“Nobody is Considering the Risks Associated With the Unsustainable”

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“Nobody is Considering the Risks Associated With the Unsustainable”
Martine Menko, Investment Officer at the Dutch pension fund for the transport sector,. “Nobody is Considering the Risks Associated With the Unsustainable”

Roderick: How does your fund formulate a policy with respect to sustainability?

Martine: The origins of our sustainability policy go back to the much-discussed Zembla broadcast about cluster bombs in March 2007. This made the board aware that we had to take action. In the beginning, it was just exclusion. By 2008, there was a need to do more than simply exclude. In an ideal world you would not want to exclude companies, you would engage with them. At that time we also looked at the role that institutional investors played in the financial crisis from this perspective.

One of the things missing in the run-up to the crisis was the exercise of voting rights at shareholder meetings. If corrective action is never taken at these meetings, it is no surprise that the management starts to behave like an owner. It is a sort of free put option. They enjoy the profits but not the losses.

Roderick: So your attitude was then: you people need to look in the mirror?

“Our industry only considers its fiduciary duty. In other words, achieving the highest possible return at an acceptable risk.”

Martine: That is right. Many funds took the attitude that ‘there is nothing we can do’. But with hindsight, they could have cast their votes. From then on, there was an interesting shift from not voting to voting yes. But it was based on the assumption that management is in command of all the facts. What you are seeing slowly develop now – in any case at the larger funds – is the introduction of individual voting guidelines. Whether they vote themselves or use a proxy adviser, their votes are cast according to their own voting policy. The question now is what the majority will do, including index investors. We formulated phase one of our sustainable investment policy in 2008. We have now moved on to the next stage. This time, the board is more involved. It is a process.

Roderick:So your first step was actually a more defensive reaction to an external event. Now you have moved to a proactive stance.

Martine: That is right. I presented a draft multi-year plan in which one of the goals was to get a reaction from the board and to increase their involvement. That worked.

Roderick: What led the board to take a more active stance?

There is still a perception that sustainability is at the expense of return. Nobody considers the risks associated with the unsustainable.

Martine: Partly due to increased publicity, the awareness grew that SI could play an important role.  What I still find to be lacking is any pressure from the participants. It is all quiet on that front. And personally, I also think there should be more pressure from the regulator and the government. The thinking in these quarters is still focusing only on return in my opinion.

The strange thing is that corporates are already dealing with all kinds of rules with regard to sustainability, but our industry only considers its fiduciary duty. In other words, achieving the highest possible return at an acceptable risk. In the past, this was interpreted exclusively in terms of financial return and risk. But the interesting point is that non-financial risks can have huge financial consequences.

Roderick: You are saying that there is still scant attention to the issue from the regulator and the politicians.

Martine: It is very quiet in The Hague and in Amsterdam. Not only that, if you deviate from conventional benchmarks as a result of a pioneering sustainability policy, you have a problem.

Roderick: Then you have to retain higher reserves because you are seen as taking increased risk.

Martine: We are talking about the definition of risk as used by the regulator. Market risk is considered to be a risk, but not a risk that the regulator can influence. Everything that deviates from this is considered to be a risk that can be influenced. This will only change if public opinion changes. The interesting thing about public opinion is that policy is generally seen as very important. But as soon as it gets personal, there is a tendency to make short- sighted and opportunistic choices. There is still a perception that sustainability is at the expense of return. Nobody considers the risks associated with the unsustainable. ‘Do you want to invest sustainably?’ is actually not the right question. The question that should be asked is: ‘Do you want to continue to invest unsustainably?’ It needs to be turned around!

Roderick: Do you find there is resistance to sustainable investing as a result of the fund’s financial position?

Martine: The board is aware that it is potentially important, but there are so many other issues that are more urgent at the moment. It will take time.

Roderick: Lower funding ratios, missed opportunities: these are the issues, I think.

Martine: Absolutely. The smaller company pension funds mostly have very limited support. The correct focus is missing. In many cases, the board has no support and the pension board members have numerous other duties. The day-to-day issues prevail.

We have seen enough examples of a company’s value being affected by non-financial factors in recent years. And the majority of companies are keen to enter into dialogue.

Roderick: Are you also approached by the participants?

