together performers from all over the world, but we found that was counter-intuitive in philanthropy where there is often competition for funds. Water is a complex issue and the problem can’t be solved single-handed – it needs many different skills.


Alexandre Semboglou, Chief Executive of Rhone Trust, set out a variety of ways of structuring philanthropic activities to achieve a range of different outcomes



Philanthropy as part of any comprehensive wealth plan has a long history, particularly in the US where families such as the

Rockefellers, the Gettys, Warren Buffet, and Bill and Melinda Gates have had the will and the means to address enormous challenges. Today’s generation of philanthropists is not confined to the ultra-high net worth group, and they are increasingly taking a businesslike approach to ensure that their donations are used to maximum effect.

Instead of using a will to gift assets or leaving them to heirs, assets can be transferred to a trust or foundation. This is called wealth structuring, with the objective of succession planning, asset protection and philanthropy. There are also attractions in charitable status which can allow donors to write off some or all of their contribution against tax.

But if part of the objective is charitable and part is not, a non-profit may be the best solution,

Structuring philanthropy


Alexandre Semboglou is Chief Executive of Rhone Trust and Fiduciary Services which took over Pictet’s wealth planning services, trust and fiduciary activities in 2011.

giving greater latitude on how funds are raised and business is done. Activities could also be operated as a for-profit business if user fees will exceed costs, as in social enterprises. There are even for-profit charities in some jurisdictions.

There are alternatives to establishing a foundation. If the goal is to ensure that a significant donation is used for a specific purpose now and in the future, a restricted donation can be made to an existing charity with conditions which it is obliged to accept. The donor benefits from existing expertise and from competent staff.

Another option is to create a donor advice fund, with similarities to a private foundation but without the administrative and managerial burdens. They are generally operated by public foundations such as Fondation de France or charitable organisations as a means of encouraging philanthropy and supporting certain causes. The organisation deals with the burdens and spreads the costs across many donors and can develop expertise beyond that of a single foundation. Rhone has established Ceres Foundation as an umbrella foundation for several donor advice funds.

Then there are trusts and foundations. Foundations are separate legal personalities set up by a founder for specific purposes – more like companies than trusts, but without shares. Trusts are not legal entities but private

arrangements which come into existence when a settlor transfers assets to trustees who manage them for defined purposes or beneficiaries. In both cases, the settlor or founder gives up legal ownership of the assets irrevocably.

(...) the perfect amount to leave children is ‘enough money so that they would feel they

could do anything, but not so much that they could do nothing.’ Warren Buffet

Choosing the right jurisdiction for a structure is important, with many factors to take into account, including the likely size of the charity and the cost of meeting regulatory requirements in the jurisdiction. For smaller entities, a management company may be an affordable option if employing staff is too expensive.

Achieving the donor’s objectives requires expertise in selecting the jurisdiction, choosing the right structure and drafting its purposes carefully. These are complicated matters, and it is important to create a good relationship with advisers.

CERES FOUNDATIONCERES FOUNDATION

Swiss charitable umbrella foundation [email protected]

FOUNDATION ASSETSSheltered funds

Sheltered funds 02 Sheltered funds 03 Sheltered funds (...) Sheltered funds (...)Sheltered funds 01

Bank Accounts Bank Accounts Bank Accounts Bank AccountsBank Accounts

Each new donor has its sheltered fund

Foundation under Swiss Law established by Rhone.

Each fund has its specific beneficiaries with segregated bank accounts or investment containers.

Sarah Marquis, an adventurer who has walked the globe, took the entrepreneurs on a journey along her desert and mountain paths, explaining how she had realised her dreams

Sarah began by saying that she had enjoyed a varied childhood in the countryside, climbing trees and watching birds for

hours at a time. Over the last 23 years, she had been walking the planet on foot – the equivalent of eight straight years nonstop. On her epic solo journeys, she had worn out 30 pairs of boots over a distance that would have taken her round the globe.

How does she do it? ‘One step at a time, and you get there.’ Why does she do it? ‘I’ve struggled with that question for many years. I eventually realised that walking makes me happy. I had been walking in the desert in Australia for two months, it was 40°, and I couldn’t wash because there were crocodiles. And I learnt that to be able to do things, your heart needs to be OK with it – the heart, the mind and the body must combine together.’

