Kaiser Partner Privatbank AG - Monthly Market Monitor September 2023 EN

September 2023

Chart of the Month

In a Nutshell

Our view on the markets

Divergent economic paths

The US growth engine has recently picked up more speed, but this merely pushes the risk of a recession into next year. The effects of stricter monetary policy are already visible in the form of rising default rates and mounting payment arrears among consumers. Meanwhile, economic activity in the Eurozone is already surprising on the downside these days and could start to contract toward the end of this year. No major positive impetus is to be expected from China in the near future.

The BRICS+ are no love match

The BRICS bloc of nations will expand to become the BRICS+ from next year onward. The group enlarged to 11 members is very heterogeneous. It’s highly questionable whether its combined weight can actually be turned into political and economic clout. The partnership of convenience must first prove its attractiveness to other potential members. Meanwhile, an anti-dollar currency remains more a wishful thought than a realistic goal.

Correction already over?

August brought the awaited correction on equity markets, but the roughly 5% decline registered by blue-chip indices was already enough to substantially cool down the euphoric sentiment that had previously prevailed.

The swift mood swing shows that a good deal of skepticism about this year’s rally still reigns within the investor community. Analysts currently see an array of reasons for the rise in bond yields. But what matters most of all is the price, and it is very attractive at present for government bonds.

Past performance is not… (helpful!)

Investing is sometimes similar to driving a car: a glance in the rearview mirror is not enough by itself to get you to your destination unscathed. Analogously, equity funds that have performed well in the past very rarely succeed at persistently earning above-average returns over the long run. Historical returns also foretell little about the future performance of private equity funds. Artificial intelligence could help financial analysts to sniff out future outperformers.

Ask the experts

Given the rise in interest rates, are stocks worth the risk anymore? Is the pullback in inflation already over? Has private equity seen its best days? Will the triple-A club shrink further soon in the wake of Fitch’s downgrade of the United States’ credit rating? And is “concrete gold” still an attractive asset class (or is it already back to being one again)? You’ll find our answers to these questions in our quarterly Q&A.

Fashions can change quickly on Wall Street. The winds have shifted in recent quarters even on the subject of sustainability. Under political pressure from the Republican camp, more and more companies are rethinking how explicitly they should position themselves on this issue in the future. BlackRock, the world’s largest asset manager, is no exception. During the 12-month period through June, the wealth management behemoth endorsed only 7% of shareholder proposals advocating action on environmental or social issues, down from 47% during the 2021 voting cycle. Since the acronym “ESG” is becoming increasingly politicized in the USA and has suffered a blow to its reputation due to greenwashing, it is being used less and less in corporate communications. The new buzzword is “artificial intelligence”. It, too, is not uncontroversial, but is likely in fact to permanently change (economic) life of the future.

Macro Radar

Taking the pulse of economic activity

The US growth engine has recently picked up more speed, but this merely pushes the risk of a recession into next year. Meanwhile, economic activity in the Eurozone is already surprising on the downside these days and could start to contract toward the end of this year. No major positive impetus is to be expected from China in the near future.

The US economy is surprising on the upside… US economic activity has gained further velocity in recent weeks. The Atlanta Federal Reserve’s Nowcast model has intermittently been projecting annualized GDP growth north of 5% for the third quarter. Even though this estimate will probably get revised downward, it is solidifying the expectation that a recession no longer will hit this year. However, the effects of tightened monetary policy are already visible in areas including rising corporate default rates and mounting credit card and car loan payment arrears. Higher-for-longer policy rates mean only a low probability of a successful soft landing – a recession in 2024 is not off the cards.

…and Europe on the downside

Fodder for doves and hawks

The European Central Bank will have to lower its growth projections substantially in September. The deterioration of the near-term economic outlook is bound to be a bigger surprise to central-bank officials than the slightly increased price of oil. So, the ECB may opt to take a break in raising interest rates even though inflation is still running high. If economic activity doesn’t regain vigor soon (it most likely won’t), the European rate-hiking cycle may already be over because a big dose of disinflation is already in the pipeline for the months ahead.

China isn’t serving up stimulus with a big ladle

While

US economy continues

While the US economy continues to disappoint the pessimists, data in the Eurozone are moving in the wrong direction. The cyclical downturn in the manufacturing industry, which is particularly pronounced in Germany, has been spreading more intensely to the services sector lately. The purchasing managers’ index for the services sector fell to reading of 48.3 in August, hitting a 30-month low. An economic contraction in the Eurozone at the end of 2023 is becoming increasingly likely. Germany is already in the midst of a recession.

Macroeconomic data out of China (e.g. retail sales, exports) have continued to surprise on the downside in recent weeks. The particularly alarming statistics on youth unemployment in China are even no longer being released now. Meanwhile, the misery in the real estate market has claimed further casualties. The government of China nonetheless continues to exhibit little appetite for massive stimulus and is implementing only selective support measures (small interest-rate cuts, reduced stamp duty). China’s 5% GDP growth target for 2023 is moving farther out of reach.