Martine: Very rarely.  Recently I held a workshop for our pension consultants. They said that they receive questions on this issue perhaps once or twice a year. Awareness of sustainability is not that strong in the Netherlands. As far as I know, there is no discussion of what our society should look like 50 years from now.

Roderick: You would like to see a principled debate on our future direction?

Martine: I have the feeling that society is run in the benefit of the big companies. Shouldn’t this be the other way around? Take the banks, which should serve industry and business. And clients. But the bailout means the reverse is true. And what has changed?  Absolutely nothing! But as long as there is no discussion of this in our society, we will not make any progress.

Roderick: What needs to happen to change things?

Martine: I fear that something serious has to happen. The nuclear disaster in Japan is an obvious example. After Fukushima, the debate on nuclear energy was more or less over. People simply rejected it. Our ‘Fukushima’ might be 50% unemployment among young people, as has already happened in Spain. Ultimately there will be a price to pay. But I do not think we will let it get to that point.

Roderick: Despite the lack of interest, how do you communicate with your participants on this subject?

Martine: First of all via the website. But we also have a newsletter and a magazine. The level of interest is really very low. I do not think that this is really related to the make-up of the transport industry. Drivers are just as aware, or unaware, of sustainability as the rest of the Netherlands. There are many sustainable initiatives in the transport sector such as economical driving, reducing C02 and things like Truck-run. Drivers have their hearts in the right place. But they do not see the connection with their pensions.

Roderick: What do you think about the ‘competition’ to raise more assets so that costs can be reduced as far as possible? After all, index investors are now looking for their own benchmark so that they have to pay less. And I wonder whether an index investor would have any interest in investing in an ESG policy, in the implementation of that policy and the reporting of it.

If you squeeze everything to the last drop, do not expect to get quality. You will not find the best meat at the discount store.

Martine: I think the general rule is that you get what you pay for. If you squeeze everything to the last drop, do not expect to get quality. You will not find the best meat at the discount store. I understand the focus on costs, but there is a difference between paying costs for hedge funds, GTAA, and private equity mandates (of 2% fixed fee + 20% performance fee, or 3% fixed fee + 30% performance fee) and whether you pay 4, 5, 6 or 20 basis points for an index mandate.

The point is: if you pay so little for a mandate, the risks will ultimately be much higher than the couple of basis points you have saved. A typical case of penny wise, pound foolish. But do not misunderstand me, of course we have to do what we can regarding costs. Fees can be reduced. Below a critical level, however, this will be at the expense of quality.

Roderick: How do you see the future? What developments do you expect?

Martine: Mostly limitations as regards implementation. The main obstacle in my opinion is managers who are totally skeptical. Then you have the managers who say that they would like to do something, but ultimately do nothing.  And of course the regulator, whose focus seems to be increasingly short term. This, in combination with the fascination for index investing, gives cause for concern. If there is to be no statutory framework for sustainable investing, the outlook is not so positive in my opinion.

The Truth Behind Sustainability Investing

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The Truth Behind Sustainability Investing
CC-BY-SA-2.0, FlickrVideo sobre inversiones sostenibles. Toda la verdad sobre las inversiones sostenibles

Have you invested sustainably lately? The odds are you have, even if you don’t know it. In a little over one minute this video posted in YouTube and produced by RobecoSAM, one of the leader asset managers in Sustainability Investing, explains the truth behind Sustainability Investing and how it can work for the triple bottom line: people, planet, and profit. This long-term investing strategy provides hope for the finance industry and the short-termism that plagues it.

Sustainability Investing is often referred to as Socially Responsible Investing (SRI), Responsible Investing, Impact Investing, Ethical Investing, and Green Investing. It is closely linked to Environmental, Social, and Governance (ESG) topics such as corporate governance, energy and water consumption, greenhouse gas emissions, employee turnover, and waste production.

Vanguard Reopens Two Bond Funds, Limits Growth in Capital Opportunity Fund

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Vanguard has reopened Vanguard High-Yield Corporate Fund and Vanguard Intermediate-Term Tax-Exempt Fund to all investors, effective immediately.

The $16.1 billion High-Yield Corporate Fund, which is managed by Wellington Management Company LLP, was closed in May 2012. The $33.7 billion Intermediate-Term Tax-Exempt Fund, a municipal bond fund that is managed by Vanguard Fixed Income Group, was closed in February 2013. In both cases, Vanguard acted pre-emptively to address concerns that continued asset growth in the funds could harm the interests of current shareholders.