She admitted that she has bad days. ‘But when I’m in the middle of the Gobi Desert, I can’t have a day off because I need to feed myself and find a drink.’

She has some tricks – a toolbox of the mind to get past such times. One is to perform a little ritual, of sitting down and making some tea. ‘It’s like zipping up in an imaginary bubble, and I’m safe, I’m home, I’m fine. When I’ve finished the tea, it’s another day.’ A sense of humour is also important, she adds.

‘I keep going and I want more,’ she said. ‘I’m not just walking: I’m discovering new


LET YOUR SOUL TOUCH THE EARTH: GO WALKING

ANOTHER PERSPECTIVE

territories. Whatever you are doing, you are the captain of the ship, doing what you want.’

She walks alone for most of the time, so how does she survive? ‘I’m starving most of the time and thirsty – I once walked three days without water. But you have to be aware of your surroundings – shape, colour, sense, smell, wind, heat, cold – and this gives you so much more information. You feel connected to your surroundings, and to the people around us.’

She treats her body as a laboratory, testing her ability as a white female to survive with nothing. She has sometimes hunted for food, and says that there is food everywhere – snakes, birds and other animals. But the reality is that you may not catch anything after hunting for two hours at the end of a 12-hour day spent walking. Water comes from wells which can run dry or turn salty. ‘There is a connection in the mind between expectation and achievement. But if you don’t expect things, you can go further – knowing that you will eventually get something.

‘On my journeys, I get closer to the earth and to natural law. Human law is about what you can or cannot do, while natural law is about food, water, light – everything. But we are from nature, we are animals, and it is possible to link the two worlds. We need the link to the land to make the world sustainable. I’ve been on a 23-year journey, but all the time, the treasure was below my feet. That is my discovery.’


Sarah Marquis has crossed the US from Canada to Mexico in four months, spent 17 months in the Australian outback, walked along the Andes from Chile to Peru over eight months, and crossed alone from Siberia to Australia in 2010-13.

POSTSCRIPT

We have just heard a very inspiring talk by Sarah Marquis, and it struck me that there are some parallels between

adventurers and entrepreneurs: both go off the path, push the limits, and care passionately for what they do.

This has been a good way to wind up this seminar, which was built around three pillars: innovation; wealth creation and preservation; and the responsibilities that go along with wealth.

Jacques de Saussure described the structure of Pictet at the beginning of the Summit, and called it a permanent buyout. As the youngest partner, I know that it will be an exciting journey for me over the next quarter of a century until I retire at 65, but it will be a marathon rather than a sprint.

We are managers who set the strategy but we are free to discover and build. We see clients every day and learn about what they think about us and what is going on around us. We are passionate about finding solutions.

We are entrepreneurs and we know what it is to innovate, to build and preserve wealth. So I believe we are the right partner for entrepreneurs, and I thank you for finding the time to share your experiences with us.

Marc PictetManaging PartnerPictet Group

Closing remarks

THE PICTET GROUP

Founded in Geneva in 1805, the Pictet Group is today one of Europe’s leading independent wealth and asset managers, with over USD456 billion in assets under management and custody. The Pictet Group is owned and managed by eight partners with principles of ownership and succession that have remained unchanged since foundation.

These principles encourage a spirit of collegial management and entrepreneurship, a long-term vision and commitment by the partners, and an exacting risk-management policy.

The Pictet Group, headquartered in Geneva, employs more than 3,600 people. It is also present in Amsterdam, Barcelona, Basel, Brussels, Dubai, Florence, Frankfurt, Hong Kong, Lausanne, London, Luxembourg, Madrid, Milan, Montreal, Munich, Nassau, Osaka, Paris, Rome, Singapore, Taipei, Tel Aviv, Turin, Tokyo and Zurich.

Disclaimer This document is not aimed at or intended for distri-bution to or use by any person who is a citizen or resident of, or domiciled in, or an entity that is regis-tered in, a country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. The information and material contained herein are provided for information purposes only and are not to be used or considered as an offer or solicitation to subscribe to any securi-ties or other financial instruments. This document and the contents therein may be cited if the source is indicated, but the reproduction or distribution of this publication, in part or in whole, is prohibited.

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