Dear Reader

As a reaction to possible changes in the regulatory framework, leaders of large Swiss companies have over the last months publically discussed their intentions to transfer part of their companies or, in some cases, the whole business to another country. When asked about the possibility of transferring the Bank Holding to London, Hans-Ulrich Meister, CEO of Credit Suisse Switzerland, recently said, “in case the general conditions change negatively, we will be obliged to evaluate alternatives.” At the annual results press conference of UBS, in February, the CEO Oswald Grübel also declared: “If the capital requirements in other countries are only half of those in Switzerland – and we think we have to stay in certain businesses – then we may have to operate them from within these countries.”

In November 2010, the entrepreneur Alfred N. Schindler, Chairman and CEO of Schindler Holding Ltd., declared that he was considering moving away from Switzerland should the tax initiative of the Swiss Socialists be accepted. Some months before, Nestlé Chairman, Peter Brabeck, threat-ened to relocate the company if Switzerland introduces regulations limiting compensation for top management.

It is understandable that managers have their own arguments and strategies when it comes to business location. Indeed, a sound business environment and a friendly investment regulatory framework are key conditions for doing business. In a global context, Switzerland still has a solid position, notably as a location for international headquarters. The economic fundamentals are strong and the public indebtedness is comparatively low – legal security and political stability are assured and finally a low tax burden is maintained. Compared with many other European neighbours, Switzerland has an excellent infrastructure and education system, less bureaucracy and it is considered one of the most innovative countries.
(More on page 28).

But there is no time to rest – competition for business location is becoming harder. Many countries are catching up. Maintaining and improving its attractiveness as a business location is therefore crucial for Switzerland.

We wish you pleasant reading and welcome your feedback.

Dalen Jacomino

Editor in Chief

opinion

27 Going abroad

Cleantech, health care, design, architecture, medtech – new export platforms offer net- working and information for Swiss SMEs

35 A budding Swiss-US springtime?

In spite of the many doom prophecies regard- ing Swiss-US business in the aftermath of the UBS affair, and with a difficult exchange rate development, Swiss-US business rela-

tionships are very healthy

cOVER STORY

28 Top 10 Reasons to do business

in Switzerland

Switzerland has unique advantages, economi- cally, politically and socially. Here are the top 10 reasons to do business in a small, landlocked country

CEO TALK

36 When tradition meets innovation

Christian Hafner and Christian Raubach,

Managing Partners at Wegelin & Co, in a con- versation about business strategy and Swiss finance industry

CAREER

40 Headhunting in the web 2.0 era

A total of 59% of Swiss Internet users visit so- cial networks and blogs. Some are already using these tools to get a new job

COMPANY

44 “The desire for a TAG Heuer is stronger than ever”

Jean-Christophe Babin, CEO of

Swiss watch company, TAG Heuer, can’t com- plain; the company achieved the highest ever sales figures for the year 2010

48 Eco-vehicles shift into the next gear

The new generation of electric cars being developed in Switzerland

INVESTMENT

52 Smart Money

Experts share their best investment ideas

MANAGEMENT

54 Good and profitable

The good-business-economy is taking place, linking economy, ecology and personal integrity in profitable ways

57 De-stress yourself

Manage your stress more effectively by creating your own personal stress management program

book & leisure

60 From imagination to real impact

Techniques and strategies that can help you to develop your business, your project or your new idea

64 What a delightful mission!

Nicolas Greinacher tasted 13 bottles of Château La Mission Haut-Brion produced between 1953 and 2000. The winners are…

66 Crisis, what crisis?

The rebound of a strong art market

Is life easier for start-ups in Switzerland compared with other European countries?

> Dorian Selz: Ten years ago I was responsible for the interna-tional expansion of Namics. Namics is Switzerland’s leading web consultancy, with more than 300 employees today. Compared with Italy and Germany, where we founded subsidiaries, it is very easy to establish a company in Switzerland. Helpful authorities, good support infrastructure, available talent and a great geo-graphical position at the heart of Europe make it a very attractive place to do business. Our public authorities are simply great:

they are supportive and provide real help. Their credo is ‘service for the public’ – and that makes a huge difference compared

with bureaucracies elsewhere.

Does new technology and innovation get the recognition and support it deserves in Switzerland?

I can only talk about the internet technology sector – and the answer is no. Of course, everyone is proud about the role the CERN laboratory in Geneva played in developing the web and its standards. However, when it comes to supporting the current crop of new web ideas and start-ups, most companies and potential clients take a very cautious approach. Indeed, foreign companies often find it easier to gain access to decision makers; however, that probably had a lot to do with a nearly non-existent start-up culture in Switzerland. But over the past five years, the climate has started to change. On a local level, there are now

quite a number of events, loose associations and initiatives

focused on creating a local cousin of Silicon Valley.

Do you have any particular favourite start-ups?

In Lausanne, Sobees comes to mind: it has a really cool iPad reader solution and displays curated online content – currently, a really hot topic. In Basel, unblu does a superb job: it lets you connect directly with your customers as they browse your website without the need for any software installation

FDF, FINMA and SNB sign Tripartite agreement

Collaboration between the three authorities that deal with financial market issues will be further enhanced by a tripartite Memorandum of Understanding (MoU). The Federal Department of Finance (FDF), the Swiss Financial Market Supervisory Authority (FINMA) and the Swiss National Bank (SNB) have signed an agreement that includes the exchange of information on financial stability and financial market regulation issues, as well as collaboration in the event of another financial crisis.

The exchange of information will take place at least twice a year and cover the following topics: macroeconomic environment; financial markets and the banking sector; national regulatory initiatives; international regulatory initiatives and standards, in particular from the Basel Committee on Banking Supervision; and challenges and risks facing the Swiss financial centres.

In the event of a crisis, the FDF, FINMA and the SNB will work closely together. A joint crisis management organisation will be established and the three will collaborate to prepare crisis management tools. Strategic coordination of the crisis management organisation and any intervention will be performed by the Steering Committee (SC), which will comprise the head of the FDF, who will chair the Committee, the chairman of the SNB and the chairman of FINMA.

The control committees of the National Council and the Council of States called for just such an agreement last year in their report on the financial crisis. The MoU will not affect the three authorities' responsibilities and powers.

The safest country

in the world

Dun & Bradstreet's annual Country Risk-Line Report was published in January – and it's good news for Switzerland. Switzerland is, according to the report, economically the safest country in the world. It is not just the overall economic and financial situation that makes it so popular for investors and businesses, but also its political and social stability. Dun & Bradstreet expects the economy to cool slightly in the first half of 2011, with the euro stabilising for a short period and strong demand from abroad, especially Germany. Healthy domestic demand will cushion export weaknesses to a great extent. For 2011, the report expects growth of GDP of about 2.1% and for 2012 of 2.3%.

However, in spite of the excellent assessment, there are warnings: the strength of the franc against the euro has made it very difficult for exports. Switzerland's biggest market is the EU and the weakness of the euro erodes the profit margins of companies that cannot streamline their cost structures any further. However, there is little action Switzerland can take to alter this.

Germany, Switzerland's most important trading partner, gets a similarly good assessment. Its strength lies in a strong domestic demand and what appears to be a thriving service industry. The consumer's mood is good and the German export industry is doing well, especially in the automobile and chemical industries.

State indebtedness is one of the factors in D&B's risk assessment, and contin-uous risk assessments of Spain and, in particular, Greece have valued the risk as increasingly bigger; as a result, the two countries have been downgraded

dramatically since 2009.