“These funds were closed to reduce cash flow, with the aim of preserving the advisors’ ability to implement their investment strategies and produce competitive long-term returns,” Vanguard CEO Bill McNabb said. “Cash flow to the funds has subsided which, along with a change in market conditions, has enabled us to reopen the funds.”

Capital Opportunity Fund Closed

Vanguard has closed Vanguard Capital Opportunity Fund to most new accounts, effective immediately. The fund is managed by PRIMECAP Management Company.

The $11.4 billion Capital Opportunity Fund was closed in 2004. It reopened to select investors in 2007, and to all retail investors in April 2013. Since its wider reopening this year, the fund’s assets have grown by more than $2 billion.

“While the size of the fund is currently manageable, continued strong cash inflows and growth resulting from market appreciation could pose challenges for PRIMECAP Management in the future. We feel closing the fund is the appropriate step at this time,” Mr. McNabb said.

Vanguard has a long history of closing funds and restricting cash inflows to maintain fund assets at reasonable levels. Currently, six Vanguard funds are closed to most new accounts in order to manage asset size: Admiral™ Treasury Money Market Fund, Federal Money Market Fund, Convertible Securities Fund, Capital Opportunity Fund, PRIMECAP Core Fund, and PRIMECAP Fund. An additional five funds are closed pending fund mergers.

Manager added to long-term bond fund

The board of trustees of Vanguard Long-Term Investment-Grade Fund has approved the addition of Vanguard Fixed Income Group to the fund’s advisory team. Wellington Management Company has managed the $13.4 billion fund since its inception in 1973 and will continue to serve as the lead advisor.

“After careful consideration, the fund’s board determined that our Fixed Income Group’s investment philosophy and capabilities will complement the fund’s existing advisor,” Mr. McNabb said. “It is also expected to benefit the fund’s investors by adding a high-quality manager to the fund’s overall portfolio and investment strategy without changing its fundamental character.”

Vanguard Fixed Income Group is one of the largest fixed income managers in the world, managing nearly $745 billion invested in 70 taxable and tax-exempt bond, taxable and tax-exempt money market, and stable value funds. The Group oversees about $420 billion in actively managed funds and about $325 billion in bond index and exchange-traded funds.

Wellington Management oversees about $400 billion in fixed income assets, including nearly $105 billion for Vanguard. In addition to the Long-Term Investment-Grade and High-Yield Corporate funds, Wellington provides investment advisory services to the $27.9 billion Vanguard GNMA Fund.

This marks the first time that Vanguard has employed the multi-advisor approach on a fixed income fund. Vanguard has long used multiple managers on its actively managed equity funds. Vanguard Windsor II became the first Vanguard fund to adopt this approach in 1987. Today, 17 of its actively managed U.S.-domiciled equity funds currently employ the approach. Vanguard believes that a fund with multiple managers can benefit from the diversity of thought and investment ideas. 

Robeco Rated Best European High-Yield Bond Manager

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Robeco considerado el mejor gestor de high yield europeo en 2013
Photo: © CEphoto, Uwe Aranas. Robeco Rated Best European High-Yield Bond Manager

Institutional Investor rates Robeco as the best European high-yield bond manager of 2013. The US financial publisher’s rating is based on Robeco’s positive long-term performance and consistent investment process.
 
Out of a group of several hundred asset managers, Institutional Investor selected the best managers in 20 different investment categories. The winners were chosen on the basis of both the long and short-term returns realized by their funds, their Sharpe ratios and the evaluations made by their European fund distributors.
 
For Roeland Moraal, fund manager of the Robeco European High Yield Bonds fund, this award is recognition for the consistent manner in which the credit team invests. “We use a top-down approach – riding the phase in the market cycle and capitalizing on thematic risk – combined with the results of thorough bottom-up analysis. For this, a credit team of 12 looks at bond-issuing companies, and studies aspects such as their financial solvency, strategy and sustainability. A significant factor in achieving positive performance in challenging market conditions has been to remain focused on the long term.”
 