Recession called off for now | US economic activity is accelerating in H2 2023 Consensus growth forecasts for 2023

the

to disappoint the pessimists, data in the Eurozone are moving in the wrong direction.

Kaiser Partner Privatbank interest rates view

The new BRICS+ group represents one-third of the world’s economic output and almost one-half of the globe’s population.

Satellite View

Geopolitical heat map

The BRICS bloc of nations will expand to become the BRICS+ from next year onward. The group enlarged to 11 members is very heterogeneous. It’s highly questionable whether its combined weight can actually be turned into political and economic clout. The partnership of convenience must first prove its attractiveness to other potential members. Meanwhile, an anti-dollar currency remains more a wishful thought than a realistic goal.

Not everyone is invited, and not everyone wants in The 15th summit of the BRICS group (composed of Brazil, Russia, India, China, and South Africa) in Johannesburg in August aroused a lot of interest, in part because Russian President Vladimir Putin did not physically attend the meeting to avoid being detained under an international arrest warrant, and in part because a potential expansion of the group was already being vigorously discussed in the runup to the conference. More than 40 counties had expressed an interest in joining the BRICS. In the end, six of them – Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates – will gain membership to the club starting in January 2024. But not every country wants to join the BRICS in the first place. Indonesia, whose national economy is larger than that of each of the new members, received an invitation, but is still mulling whether to join. The weight of the group is nonetheless impressive as is on paper. The new BRICS+ group represents one-third of the world’s economic output and almost one-half of the globe’s population.

The BRICS+ is no love match China, beyond a doubt, accounts for the biggest part of this weight, so it’s China that also calls the shots behind the scenes. The Middle Kingdom wants to challenge the current world order dominated by the USA and “the West”. Russia and Iran are firmly in China’s camp. However, the other members of the club view the BRICS+ alliance first and foremost as an expedient way to organize the voice of the Global South and to gain more influence over multilateral institutions. To many, the new bloc of nations is one thing above all: a partnership of convenience, and a highly heterogeneous one at that. China and India, for instance, have been rivals for a long time, and India is an ally of the USA, as are Egypt and Argentina. Meanwhile, Egypt and Ethiopia as well as Saudi Arabia and the United Arab Emirates have repeatedly feuded with each other in the past. The BRICS+ is definitely no love match. It’s a hodgepodge assembly of economic climbers like India and Ethiopia (with annual GDP growth rates above 6%), descenders like Argentina, countries in a growth trap (China), countries under

a heavyweight economically…| …and soon also politically?

sanctions (Russia and Iran), and financially powerful petrostates.

The currency question

News about a possible BRICS(+) currency potentially backed by gold was also a subject of speculation ahead of the summit. In the end, though, there were few new developments concerning this matter – in part, arguably, because ultimately there is an enormous difference between conceptualizing and actually implementing a common currency of that kind. Giving up their own currencies and relinquishing control over their own monetary policies would cause participating countries to lose

key instruments for steering economic activity, means of intervening, and ultimately their financial independence. The heterogeneity of the BRICS+ countries’ economic power described above would also render such a project inviable. Moreover, the gold reserves needed to create a credible gold standard for a currency fully backed by gold do not exist. Jim O’Neill, who coined the acronym BRIC, has thus called the idea “ridiculous”. The BRICS+ countries nevertheless want to counter US dollar hegemony. So, the summit participants at least reaffirmed their desire to step up the use of their own national currencies for reciprocal trade and investment in the future.

Asset Allocation

Notes from the Investment Committee

August brought the awaited correction on equity markets, but the roughly 5% decline registered by blue-chip indices was already enough to substantially cool down the euphoric sentiment that had previously prevailed. The swift mood swing shows that a good deal of skepticism about this year’s rally still reigns within the investor community.

Asset Allocation Monitor

Cash Equities

Fixed Income Global

Sovereign bonds

Corporate bonds

Microfinance

Inflation-linked bonds

High-yield bonds

Emerging-market bonds

Insurance-linked bonds

Convertible bonds

Duration

Currencies

US dollar

Swiss franc

Euro

British pound

Equities: Is the correction already over?