Swiss Re profit fails to meet market forecasts - Zurich-based Swiss Re has reported a net income for 2010 of US$863 million (CHF827 mil-lion), an increase of 74% over 2009 but short of analysts’ expectations. The company said in a statement that it made a net loss for the fourth quarter after repaying an emergency loan it had received from United
States billionaire Warren Buffett during the credit crisis. Swiss Re in November agreed to repay ahead of schedule a CHF3 billion loan from Buffett’s Berkshire Hathaway company.
More earthquake, storm and flood claims also dented the profit.

swissinfo.ch - Feb 17, 2011

Nestlé records strong set of figures in 2010 - The world’s largest food concern, Nestlé, has reported that it grew in all its regions and business units last year and is confident after a good start to 2011. The company said it had sales of CHF107.9 billion (US$114.3 billion), with organic growth of 6.2%. Net profit was CHF34.2 billion which took into consideration the sale of its remaining stake in eyecare group Alcon to Novartis of Basel.

During the year Nestlé spent more than CHF5 billion on acquisitions, including Kraft’s frozen pizza business.

The group also completed a CHF25 billion three-year share buy-back programme and launched a new CHF10 billion programme.

swissinfo.ch - Feb 17, 2011

Syngenta continues steady growth - Syngenta, the world’s largest agrochemicals company, has announced a net profit of US$1.4 billion (CHF1.35 billion) for 2010, a 1% drop on the previous year. Sales were up 6% to US$11.64 billion. Syngenta makes genetically modified seeds as well as products to kill weeds and insects.
“Strong volume growth start-ing in the second quarter of 2010 has more than offset the impact of lower crop protection prices and dem-onstrates the ongoing expansion of demand in our business,” said CEO Mike Mack in a statement. “The result for the year also reflects higher seeds profitability as customers increas-
ingly recognise the superiority and
breadth of our technology.”

swissinfo.ch - Feb 9, 2011

The proposed merger of the New York and German stock exchanges to create the world’s largest trading platform would add to mount-ing pressure on the Swiss bourse. The Swiss SIX Group would have to react to the creation of a new giant exchange by either diversifying its activities further or by sacrificing its independence, according to experts.

On February, the New York Stock Exchange (NYSE Euronext) and the German Börse agreed terms for a ground breaking fusion. The deal marks the latest step in a spate of merger activity in recent years in response to increasingly tight competi-tion.
If the merger goes ahead as planned, the much smaller SIX could find itself faced with some unpalatable choices, according to Manuel Ammann, director of St Gallen University’s institute of banking and finance.

SIX faces competition not only from mega bourses, but also from a growing number of new trading platforms established by banks in the wake of European regulation changes that allowed trading to take place away from exchanges.

“The danger is not imminent, but we could in future have huge platforms on the one side and flexible, low cost platforms on the other, with mid-sized exchanges being squeezed between the two,” said Ammann. “If this trend carries on and rivals grab more market share then the question will obviously arise if the Swiss exchange is large enough to run effectively. If not, it would then either have to merge or change its business model.”

Matthew Allen, swissinfo.ch – Feb 17,2011

“Farmers don’t eat anything they don’t know.” Market players are scoffing that many Swiss pension funds are currently acting out this saying. It appears that most of them are shunning real estate investments abroad. Frequently, the “farmer” has in fact been doing the right thing by sticking to familiar habits as those Swiss institutional investors, and thus also those pension funds (PF’s) which did venture into foreign real estate markets in 2006 and 2007, for instance, had little cause to rejoice.

A whole slew of non-listed closed-ended funds and European real estate companies suffered terribly from the financial market crisis. Vehicles belonging to the “value add” and “opportunistic” risk classes, in particular, had to wrestle with severe devaluations of their building inventories, and their investors were dealt enormous losses in value, sometimes even the total destruction of their stakes. With nosedives of 30% to 40%, Swiss investors, especially the pension funds, were gasping for air – having only recently predicted returns equalling “government bonds plus 2%.” The volatility of the UK market, for example, had not been experienced by the firms which had invested exclusively, until then, in the secure domestic market, usually in residential real estate.

The impact of the shock is so profound that it is not surprising that many pension funds are cautious with regard to real estate investments outside the Swiss borders. The pension fund of one of the big Swiss pharmaceutical concerns, for instance, which will be investing exclu-
sively in Swiss real estate for the time being, is saying, “For us, at present, that’s out of the question.” The pension funds of pharmaceutical firms which have already sold their real estate inventories years ago and have been involved in real estate only indirectly ever since also appear skeptical.

One reason given for this is that current studies have shown that real estate investments abroad, be they in REIT’s (Real Estate Investment Trusts), real es-
tate listed companies or real estate funds, have no diversification factor worth mentioning. Foreign markets are said to be too volatile, and in view of beta* stocks, the studies suggest, it is better to stick to time-tested investments. Both government and private pension funds are emphasising that, after all, Swiss real estate investments are bringing in annual returns averaging around 4.5%, and that this is quite satisfactory indeed. However, the question is whether the Swiss real estate markets will keep on humming in the long run.

One reason for concern is signaled by statistics according to which as much as 78% of the German citizens who emigrat-ed due to better working conditions abroad return to their homeland. If demand for specialised and executive staff goes up in the “big canton,” as is currently the case, this will probably have significant effects on Switzerland’s migration balance someday, and therefore on the domestic real estate markets as well. Hans Brauwers, the CEO of AFIAA Investment Foundation for Real Estate Investments Abroad seated in Zurich, says, “At the moment, the pension funds are holding between 15% and 30% of their assets in real estate, mainly in Swiss residential properties, because this market is held to be absolutely stable.”

But even the highly stable Swiss apartment market could change, especially due to the fact that the population of Europe is declining sharply and that “eternal” immigration will be too much even for Switzerland. Donato Scognamiglio, professor of Financial Analysis at the University of Bern, comments, “The pension funds are not to be envied right now.”

The CEO of the real estate consulting firm IAZI AG points out that returns on investments are at an historic low. He adds that the PF’s are troubled by the fact that more and more members of the larger generations are leaving the labour force: “This is increasing cash outflows.” IAZI’s director names real estate investments, characterised by steady and comparatively high cash income and relatively stable value development, as the sole asset class which can make a substantial contribution towards mitigating this financial challenge. Swiss pension funds are in fact focusing more intensively on investments in real estate. However, the increase in demand in itself is creating new problems.

The hurdles are high

Riccardo Boscardin, the Head of Global Real Estate Switzerland at UBS AG, as

serts, “Everybody wants residential or retail real estate. It’s hard to find suitable buildings. This confronts us with challeng-
es if we want to bring in the returns at which we aim.” As one of the “big players,” he views his corporation as having an advantage over the competition, saying, “Switzerland is a fish pond in which the ten pikes grab the biggest chunks.”

Ernst Schaufelberger, Head of Real
Estate Management at AXA Investment Managers Schweiz AG, confirms, “It’s become harder to get at good buildings – or else they’re too expensive. In order to invest in Switzerland, you need good research, effective organisation, and the abil-ity to act quickly.”

Alex Schärer, Director of Swiss Real Estate Portfolio Management at the Migros Pension Fund (MPF), takes a similar view, adding: “However, the MPF doesn’t necessarily have to make acquisitions right away: we can fulfil our investment quota within a period of four to five years.” All in all, MPF’s real estate division comprises a volume of approximately CHF4.2 billion, three quarters of which are invested in res-idential and the rest in commercial real
estate. “We have put only a relatively small sum into indirect real estate investments abroad,” Schärer says. In the opinion of the MPF strategists, direct investments in real estate abroad make no sense: “We are managing everything internally, right down to the custodians. It would be very expensive to build up a comparable apparatus abroad.” Schärer feels disturbed by the numerous imponderables inherent in foreign engagements. In his opinion, they lead less to risk minimisation through diversification than to increasing such dangers as currency risks which have to ›

be cushioned by expensive hedging costs. “We are satisfied with returns at moderate levels, as long as we stay on the safe side,” he comments.