The Robeco European High Yield Bonds Fund realized annualized gross returns of 10.2% over the last three years and 19.2% over the last five years. With these returns, the fund has consistently outperformed its benchmark
 

 

Smead Capital Management Launches UCITS Fund

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Smead Capital Management announces the launch of the Pareturn Smead US Value Fund domiciled in Luxembourg. The Fund, which became available to qualified non-US investors on November 29th 2013, will initially be offered through the US Dollar-denominated Institutional Share Class with a $1 million investment minimum. The Fund will also offer the Institutional Share Class in British Pounds Sterling and Euros.

The portfolio of the Pareturn Smead US Value Fund will mirror the US-based Smead Value Fund and the firm’s flagship US Large Cap equity strategy. CIO William Smead will serve as Lead Portfolio Manager of the fund with Director of Research Tony Scherrer, CFA, serving as Co-Portfolio Manager. The portfolio will be managed based on the firm’s investment philosophy and eight criteria, which is focused on valuation mattering dearly, being long-term business owners and seeking out high-quality businesses.

Our firm believes there is lack of competition in the UCITS marketplace and would like to put our best foot forward to fill the needs of advisors, family offices and institutions.

Director of Marketing and Sales Cole Smead, CFA, will head the firm’s UCITS distribution and will serve as the primary contact for UCITS shareholders. BNP Paribas Securities Services is the custodian and fund administrator to the UCITS Fund.

“We are excited to offer our long-duration US common stock ownership to investors outside the United States borders,” noted Bill Smead, CIO of Smead Capital Management. “We see a bright economic future for the US paired with a strengthening dollar as the economy improves and consumer confidence returns. We believe our stock picking criteria combined with what will likely take place in the United States over the next 5-7 years will be a delight to foreign investors.”

Andrew Dougherty, Head of Alternative & Institutional Solutions, BNP Paribas Securities Services, commented, “We are honored to be the service provider of choice for a well-established firm like Smead Capital. The company’s interest in establishing distributions abroad is forward-thinking and speaks volumes about the increasing global nature of asset management. Our know-how in cross-border distribution coupled with their disciplined investment strategy will prove to be a fruitful long-term relationship.”

“We are very appreciative of the investors abroad that have entrusted us to manage our US Large Cap portfolio on their behalf,” said Director of Marketing and Sales Cole Smead, CFA. “We are pleased to bring on BNP Paribas Securities Services as a new partner with their expertise in the UCITS space. Our firm believes there is lack of competition in the UCITS marketplace and would like to put our best foot forward to fill the needs of advisors, family offices and institutions.” 

Schroders Announces New Convertible Bond Team

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Schroders has announced the establishment of an in-house convertible bond team in Zurich with assets under management of USD2.1billion

Dr Peter Reinmuth, the fund manager of Schroder ISF Global Convertible Bond and Asian Convertible Bond, Dr Martin Kuehle, Product Specialist for the two funds and Urs Reiter, Senior Convertibles Trader have all transferred to the company enabling Schroders to bringthe management of its convertible bond funds in-house.  They report to Philippe Lespinard, Schroders’ CIO Fixed Income, and are supported by Schroders’ 32 credit analysts and extensive equity research.

Damien Vermonet has also been appointed as Convertible Bonds Fund Manager and has eight years experience as a convertible bond manager.  He joins from Acropole AM where he was portfolio manager of global convertible long only strategies with a particular focus on US convertibles.  Previously, he was at Fortis Investments where he managed global and European convertible bonds.  He is also based in Zurich and reports to Peter Reinmuth. 

Philippe Lespinard, CIO Fixed Income at Schroders, comments:

“Schroders has invested heavily in its fixed income business in recent years to deliver robust investment performance.  Convertible bonds are an attractive asset class for our clients worldwide, in addition to the firm’s existing credit and equity capabilities.  We are delighted to welcome Peter, Martin, Urs and Damien and look forward to further developing our convertibles business from Zurich.” 

Miles O’Connor, Head of Pan-European Institutional Business, also commented:

“Convertible bonds are an attractive asset class and we are seeing continued demand from clients worldwide. Convertibles provide protection on the downside while also offering exposure to equity market upside, making them an ideal way to gain long-term exposure to growth markets as the global economy recovers. Our new in-house team should enable us to maximise this opportunity and continue to grow our convertible capabilities for clients.