Pension funds wanting to become active abroad are in fact confronted by a number of hurdles such as minimum sums for investments. Schaufelberger says, “In order to act on foreign real estate markets, you have to be provided with sufficient equity. For any sum under CHF500 million, direct real estate investments aren’t profitable anyway, let alone abroad.” Stephan Kloess, the owner of KRE - KloessRealEstate, points out even more obstacles to direct real estate investment: “In order to obtain effective geographic diversification inside Europe, for instance, you would have to invest in eight or nine core European countries, and to obtain good sector diversification in three market segments – office, retail, and residential – with at least five buildings per segment to make diversification complete. If you as-
sume a magnitude of approximately EUR30 million per purchase, this would mean more than EUR4 billion as a bottom line.” This would be a criterion for exclusion for many Swiss PF’s which are not permitted to put more than 30% of their investment volume into real estate, and no more than one third of this abroad.

A voice is desirable

For investments outside Swiss borders, most of the PF’s would thus be constrain-ed to act indirectly. To boot, many of them lack the market knowledge necessary for successful engagements abroad. For Kloess, underestimation of the “timing” factor is one of the reasons why the most recent involvements abroad had little success or wound up as a fiasco. Other market observers also believe that several PF’s were lured into making investments at the very climax of the hype – and thus at the worst possible time – due to lack of experience. However, many institutional investors abroad also acted in practically the same way: not long ago, economy media in New York, London, and Berlin headlined, “Greed Devours Brains.” It is meanwhile indisputable that investments in real estate that bring in solid and sustainable returns require a great deal of know-how.

Stefan Pfister, the Head of Real Es-
tate at KPMG Switzerland, says, “Whether in Zurich or in Hong Kong, business in real estate is primarily a ‘local business.’” This is presumably one more reason why relatively few Swiss pension funds are now seeking a real estate refuge in faraway places. “The world of Swiss real estate,” Pfister comments, “is easy to grasp – while foreign markets are an unknown universe.” Seen from the perspective of the experts, lower administrative effort and the possibility of participating in profitable investments with smaller sums speak in favour of indirect investments – at the price of losing independence in decision-making. “With indirect investments, you rely on the competence of professional investors, but you hardly have any influence on their investment strategy.”

A kind of compromise is offered in the form of indirect investment with which the pension funds do not lose their voice entirely: the investment foundation. Ulrich Braun, the Director of Real Estate Strategy and Consulting at Credit Suisse, reports, “For some time, pension funds have been taking recourse to integrating their property inventories as an investment in kind into a foundation,” thus permitting the PF’s to sell shares when nec-essary. “In this way, they can act with far greater flexibility than would be the case if they had to sell real estate when in need of equity, perhaps even under poor market conditions.”

KPMG expert Pfister points out an-other advantage when he says, “Instead of holding five properties in the Winterthur region, they participate with their shares in the foundation in a real estate portfolio diversified nationwide across various us-
ages.” Foreign investments via foundations are also in demand, as is demonstrat-ed by the growth of the AFIAA. A total of 13 pension funds bundled their direct real estate investments in Canada, the US, and Europe via this investment foundation in the middle of 2008. Today, there are 21 of them. AFIAA’s CEO Brauwers emphasises, “The PF’s are comprehen-sively integrated into our decision-making processes via the formulation of strategies and investment decisions. We suggest in which countries and which assets investments should be made to the investment committee made up of external experts formed within the foundation’s organs.” The decision on what is actually done is made by this body of independent experts, he says. Brauwers explains that the investment foundation focuses its attention exactly on this difference: “The management prepares decisions and carries them out after they are made. The investment decisions themselves are made independently of this, however, without any payments playing a role. For this reason, the total expense ratio, at 0.5%, is unbeatably economical.”

Targets for investments abroad

Meanwhile, resistance against investments abroad on the part of pension funds as well, which had been pursuing a strictly domestic strategy until now, appears to be weakening. Ariane Dehn, Head of Sales in Switzerland at Henderson Global Investors, says “Reluctance to invest in foreign real estate is waning.” Axa expert Schaufelberger is also observing “a certain development in this direction,” saying, “The consultants are also dealing increasingly with this subject.” Dehn reports that the PF’s have found a solution to minimise a further risk – that of co-investors – elucidat-
ing, “Club deals are on the rise for indirect investments in non-quoted, closed-ended real estate funds. After all, it’s a different story if you’re sitting in the same boat with tennis players, family offices, or other pension funds.” The provision of cash, for instance, must be secured when the fund is about to buy a building; furthermore, it must be clear that all of the subscribers to the fund can bear possible capital in-crease, and that they will not bow out of the fund at the wrong moment.

Claus Thomas, the managing director of LaSalle GmbH in Munich, says that last year, he often heard the opinion on the part of pension funds that “foreign countries are still too insecure.” But for a number of weeks, he has seen interest in indirect real estate investments outside the Swiss borders rising strongly, perhaps because numerous markets have meanwhile been corrected. “It can again be seen that there are also interesting opportunities” he comments.

“Timing for entries abroad is not bad,” confirms Roger Hennig, the Director of Swiss Real Estate at Schroders. With the strong Swiss franc, he continues, it is possible to go shopping profitably on the euro, dollar, or pound markets at the moment,

also benefiting from favorable interest lev-
els. Swiss fund suppliers such as Credit Suisse have reacted. Ulrich Braun says, “The CS Real Estate Fund International is the first Swiss real estate fund investing directly in properties on an international level and thus providing institutional investors with access to a broadly diversified portfolio of worldwide real estate investments.” The fund issued in francs is distributing and also securing the majority of currency risks, he says.

The providers of German open-ended and closed-ended real estate funds have also discovered the Swiss pension funds as an interesting target group. The German BVI Federal Association for Investment and Asset Management, for instance, is planning a road show in Switzerland in the foreseeable future, with special prop-erty funds in its luggage. According to BVI’s Director Wolfgang Raab, these vehicles offer institutional investors “a high degree of security because they are strictly regulated by German investment law – with regard to the appraisal of the funds’ buildings, for example.” Moreover, the fund companies offer their investors tailor-made solutions: “If a pension fund says, for instance, ‘We have CHF500 million here and would like to invest them in a pan-European real estate portfolio,’ then the fund company will work out an appropriate proposition.”

According to KRE’s boss Kloess, similar fund constructions would also be possible with vehicles conforming to Luxembourg law. For him as independent real estate consultant, however, possibilities of designing according to tax or corporation laws are less crucial for the profitability of a real estate investment: “In the end, the quality of the ‘underlying assets,’ that is, of the buildings themselves – and the quality of the management are responsi-ble for the success of an investment.”

FOCUS ON SECURE INVESTMENTS

For pension funds, welfare is the most important aspect, and thus the security of all of the fund’s capital investments. Such fund experts as Jochen Schenk, for instance, member of the board of the fund service provider Real IS in Munich, or Thomas Gütle, the man-aging director of the German office of the British real estate investment firm Cordea Savills, recommend investments in core buildings on European markets to security-oriented investors.

BGV V - DIVERSIFIED EUROPEAN PORTFOLIO

Real I.S. is currently issuing its fifth multi-dimensional diversified real estate fund for institutional investors. Its BGV V is investing in office, retail, and logistics prop-
erties at interesting locations in Western Europe’s eurozone, particularly in Germany, France, and the Benelux countries. The distribution-oriented funds belonging to the BGV series are characterised by their core and core+ approach, and comprised investments of around EUR1.5 billion in Western Europe in the past. “The price apex of 2007 was used for the dissolution of the first BVG fund ahead of schedule, with extraor-
dinarily beneficial results for our investors,” says Schenk. In the fall of 2010, BGV IV acquired the “Toren op Zuid” tower rented long-term to the Dutch Telecom firm KPN. With its 7° incline, it is a landmark of the inner city of Rotterdam.

CORDEA SAVILLS’ EUROPEAN RETAIL FUND

After its European Commercial Fund investing in office buildings in central locations as well as in retail build-ings in Western Europe, the European Retail Fund is Savills’ newest real estate fund. EUR600 million, half of it in equity, are to flow into the acquisition of a portfolio made up of Western European retail parks, shopping centers, and inner city retail buildings; the fund is thus focusing on core investments. For the lifetime of the fund, two independent experts will be assisting the members of the investment committee with their transaction and asset management decisions. The two experts will be examining all of the buildings taken into consideration and will be giving the committee joint recommendations. “The advisors’ commitments will be solely to the investors, not to the fund company,” Gütle says. By appointing two experts, Cordea Savills is one of the first German suppliers to conform to the proposals made in this respect by the European Association for Investors in Non-listed European Real Estate Vehicles (INREV).