 

Ryan Forms Strategic Alliance with Garnham Abogados to Support Expansion of International Tax Practice in Latin America

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Ryan y Garnham Abogados se alían para respaldar la expansión de la consultoría fiscal internacional en Latam
. Ryan Forms Strategic Alliance with Garnham Abogados to Support Expansion of International Tax Practice in Latin America

Ryan, a global tax services firm with the largest indirect and property tax practices in North America, announced that it has formed a strategic alliance with Garnham Abogados, located in Santiago, Chile. Garnham Abogados is a law firm specializing in corporate tax matters and foreign investment advisory services. It will support Ryan’s ability to deliver higher levels of value and results for the firm’s expanding portfolio of multinational clients and provide business development opportunities to extend the Firm’s North American leadership position in tax services to Chile.

“We are excited to grow our network of tax experts in Latin America through this partnership with Garnham Abogados Ltda.,” said Todd E. Behrend, Ryan Principal and International Tax Practice Leader. “Its reputation is widely respected throughout Chile, and it will play an important role in our ability to offer a more comprehensive suite of value-added services to our multinational clients.”

“We are delighted to be part of the network,” said Arturo Garnham, Managing Partner of Garnham Abogados. “Ryan’s tax and business expertise, combined with our intimate knowledge of the Chilean market, will enable both of us to provide excellent services to Chilean clients and to foreign firms exposed to the Chilean tax environment.”

“Ryan already provides tax services to many of the world’s leading global companies, and the partnership with Garnham Abogados Ltda. will deliver tremendous value through additional international tax solutions in Chile,” said Brendan F. Moore, Ryan President of Europe, Asia, and Latin America Operations. “The trust that Ryan has earned by delivering superior results for these multinational clients drives our commitment to dramatically expand Ryan’s international tax services.”

“We are proud to reinforce our international tax services with the expertise and best-in-class solutions of Garnham Abogados Ltda.,” said G. Brint Ryan, Chairman and CEO of Ryan. “The firm is an exceptional strategic partner that will strengthen our international capabilities and support our continued Latin American expansion.”

Europe, Japan and Cylicals are Expected to Lead the Way Over the Next Twelve Months

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Los beneficios empresariales de Japón van a seguir creciendo (III)
Pixabay CC0 Public Domain. Japan’s “Show Me the Money” Corporate Governance: 3Q update

ING IM highlights that the macroeconomic backdrop globally remains positive with some catch-up recently taking place in Europe and China. Also, the no tapering decision by the Fed in the latter half of 2013 implies a clear growth bias in its reaction function further supporting the recovery process.

Fixed Income

For the reasons above, ING IM maintains a growth bias in its positioning within fixed income and spread products with an allocation that is underweight Treasuries and overweight Spreads. Within spread products, ING IM has a growth tilt in its positioning. ING IM has a firm overweight in High Yield next to a medium overweight in Eurozone Peripheral Treasuries (EPT).

Equities

ING IM foresees that equities will be driven by better earnings fundamentals in 2014 while Europe, Japan and Cylicals are expected to lead the way over the next twelve months.

Patrick Moonen, Senior Equity Strategist, ING IM said: “We expect modest revenue growth with some margin expansion from lowinput costs, especially with regard to labor. Interest and depreciation charges remain low. Share buy backs will be an additional driver for EPS growth. .”

“Over the past year, global capex growth has been on a declining trend due to sluggish economic growth, uncertainty leading to cash hoarding and tight credit conditions. However, now investment intentions and conditions are improving, there is a potential for growth, higher capacity utilization and, as a consequence, profitability.

Turning to key investment themes, ING IM highlights that Europe will benefit from an economic turnaround and strong earnings growth with the most upside set to come from the periphery. This, coupled with the historical discount to the US, high equity risk premium and lower systemic risk means a superior risk/return profile.

With regard to Japan, the investment manager says the region is set to go through a short-term consolidation phase with Bank of Japan temporarily on hold while the Yen remains a dominant driver. However, longer-term prospects are good; borne out by the economic data strength, high earnings growth and a loose monetary policy, which is set to last

In terms of allocation, cyclical sector allocation remains in place considering the improvement in housing markets, labor market and the expected increase in corporate spending. Elsewhere, the stable growth sectors remain underweight as ING IM believes they are still too popular and expensive.