INVESTMENT PROPERTIES IN

DAVOS AND LAUSANNE

Two acquisitions made by the real estate funds of Credit Suisse in recent weeks show that investment properties do not always have to be limited to residential and office space. One fund is building the Stilli Park Hotel which will be situated at a prime location with excellent views. The oval-shaped five-star hotel with 216 rooms and suites has a refined metal outer shell and 90% of its heating is provided by renewable energy. The investment amount totals CHF155 million. The hotel will be oper-ated by the InterContinental Hotels Group under the name InterContinental Davos Resort & Spa and is aimed at tourists, business people and conference participants, in particular those
who travel to the area for the World Economic Forum.

On the campus of the Ecole Polytechnique Fédérale de Lausanne (EPFL), the Federal Institute of Technology Lausanne, two funds are investing a total of CHF225 million in the con-struction of a future-oriented conference centre and a building with 252 residential units for students. The construction proj-ect marks the final stage of the Ecole Polytechnique Fédérale de Lausanne (EPFL) campus in Ecublens and is being implemented as part of a public-private partnership (PPP). The conference centre will have an ultramodern infrastructure that is unique in Europe and will hold a total of 3,000 people.

Stilli Park West, Davos

The Swiss real estate market is developing stably on the whole and there are no signs of a general real estate crisis. Most banks and investors have learned the lessons from the crisis during the 1990s. Reckless financing by financial institutions or unrealistically high purchase prices can still occur in individual cases, but this is not relevant to the sector's development.

In addition to low mortgage rates, factors such as consistently high levels of immigration, increasing demands for space and comfort, high employment and solid growth in income are fuelling the high demand for residential property. For decades, around 15% to 18% of income has been swallowed up by rental expenses. Provided that income levels remain stable or even increase, demand for housing is also likely to develop steadily. Mod-
ern office space in good locations (within the heart of the large economic regions) is still in great demand in Zurich and Geneva. For example, more than 85% of the available space in the Prime Tower in Zurich-West has already been let more than six months before its completion.

On the whole, it is likely that the market's ability to absorb more office space will increase as a result of the good employment situation. The numerous commercial buildings that were planned before the crisis and which will be on the market before the end of 2011 could, however, lead to higher vacancy rates in some regions.

Retail space in general and shopping malls in particular are benefiting from solid consumer demand. Clients have largely put their fears regarding the impact of the crisis to one side, as can be seen in the healthy – if not excessive – propensity to buy. The supply of space, however, is growing even more strongly. In 2010, an estimated 30 shopping malls with retail space of more than 5,000m2 were being constructed or were in the pipeline. These new, generally visitor-friendly and sustainably built properties will replace shopping centres and stores that have not adjusted to the needs and wishes of consumers in good time. This cut-throat competition is already underway and will intensify further in the coming years.

Since 1 February, Bauengineering.com operates under a new structure as Priora Generalunternehmung AG. What has chang-
ed in the company and in its way of doing business?

Raffael Brogna: The former Bauengineering.com Ltd. was to a large extent managed personally by its then owner but now, as Priora General Contractor Ltd. it is part of the Priora Group, a new main provider of integrated life-cycle services for the prop-erty market. The services provided by the group include project acquisition and development (Priora Development Ltd.), facility management (Priora Facility Management Ltd.) and property portfolio management (Priora Investment Services Ltd.). As gen-eral and turnkey contractors we play a key role within the group.

What is your role in this new structure?

On 1st November 2010 I took over as CEO of the then Bauengineering.com Ltd. I was very pleased to be able to head up such a competent and motivated team of management and staff and I look forward to further developing and advancing this team within the Priora Group. It is important for me to maintain an open, transparent and dynamic management approach as well as nurturing and consolidating an entrepreneurial and team spirit within the business.

Where are the opportunities and the challenges for Priora Generalunternehmung AG in 2011?

The chances are there for the taking! The capacity of the group, together with synergies between project development, construction, facility management and the property portfolio puts us in a position to cover all aspects of life-cycle contracting – this gives us a clear advantage over our competitors. These are deciding factors as the planning and construction process becomes more and more complex increasing the demand for a first-class competent contractor. Priora General Contractor Ltd. currently has a sufficient workload which we will continue to manage and expand while simultaneously moving forward to acquire and devel-op new projects.

How do you evaluate the Swiss real estate market in the medium term?

As a result of the continuing period of low interest rates the prop-erty market is very buoyant. Changing demographics, for instance a population shift to the greater Zurich area, has increased the demand for residential property. In the medium term this trend cannot be maintained and will be subject to correction. In addition, the economic development in Switzerland is very closely linked to, and to a large extent dependent upon, European ec-onomic performance. However, despite any market corrections that may occur, we generally take a very positive view of the future.

Swiss Prime Site is a listed company focusing on real estate (business and commercial). How are financial markets dealing with stocks in real estate at the moment?

>Markus Graf: Over the course of the 11 years following Swiss Prime Site’s initial public offering (IPO) in April 2000, real estate stocks have established a foothold in Switzerland. In 2000, only about one-eighth of Swiss pension fund assets were allocated to real estate investments, while today estimates are close to one-fifth. In the same period, the share of real estate stocks and funds rose from 15% of real estate investments to 40%. Listed real estate shares are increasingly integrated into portfolios: together, Swiss Prime Site, PSP Swiss Property and Allreal have currently a free float market weight of 80% of all Swiss real estate shares. On a monthly basis since 2000, correlation of the SXI Real Estate Shares with the Swiss Performance Index has been 0.53 – a much lower correlation than in other countries – due to their relatively low correlation to other asset classes, such as bonds or commodities. Real estate investment companies generate steady, attractive cash flows and promise significant stability in value. As the lead-ing listed real estate investment company in Switzerland, we think that we are partic-
ularly well positioned to benefit from this trend. Swiss Prime Site (SIX: SPSN) is probably the most liquid real estate stock in Switzerland.

Switzerland has been spared most of the crisis related to real estate worldwide (admittedly this crisis was largely relat-ed to the housing market, where Swiss Prime Site is not active). How do you explain this? Do you think that the real estate bubble still has room to further deflate, as is the case with Spain or France?

The situation in Switzerland is not comparable with that in Spain or France. There are no signs of an overall real estate crisis in Switzerland because the local market has generally been spared from excesses. Most of the banks and investors learned lessons from the real estate crisis of the 1990s, and have acted sensibly ever since in Switzerland. Take Spain, for example: construction groups produced gigantic residential building complexes – and often entire neighbourhoods – in alliance with local government officials with the hope that these units would find a buyer. In 2006, roughly 600,000 residential units were built. With the financial and economic crisis, however, property sales suffered a severe decrease. Construction companies were left with a vast number of unsold real estate units. Speculative production does not exist in Switzerland: new residential units are easily absorb-ed by the market. The Swiss residential housing segment is supported by low interest rates. Net migration inflows, as well as the growing need for floor space and comfort, also fuel the demand. The commercial real estate sector benefits from the

fact that Switzerland suffered far less than other countries from the last global economic crisis. The sector has found its way back to growth more rapidly too.

The Prime Tower and other buildings have been criticised for their architecture and visual impact. Increasingly, the population is reluctantly accepting transparency and cold materials. In a nutshell, the public is tired of the concrete/glass dictate. What is your response to this feedback?

On the contrary, we have experienced just the opposite with the Prime Tower. Some people took a sceptical stance toward the project at the very outset. Today, we are receiving compliments from all sides just a few months ahead of the opening. The unique aesthetic is being noticed, as explic-
itly conveyed by the distinctive octagon-shaped layout that expands as it extends upward, in contrast to common architectural standards and static norms. The greenish façade – which seems to change colour, depending on the perspective and time of day – does not leave the impression of being cold or repelling at all. Incidentally, the building is constructed with a triple layer of insulated glass and fulfills the criteria for LEED certification, which Prime Tower is proud to have received.

The oldest buildings in Zurich date back to the end of the fifteenth century and look almost new. Comparatively, con-
crete buildings of the 1960s and 1970s are not only looking old but age fast. What will remain of the buildings of today in 100 years, according to you? How do you deal with an architectural culture that is no longer ‘built to last’?

Indeed, mistakes were actually made in the 1960s and 1970s, when concrete buildings first emerged. Builders paid too little attention to structural physics, which led to problems with insulation and soundproofing, as well as moisture-related damage and signs of premature aging. Today, the use of concrete has been improved. Its static, plastic, atmospheric and aesthetic characteristics have become indispensable in contempo-
rary architecture. Given proper maintenance, most of the buildings constructed today should still be standing in 100 years.

A few industries – such as fine art dealing, gems and jewellery trading, retailing and construction – have been subject to criticism as potential sources of money laundering and corruption. How does your company address these issues?

We have no information regarding any misuse of our stock in money-laundering activities. As a Swiss publicly listed corporation, we rigorously comply with all the relevant laws and regulations that such companies are subject to. Moreover, we know the names of all of our shareholders because we have registered shares.

Can you give more details about how specifically and in your day-to-day activities SPS is using procedures and guarding against corruption and anti-money laundering activities?

The Swiss real estate market is, in fact, small and manageable by international comparison. We know our business partners, especially the buyers and sellers of properties. Profound market know-how and transparency are the most significant and effective elements to steer clear of possible illegal business practices. Furthermore, our Audit Committee has the responsibility of supervising the management with respect to financial reporting, compliance with legislation, requirements, internal rules and guidelines, as well as risk management and monitoring external corporate activities. Swiss Prime Site also boasts an internal control system that reg-ulates the management of various risks. Among the risks to be avoided are reputation-related risks, in particular, which would arise when conducting business activities with dubious partners.

Switzerland offers few sites to establish major buildings. How do you address this scarcity of locations? What are your next projects? Where is the most pressing need (geographically and business-wise)?

We counter the lack of appropriate prop-erties and locations by investing increas-ingly in the project development business – an area where we have many years of extensive experience. We can mention a few examples: the construction of the Messeturm in Basel, the commercial build-
ing complex Opus in Zug, Prime Tower and annex buildings situated on the Maag site in Zurich West, or the recent development project of the SkyKey commercial building in Zurich North. We continue to anticipate the greatest momentum in the major economic regions of Switzerland, primarily in Zurich, Basel and Geneva. These regions are the focal points of our real estate investments. The Zurich region accounts for roughly 40% of the Swiss Prime Site portfolio, on a fair-value basis. Geneva and Basel make up around 20%, respectively. In terms of utilisation, we believe that we are well positioned with a 40% share of retail properties and approximately 36% share of office properties.

Equity Office Properties was one of the largest ever Leveraged Buyouts (LBOs) in the US undertaken by Blackstone. How do you see these operations? Is there a consolidation expected in the real estate sector in Switzerland as well?

Such a transaction is inconceivable in Switzerland: first, due to the size – amounting to US$ 39 billion at that time, if I recall correctly. By comparison, our portfolio amounts to CHF8 billion. Another reason this is inconceivable in Switzerland is because Swiss banks would not participate in an operation with such financial leverage. The cautious stance taken by Swiss banks in lending activities has had an impact on leverage buyers in the past: they tried their luck and then exited the market. Investors can always expect to realise a net return of just roughly 5% on the Swiss real estate market, which seems to be much too little in the eyes of many. Such investors were lured by the high returns in the US, Great Britain or Spain – and they lost a lot of money.

In order to support the export business, Osec, the official Swiss foreign trade promoter, has established several export platforms since mid-2010 on behalf of the federal government and the stabilisation programme. These platforms facili-
tate entry to promising sectors in which many SMEs operate, with high added value and access to markets with long-term growth potential. By focusing the services and products of the Swiss business and identifying where the foreign demand lies, the relevant platform can bring the two parties together effectively and efficiently. To a large extent, the platforms function independently of Osec and complement work with existing organ-isations.

Currently, four export platforms are under development: Cleantech(www.cleantech-switzerland.com), Architecture/Engineering/Design (www.ingenious-switzerland.com), Medtech (www.
medtech-switzerland.com) and Health (www.swisshealth.ch). Only the first three were created under the stabilisation programme; the latter, which operates under the name Swiss Health, markets Switzerland as a health destination to foreign patients, so that an increasing number can be treated in Swiss hospitals. The export platforms work in the form of associations; members may come from industry federations, chambers of commerce or individual companies. A board of directors is in overall charge of each platform; as a rule, these come from companies or organisations that already have a solid reputation in the sector. The platforms should be of particular benefit to Swiss SMEs, as they promote networking opportunities and an exchange of information between the participants in Switzerland and abroad. By working under an umbrella brand name, the platforms ensure that the SME and its innovative, high-quality products are recognised in the target markets.

Various participants have been involved since the beginning; e.g., Swiss federations, Swiss Business Hubs, multinational enterprises, international advisers, cham-
bers of commerce and gov-
ernment offices. It is planned that eventually these platforms will be operated by the private sector.

To generate the best results, the export platforms must focus on those markets where the great-
est commercial potential exists for Swiss companies. Ingenious, which represents Architechture/Engineering/Design, encompasses markets in Germany, France and Singapore. The Medtech platform covers the US, China, Japan, France, Germany and the Netherlands. Swiss Health targets the markets of the Gulf States and East Europe/Russia. In the Cleantech sector, this is primarily the US, Canada, China, India, UK and Poland.

Since their establishment, the demand for such services has been growing significantly. Taking a closer look at the Cleantech sector, for example, more than 400 companies are already registered at the platform. In Switzerland this sector employs 160,000 professionals, which represents 4.5% of the working population. In 2020 the Cleantech sector should reach a market volume of CHF 3,352 billion worldwide.

*Daniel Küng, CEO of Osec.

STRATEGIC

LOCATION

Switzerland is situated not only at the geographical heart of Western Europe, but at its business and logistical heart too. It is an ideal base from which to conduct local and global business; its central location places it between some of the largest econ-omies in Europe, including Germany, France, and Italy, making it an excellent starting point for businesses wanting to enter the European market. The country is also perfectly suited as a test market to gauge market acceptance of new products and services before taking the plunge into the rest of Europe.

Switzerland’s main trading partner is the EU and it is currently the fourth largest trading partner of the EU: about 79% of its imports come from the EU and 61% of its exports go to EU countries. Although not a member of the EU, Switzerland is a member of the European Free Trade Association (EFTA) and has more bilateral agreements in place with the EU than any other country. As a result, most barriers to market access have been progressively elim-
inated, including the free movement of persons. No customs duties or other charg-
es are levied on cross-border transactions for industrial goods originating in EU or EFTA countries. Besides having such a strategic location, Switzerland also has the advantage of having full access to the European market (including Schengen) without facing all the regulatory disadvantages that the EU and the eurozone bring with them.

Switzerland’s borders with five countries means it is at the geographical crossroads of major international trade routes and gives it the all important link be-tween the North-South route in Europe. This and the country’s superb transport infrastructure make access to European markets and elsewhere around the world easy and logical. Switzerland has a unique position in Europe, economically and geographically.

HIGHLY EDUCATED,
HIGHLY SKILLED

Switzerland spends more money on education per student than any other coun-try in the world. Both public and private schools enjoy an excellent reputation, and the educational structure in Switzerland is a reflection of the multicultural and multilingual country, with schools teaching in the three national languages of German, French and Italian, as well as English. The unofficial adoption of English as a fifth language, especially in the business world, eases the assimilation of Anglo-Saxon firms into the Swiss and European business environment. These linguistic abilities give Switzerland second place for language skills in the IMD’s World Competitiveness Yearbook 2010.