Nordea Asset Management goes to Asia: New Distribution Team in Singapore

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Nordea has been present in Singapore since 1980 offering full-scale corporate banking services to its customers throughout the South East Asian markets, the Indian subcontinent and Australasia. With the setup of a dedicated fund distribution unit, operating out of Singapore, Nordea Asset Management intends to leverage the existing relationships with global wealth managers. Some of which have already signed global agreements with Nordea Asset Management.

For Christophe Girondel, Head of Distribution, this move is another important step in strengthening Nordea Asset Management’s position as a worldwide fund provider. “Global wealth managers expect us to offer services and dedicated support across the globe in their relevant time zone. Going forward they will increasingly seek efficiency in their product selection; for example they will continue to leverage not only in Europe but across the world in all their Private Banking units. Against this background it is vital for us to be present on the ground.”

The new distribution team is headed by Philippe Graffart, Head of Fund Distribution Asia Pacific, who has 15 years of financial industry experience and is also a CFA charterholder. Philippe is supported by Client Relationship Manager Linda Chang Andersson who is fluent in English, Mandarin, Swedish and Taiwanese. As a first step the team will offer Nordea Asset Management’s investment expertise and fund solutions in Singapore and Hong Kong.

“Our goal is to build long-term relationships with our clients” says Christophe Girondel. “We intend to create a sustainable footprint in the region. As a first step the focus will be Singapore and Hong Kong, but we are also exploring possibilities to find partnerships in Taiwan. To fortify our ambitions Philippe is supported by Client Relationship Manager Linda Chang Anderssonfor now.” The new team has only been up and running for a short time but they have quickly gathered speed with great success in their fund manager road shows on European High Yield and US equities, which have already attracted promising net flows

John Fraser, CEO of UBS Asset Management, Retires after 12 Years on the Role

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John Fraser, CEO de UBS AM Global, cuelga las botas después de 12 años en el puesto
Photo: Twicepix. John Fraser, CEO of UBS Asset Management, Retires after 12 Years on the Role

John Fraser, who has been Chairman and CEO Global Asset Management since 2001, has decided to retire from his CEO role and as a member of UBS’s Group Executive Board, effective 31 December 2013.

This follows a long and distinguished career at UBS and in finance which began in the Australian Treasury and has spanned five decades. His time at UBS began at Swiss Bank Corporation in Australia in 1993. Under his leadership, Global Asset Management has developed from a localized organization into a focused large-scale asset manager with a diversified mix across regions, capabilities and distribution channels. He will assist in the transition and retain his position as Chairman of Global Asset Management.

lrich Koerner, currently Group Chief Operating Officer (COO), will become CEO Global Asset Management, effective 1 January 2014 in addition to his role as CEO Europe Middle East and Africa. As Group COO, he has played an instrumental role in a number of key strategic initiatives. These include the realignment of the Corporate Center, the design and set-up of the firm’s Industrialization Program and UBS’s cost reduction efforts which have delivered several billion Swiss francs in efficiencies since 2009.

Tom Naratil, currently Group Chief Financial Officer (CFO), will also become Group Chief Operating Officer, effective 1 January 2014. The COO function will include Group Technology, Group Operations, Corporate Services and the firm’s Industrialization Program. In addition, the Corporate Development function will move to the CFO area. Tom Naratil has transformed UBS’s Finance organization since taking over in 2011 and has successfully driven UBS’s efforts to strengthen its capital, balance sheet and funding positions.

In addition, also effective 1 January 2014, UBS is making several other changes to its Corporate Center organization. Group Human Resources, Communications & Branding and Group Regulatory Relations & Strategic Initiatives (GRR&SI) will report directly to Sergio P. Ermotti, Group Chief Executive Officer. In order to manage UBS’s compliance, conduct and operational risks in a more integrated and effective way, Compliance and Operational Risk Control will be merged to form a new function reporting to Philip Lofts, Group Chief Risk Officer. The new function will continue to work closely with Legal, led by General Counsel Markus Diethelm, given the complementary mandates of both organizations. In addition, UBS’s Group Security Services function will also move to the Group Chief Risk Officer area.

Sergio P. Ermotti, Group Chief Executive Officer commented, “I would like to thank John Fraser for the lasting contribution he has made as a leader, an executive board member and a colleague over the last 20 years. As we enter the next phase of our strategic transformation, I know I can draw on the proven leadership of my colleagues on the Group Executive Board to continue effectively executing on our plans.”