The highly developed system of apprenticeships and professional training ensures that businesses have a choice of well-qualified and practically trained employees in any given industry. This investment in preparing young people for work differentiates Switzerland from many of its competitors, and consequently it always achieves a high ranking in international benchmarks of skilled workforces. The Swiss are highly motivated workers and rank highest in Europe in terms of working hours per week. The availability of a highly educated and diverse workforce gives firms one of the key resources they need to successfully manage their businesses.

WORKER MOTIVATION

1. Switzerland 7.82

2. Denmark 7.80

3. Austria 7.77

4. Taiwan 7.68

5. Malaysia 7.46

6. Iceland 7.12

7. Singapore 7.03

8. Sweden 6.98

9. Netherlands 6.94

10. Norway 6.93

11. Japan 6.82

12. Hong Kong 6.76

13. Israel 6.70

14. Finland 6.69

15. Luxembourg 6.66

1 = low, 10 = high / Source: IMD

World Competitiveness Yearbook 2010

INDUSTRY

CLUSTERS

For a tiny country, Switzerland has a rare concentration of well-established industry “clusters”. The most well known, of course, is finance and it is an important element of the economy: Zurich and Geneva are lead-ing world financial centres, with banking and insurance one of the most important industry sectors. Switzerland is also one of the world’s most important commodities trading platforms, with an estimated third of the global oil trade in the free market taking place in the country.

Outside finance, the most important clusters are probably the pharmaceutical, life sciences and chemical industries: their focus on specialities is their key to success, and has given them a worldwide presence and often a market leadership. Extremely successful global conglomerates such as Novartis, Roche and Syngenta form a unique industrial cluster in north-western Switzerland. The country’s reputation in research and development has attracted many companies leading to the establishment of several engineering and medical technology clusters of global importance, as well as precision engineering and information technology.

However, a “cluster” that is relatively unrecognised is Switzerland’s appeal as a centre for the global and regional headquarters for foreign companies. Today, more than 6,500 foreign companies are in Switzerland, of which over 1,000 are regional or global headquarters. It is not only European firms that have their glob-al headquarters in Switzerland, many US companies have opened their regional headquarters here too, including 89 Forbes 2000 companies such as IBM, General Motors, Kraft Foods, Phillip Morris, Procter & Gamble, Dow Chemicals, Amgen, Baxter, DuPont, Nissan and Google. A key criterion in the choice of location is Switzerland’s economic neutrality – all the major European markets are comfortable with a Swiss main office.

CENTRE OF

INNOVATION

Closely related to industry clusters is innovation, and Switzerland is, according to the Innovation Index of the Economist Intelligence Unit, Europe’s most innovative country. Indeed, its wealth is heavily dependent on multinationals in highly innovative industries; these industries contribute 35% of the Swiss GDP, and in the 10 years from 1997 to 2006, they grew more than twice as fast as other indus-
tries (excluding public services), generated 74% higher value added per employee and created more than 140,000 jobs.

The country’s exceptional productivity in creating intellectual property means it files considerably more patents per capita than any other country, except Japan. Its outstanding universities and research institutes, such as the Federal Institutes of Technology, ETHZ in Zurich and EPFL in Lausanne, produce highly qualified experts and perform cutting-edge research. These institutions are among the world’s best, and the strong collaboration be-tween the academic and business sectors ensures that much of this basic research is translated into marketable products and processes, supported by strong intellectual property protection.

Almost 3% of the country’s GDP is spent on research and development (R&D), much higher than Europe as a whole, and the extensive nature of Switzerland’s innovation can be seen specifically in its high-tech clusters in the life sciences and micro and nanotechnology industries, and is reflected in the impressive percentage of employees working in R&D in Switzerland.

EUROPEAN INNOVATION

SCOREBOARD 2008

1 Switzerland

2 Sweden

3 Finland

4 Germany

5 Denmark

6 United Kingdom

7 Austria

8 Ireland

9 Luxembourg

10 Belgium

Source: www.proinno-europe.eu, 2009

STANDARD OF

LIVING/

INFRASTRUCTURE

The reasons why Switzerland attracts so many foreign businesses are many and diverse. But foremost must be the very high standard of living: an outstanding quality of life and a very safe environment are increasingly important factors for companies choosing an ideal location for their expansion. The quality of overall infrastructure in Switzerland is ranked highest in the world (Global Competitiveness Index, WEF, 2010/2011): it has good healthcare and an efficient public transport system. A close proximity to some of the most beautiful scenery on the planet attracts professionals and their families from all over the world, and this is reflect-ed in three Swiss cities again in the top 10 cities in the Worldwide Quality of Life Survey (Mercer Consulting, 2010); Zurich and Geneva rank second and third, with Bern ninth.

However, one of the joys of living in Switzerland is that everything works: the trains, communications, the healthcare service. The punctuality and reliability of the public transport system means the Swiss are the most frequent rail travellers in all Europe. Every day, 9,000 trains run on the 3,000km rail network operated by SBB. This and the extremely dense road network makes getting around the coun-try very easy. In fact, it is actually difficult to find a place more than 90 minutes away from any one of the three main airports. Once in a city, the network of intra-city public transportation on buses and trams meshes seamlessly with the national rail system, unrivalled in Europe.

Swiss healthcare and communications are among the best in the world: about 11.5% of GDP spent on healthcare, and a network of hospitals, medical practices and pharmacies ensures universal access to out-patient and in-patient care. The post office network has more than 2,500 post office branches; in an international comparison with seven other European countries, Switzerland had the highest density of post office branches per area and the smallest average distance to the nearest post office branch.

SUSTAINABLE

ENVIRONMENT

Perhaps the fact that two-thirds of the country is covered with forests, lakes and mountains has led the Swiss to pay particular attention to natural resources, or maybe the need to import most natural resources (the only indigenous natural resource is hydropower) has led to a greater appreciation of the environment’s importance. This country generates a seemingly endless number of businesses, associations, academic initiatives and other enterprises focused on making use of resources in a bio-friendly manner.

A diversified energy supply with a large share of climate-friendly resources such as hydropower makes Switzerland much

less dependent on fossil fuels than many other countries. The hydropower market is worth about CHF2 billion and is therefore an important segment of the country’s energy industry. Switzerland’s role as the “moated castle of Europe” means that it is obliged to make special efforts in the area of water pollution control. The water that flows through all water pipes in Switzerland is so fresh and pure that it meets the purity requirements for mineral water, but is a thousand times cheaper.

The Swiss are Europe’s champion recyclers: the country has one of the highest recycling rates in the world with an average, in 2006, of 76% of all recycla-
ble items being recycled. According to the Swiss Federal Statistical Office, in 2006 money spent on the environment by the public and private sectors in Switzerland totalled nearly CHF6 billion, or about 1.7% of GDP.

ENVIRONMENTAL
PERFORMANCE INDEX 2008

Switzerland 95.5

Austria 89.4

France 87.8

Slovenia 86.3

UK 86.3

Germany 86.3

Italy 84.2

Hungary 84.2

Spain 83.1

Ireland 82.7

US 81.0

Netherlands 78.7

Belgium 78.4

Source: Yale Center for Environmental Law & Policy, Columbia Center for International Earth Science Information Network, with the World Economic Forum, and the Joint Research Centre of the European Commission, Environmental Performance Index 2008, (epi.yale.edu)

BUSINESS

TRANSPARENCY

A very sophisticated business culture, ranked second for its business sophistication, and among the most effective and transparent public institutions ensure a level playing field and enhance business confidence. Switzerland’s cantons compete with each other to attract business and, as a result, although each region has its own unique attractions, all have business-friendly tax regimes and legal structures that make Switzerland one of the most competitive business locations world-wide. The country has a unique platform of hosting dynamic small and medium-sized enterprises, creating high added value. Small and medium-sized enterprises (SMEs) dominate the Swiss economic landscape; more than 99% of companies have less than 250 full-time employees.

Setting up a business, of whatever size, is a relatively straightforward and uncomplicated procedure. The legal system makes it easy to start operations within the country; incorporating in Switzerland can usually be accomplished within two weeks, and no special permits are needed to purchase real estate for business pur-
poses. Economic investment incentives (such as tax holidays) are offered by most cantons for projects that bring new industry and create jobs. The federal government also offers economic incentives for certain types of projects.

Swiss labour law is widely recognised (according to one’s viewpoint) as much more liberal than that of most other European countries. A company’s ability to hire and fire is very flexible, social contributions are comparably small, working hours per week are high and strikes are virtually unheard of. Employing staff or transferring workers to Switzerland from Europe is easy: since 2007, work and residence permits are granted without restriction to all members of the EU so long as an employment contract is forthcoming. However, it has become subsequently less easy to hire staff from non-EU or EFTA countries.

COMPETITIVE TAX

Switzerland is known worldwide for its attractive tax environment, but it is not a tax haven. It has more than 70 double tax treaties in place and should be regarded rather as a liberal business destination offering a favourable business environment for entrepreneurs. For the corporate investor, tax rates are among the most compet-itive for international onshore locations and the Swiss tax system is considered highly attractive by a broad spectrum of international investors. Taxes are levied on the federal, cantonal (state) and communal (municipal) levels and are low by European comparison, both for corporations and for individuals.

The reform of the income tax system in recent years has harmonised the formal aspects of the various cantonal tax laws – for example, determination of taxable income, deductions, tax periods, assessment procedures, etc. But the cantons and communes still have significant autonomy in setting tax rates, except for those taxes reserved exclusively for the federal government, and they vie with each other

to attract investment by cutting their tax rates. As a result, rates vary considerably for companies and individuals depending on their tax status and location. Under the general corporate tax rules, companies are subject to tax at maximum rates that range between 12.6% and 25%, depending on the canton and municipality of residence. Dividends and capital gains from substantial shareholdings are entitled to participation relief, thereby virtually eliminating tax on such transactions.

Switzerland enjoys an excellent reputation for its business-friendly relationship between tax authorities and taxpayers. Companies are encouraged to enter into discussions with the tax authorities and to obtain rulings on rule-specific tax prac-
tices. Extensive tax planning opportunities exist for holding, headquarter, management, trading, IP and finance companies: holding companies are basically exempt from taxation on dividend and capital gains income from their substantial shareholdings.

POLITICAL

INDEPENDENCE

The country may be best known abroad for its political neutrality, but the central, defining feature of the country is its direct democracy, which makes it unique in a sea of European centralism. Switzerland is a country with strong local government: all 26 cantons have their own legislatures and governments, and as small, flexible political entities, they are able to compete with each other in various areas. As a result, the public sector remains lean and the cantons retain significant sovereign powers.

At the federal level, executive power is exercised by the Federal Council, which comprises seven members. Legislative power lies in the hands of the Federal Assembly, which is made up of two houses with equal powers: the Council of States (representing the cantons) with 46 members, and the National Council (represent-ing the people), which has 200 members. The constitution grants the people the right to participate in decision-making either through initiatives supported by a specified number of voters or through referendums on motions proposed by the government. The federal structure and the political rights of the people result in a closeness of politics to business and citizens, and contribute to the country’s polit-ical and social cohesion.

Switzerland’s neutrality and historical reputation as a safe haven means it is home to many international organisations, including the United Nations, the World Health Organization, World Intellectual Property Organization, the International Committee of the Red Cross, the World Trade Organization, CERN, the International Olympic Committee, FIFA, UEFA and many others.

POLITICAL STABILITY

1. Finland 9.90

2. Australia 9.54

3. Denmark 9.49

4. Switzerland 9.33

5. Sweden 9.21

10. Germany 8.33

11. US 8.05

14. UK 7.40

Source: IMD World Competitiveness

Yearbook 2009

CURRENCY/PRICE STABILITY

The Swiss are generally a risk-averse peo-ple – perhaps that goes back to times when crop failure meant not just financial ruin but also starvation – and they are good savers. In 2005, Switzerland’s gross national savings was 36.1% of GDP, compared with 13.5% for the US. Purchase power stability has been achieved traditionally through low inflation, a strong currency and sound public finances, resulting in a good investment climate and guaranteed economic prosperity and stability. Swiss banks put their emphasis on having a strong capital base to send a signal of security to their customers, and this large deposit base makes banks more resilient to any financial crisis.

High price stability and low inflation rates make the Swiss franc one of the most solid currencies in the world, and it was the fifth most traded currency on world markets in 2005 after the US dollar, the euro, the Japanese yen and the British pound. The efficient capital market and a highly professional international banking and finance system make the Swiss franc the traditional safe-haven asset that investors seek during economic uncertainty. The banks manage some CHF5.2 trillion (US$4.2 trillion) in securities holdings for their clients, both foreign and domestic.

Switzerland’s per capita GDP is the fifth-largest in the world, or eighth largest when adjusted for purchasing power. At US$56,651, the per capita GDP was considerably higher than the EU average in 2007 and outranked the UK by 23%, and France and Germany by 35% and 41% respectively.

ECONOMIC FREEDOM (2008)

1. Hong Kong 9.05

2. Singapore 8.70

3. New Zealand 8.27

4. Switzerland 8.08

5. Chile 8.03

6. US 7.96

10. UK 7.81

Source: Cato Institute,

Economic Freedom of the

World: 2010 Annual Report

This year’s WEF in Davos
saw a resurgence of US participants. In the last two years, Americans were a very rare breed in the Swiss mountains. But this year, Davos welcomed a large US delegation led by form-er President Bill Clinton, Treasury Secretary Timothy Geithner and US Trade Representative Ron Kirk. The atmosphere in various Swiss-US discussions was relaxed and positive. And I had the pleasure of being introduced to Bill Clinton and to stick a Swiss-American Friendship Pin on Senator John Kerry’s (Presidential candidate 2004) lapel.

It is not just the atmosphere at the WEF that leads to optimism. The Swiss-US trade figures for 2010 look very strong, indeed. Swiss exports to the US increased by just over 10% and reached CHF19.5 billion, the same record level reached before the crisis. In fact, measured in US dollars, Swiss exports to the US in 2010 reached a new record level. With this result, the US has solidified its position as second largest export market behind German (growth in 2010: +6.5%), but way ahead of Italy (growth +0.6%) and France (growth – 0.6%). The early numbers for US exports to Switzerland, as well as for bilateral foreign direct investments, show a very positive trend. In spite of the many doom prophecies regarding Swiss-US business in the aftermath of the UBS affair and with a difficult exchange rate development, Swiss-US business relationships are very healthy.

Now every relationship has its question marks and its difficult moments. While the bilateral issues have mostly been resolved through last year’s ratification of the Swiss-US treaty, there are many issues that might hinder the future development between the two countries. These issues are all of multilateral character, defining the relationship of the US with all its trading partners. But as the only small country in the OECD that is not part of larger groups and with its trade and direct investments over-proportionally linked to the US economy, Switzerland will always be more ex-
posed to such future devel-opments. Issues currently on the radar screen are first and foremost FATCA (Foreign Account Tax Compliance Act; see Swiss Business
Nov/Dez 2010). Other issues
include growing protection-ism in the US, increased complexity to transact business with US companies especially for small and medium-size companies, and overly complex reporting mechanisms. Key words of these developments are things like the Neal Bill, the Additional Reporting Requirement Act, the Foreign Manufacturers Liability Act, certain elements of the Dodd Frank Wall Street Act and the Health Care Reform Act, and many others. All these acts have worthy goals, but many of those will have severe secondary effects insufficiently considered in the rush to correct certain problems arising from the crisis.

As a close and faithful friend and business partner, we would like to call on the US to have a close look at the extraterritorial secondary effects of its legislation. And we dearly hope that the US will again take up the leadership of the free trade move-ment in the Doha Round negotiations. Maybe in January 2012, we will hear President Obama speak again about the US as the leader of free global markets, a sentence for which we were searching in vain during the State of the Union speech 2011. With this, the springtime development between our two countries need not only last a spring, but rather for a very long time.

*Martin Naville, CEO of the Swiss-American

Chamber of Commerce.

In 1990, the bank had about 30 employ-ees and now it employs 700 people. How do you explain this rapid growth?

>Christian Hafner: We are one of the few true private banks which focuses heavily on Swiss clients. In total 2/3 of our clients are domiciled in Switzerland. To serve Swiss clients properly you have to be close to them. This is why we have more branch-
es compared to other private banks in Switzerland.

>Christian Raubach: During the crisis, banks that were not involved in any of the CDO instruments or Madoff exposure ben-
efited from a kind of trust premium.

Are you opening new branches in Switzerland?

CH: We will open a new branch in Winterthur in the first half of 2011 and we also intend to open a further one in the German part of Switzerland.

Founded in 1741, Wegelin & Co is Switzerland’s oldest bank. Does anything

of its core Swiss identity remain after so many (market) upheavals – such as the financial crisis, new regulations, international competition?

CH: One thing that has truly endured is the tradition in personal advice, discre-tion and high quality of service. What has changed is that we are confronted with a complex and ever changing environment. But we always tried to stay innovative and even anticipate developments.

CR: Look at Mercedes-Benz today and the Mercedes-Benz of the late nineteenth century, when it was founded. The brand still embodies quintessentially German qualities - high quality, comfortable, cutting-edge technology. I think the same applies to Swiss private banks. Naturally, we are talking about different industries and different products, but the fundamental principles are the same: a solid, reliable product or service never goes out of fashion. The Germans produce great cars and the Italians beautiful shoes; the Swiss have delivered high-end banking services through thick and thin. As long as we have a stable country, currency and low public debt level, we will have stable banks and the virtuous cycle will be reinforced

Have you seen changes in the bank-client relationship since the financial crisis?

What kind of trends have you observed here?

CH: The market tends to oscillate be-tween fear and greed or risk and return cycles. Currently, we are in a fear phase and this represents the more challenging side of advising private clients. The crisis hasn’t really changed so much in the way we speak to our clients – and try to understand their demands answer their ques-tions – but it has impacted the type of solutions we offer them. Clients generally ask more detailed questions than they used to; they seek explanations and want to gain a better understanding of the products. We find ourselves in a ‘back to the future’ situation, in which the clients are gravitating towards tangible, traditional solutions. Our approach is to offer a combination that helps them to understand and keep their risk under control.

CR: The range of products has increased. Twenty years ago there were no hedge funds, for example. Now the relationship manager has to understand what a hedge fund is, has to understand if it makes sense to offer it to the client, and so on. They typ-
ically have more 'homework' these days.

What are your expectations for 2011?

CH: We want to make sure that the basics – currency risk management, counterparty risk management, etc. – are solid. Clients want to avoid nasty surprises like a company not being able to pay its debts or the Euro tumbles again. Advisors who are able to pick investments that are really worth the money will be most appreciated by the clients.

CR: When the internet bubble burst, companies lost 80% of their value. Some went bankrupt. By 2003, the market looked healthy again and the world believed the problem had gone away. A new cycle began. However, this time the situation is different. Vast sums of money were pump-ed into the financial system. The banks appear to have stabilised again, but it isn’t all over yet. This time, the raft of problems has simply been shifted from the banks to governments in the form of sovereign debts.

Do you think Switzerland reacted appropriately to the international pressure on its banking system? Will banking secrecy survive?

CR: Switzerland's response was not optimal. We could certainly have proceeded in a more consistent and structured way. Our paramount concern is to protect the privacy of the client, and I say this for a very simple reason. Say you are a successful entrepreneur in Indonesia, in the Philippines or in Thailand. In these countries, every couple of years the military overthrows and replaces the government. When this happens, people are worried – not that they will have to pay taxes but that the new government will take away all their possessions. So it is not just about taxes, but about finding a way to place one's money in a jurisdiction that is safe from the long arm of regimes that people do not trust.

CH: Switzerland is certainly not the only country to emphasize discretion, privacy and personal freedom. But one of the reasons why this issue has emerged has to do with the discrepancy between the size of our country and the firms operating within it. In the view of the G-20, Switzerland is economically negligible. Politically, we are isolated. The two large banks – Credit-Suisse and UBS – though, are important for the global financial system and also dependent on undisputed access to the markets outside of Switzerland. Switzerland is a small country, but we have large companies like pharmaceutical companies (Roche or Novartis) or food giants like Nestlé, whose headquarters are based in Switzerland.

Konrad Hummler, Managing Partner at Wegelin & Co and Chairman of the Swiss Private Bankers Association, suggested recently in an interview that smaller banks, such as Wegelin & Co, should ›

operate under a different set of supervisory rules from big banks. How do you think smaller banks should be ‘regulated’?

CH: It all boils down to the cost of doing business. The larger players have an interest in keeping the cost base relatively high so they can force out smaller players. So they don’t mind having high expenses for implementing regulations as long as the regulation they get allows them to do business where they want to do business. For us, of course, it is really important that we have a low cost base, meaning also a different regulation.

CR: An additional argument is, if a small bank or a fund goes bankrupt, nothing happens – only a few people will lose mon-ey. See the Madoff case in the US. But if a large bank goes bankrupt – and the entire country falls because you are the payment house and every citizen has at least two accounts with you – then you can implicitly count on the state. You have an implicit state guarantee. The state can’t let big banks go bankrupt. That is the difference. A small bank is not as systemically relevant like a large one. That is why companies such as Swisscom also have to operate under certain rules. Imagine what would happen if the phone system were to fail in Switzerland...

We know that there are quite a lot of people who get paid an astonishing amount

of money by normal standards, who look pretty average. They are not exceptional,

super high performers. Why is this still the case?

CR: Banking is a large business with revenue potential. The issue is less about the absolute number and more about whether the individual who received such sub-stantial remuneration also had to take the risks. Take the example of an entrepreneur who builds a bike factory. He puts 10 million into his business. If he doesn’t sell any bicycles, the 10 million is gone. We all see and understand the game of capitalism. In the banks, particularly in the large ones, employees are allocated the balance sheet or parts of it, to do certain trades in a highly leveraged way. If it goes well, the individual makes a huge amount of money and it goes directly into his bonus. If it goes badly, someone has to foot the bill. Unfortunately, this system has not been corrected since the financial crisis. Very

few things have changed. At Wegelin & Co, we are an unlimited partnership and we all have our capital in the bank. If we make a mistake, the loss will immediately be reflected in our net asset value. In the risk-return system, nothing has changed. Unfortunately, regulators haven’t done anything to correct these mistakes.

CH: All banks want the best people. Though, to get the best people too many banks compete with paying the best salaries and bonuses. If this kind of hunting goes on and on, you will find that there is a tendency that salaries and bonuses will go up and up. Because there is also no ‘collusion’ among the players – which could result in an agreement to paying employees reasonably and, maybe, pay more to shareholders, for example – such a system must show unhealthy characteristics. One remedy to that – and it adds to what Mr. Raubach just mentioned – is the following: the more risky bank activities should be put into separate companies. So that a high-risk financial company can go bankrupt.

Data protection has been a key issue, in particular for Swiss banks, which saw recent stolen data turning up in the hands of neighbouring countries. How can Swiss banks prevent this kind of commercial espionage?

CH: On the technical side, we have been implementing several security layers. Just to give you an example: we have complete-ly separated the internet access from our banking systems.

CR: We continuously strive to improve the system, but one can never have 100% security. At the end of the day, you also have to select your employees well.

CH: You can add more and more access restrictions, but the fact is that you will always have a few people in your company who need access to almost all the data. Then it comes down to the human factor. And it is something that you will never be able to control completely. You can just be clever about hiring people. Secondly, you have to know how to treat your people. Make sure that people understand the val-ues of the bank and make them their own.