• August brought the correction on equity markets that we had been expecting. Blue-chip indices in the USA and Europe intermittently dropped by as much as around 5% over the course of the month. This decline thus far still belongs in the “healthy pullback” category, but it was already enough to substantially cool down the euphoric sentiment that had previously prevailed and to push momentum indicators into an oversold state. The NAAIM Exposure Index indicates that in a span of just a few weeks, active fund managers in the USA have scaled back their equity positions to the lowest level recorded this year. This rapid sentiment swing shows that a good deal of skepticism about this year’s rally still exists within the investor community. Against this backdrop, an immediate significant extension of the recent correction is at least improbable. It’s more likely that the buy-the-dips faction will do additional purchasing on any further share-price setbacks and will thus buttress the market. Meanwhile, the catchword “momentum” dominates in the somewhat bigger picture. If the market behaves the way it has in the past, the S&P 500 index should climb to

Switzerland

Europe

UK

USA

Japan

Emerging markets

Alternative Assets

Gold

Real estate

Hedge funds

Structured products

Private equity

Private credit

Scorecard

Macro

Monetary/fiscal policy

Corporate earnings

Valuation

Trend

Investor sentiment

a new all-time high before it embarks on the next major downswing.

• The stock-price trajectory going forward appears destined to become a bit bumpier despite these statistically underpinned good medium-term prospects because it is also a statistical fact that the September of the third year of a presidential cycle is the weakest month on the US equity market. The negative momentum lately in leading economic indicators – not just in Europe, but in the USA as well – is equally as relevant. Corporate revenue and earnings data for the first half of this year surprised on the upside, but the bar is now set high for further upside surprises going forward. Another warning sign is the fact that cyclical sectors haven’t

benefited from the latest increase in long-term market interest rates. In view of a more volatile climate in the near future, it’s appropriate to raise the weighting of defensive sectors and markets.

Fixed income: Very good risk/reward tradeoff

• The yield on 10-year US Treasury notes climbed to a marginal new high above 4.35% in August (reaching its highest level since 2007). It has risen by more than 100 basis points within the last four months. Since yields move inversely to bond prices, the latter have come under considerable downward pressure. One of the causes of this trend is the continually decreasing probability of a recession this year. Analysts have also recently been bruiting the US credit rating downgrade, raised inflation expectations (implied in futures contract pricing), and the soaring US federal budget deficit (and a corresponding growing supply of new Treasury bonds) as causes behind the increase in bond yields. However, explanations of the reasons for past price developments are irrelevant to the future outlook. What matters is the price today, and the price of government bonds at the moment is very attractive. The asymmetric risk/ reward outlook therefore makes a case for overweighting government bonds.

• We recently upgraded our stance on high-yield bonds because the risk/reward tradeoff in this asset class as well has shifted in an even more favorable direction. Our scenario analysis shows only marginal potential price losses even in the event of a recession, but price gains well in double-digit percent territory if economic activity improves. A slightly above-average cash allocation should still be maintained despite the good prospects for bonds because it increases one’s flexibility to do more buying on further dips (in stocks or bonds) and is being compensated with attractive interest rates at present.

Alternative assets: Hedge funds necessitate expertise

• Despite facing a headwind stirred up by a rise in real interest rates and a restrengthening US dollar, the price of gold has fared relatively well in recent weeks and has only lost value in dainty steps. Upward pressure is noticeably building on gold’s wider-angle price chart. If the underlying conditions for the precious metal improve, an ascent to a new all-time high would be the logical consequence. Meanwhi-

le, the increase in the interest-rate level acts as a tailwind for the performance of hedge funds. Many funds and strategies work with financial derivatives and hold large cash reserves, which are earning handsome interest by now that ultimately accrues to investors. Good managers that generate an alpha of 3%–5% can almost achieve double-digit target returns by now when the base interest rate of around 5% (in US dollars) is added in. The crux, however, is the often restrictively handled access to the best managers. To gain access to them, investors should draw on the expertise and the extended capabilities of a private bank well-versed in investment matters.

Currencies: Rate-hiking cycle almost over

• EUR/USD: The interest-rate pendulum has swung back in favor of the US dollar in recent weeks. After a series of disappointing economic data in the Eurozone and given the increased likelihood of stagnation at the end of this year, the European Central Bank looks set to at least hesitate to ratchet interest rates higher. The US Federal Reserve, meanwhile, is in “higher for longer” mode, so interest-rate differentials will continue to favor the greenback for some time to come. However, the euro’s uptrend line hasn’t been broken yet and still has upside potential in the medium term.

• GBP/USD: The Bank of England raised its policy rate in August for the 14th consecutive time and looks set to do it again soon. That would bring the BoE neck-and-neck with the Fed and would take the interest-rate differential out of the relative attractiveness equation for once. As for the other factors, though, economic activity and inflation argue in favor of the US dollar, but a cheap valuation makes a case for the British pound. On the bottom line, a neutral stance remains appropriate.

• EUR/CHF: The EUR/CHF exchange rate traded a little above its all-time low of 0.95 in August. From a technical analysis standpoint, a consolidation and retracement were to be expected at this level. The retracement is likely to continue in the near term. Longer term, though, the trend continues to point downward because the inflation differential between Switzerland and the Eurozone is constantly lowering the fair value of the currency pair. The downtrend line currently situated at around 0.98 will likely constrain any advances.

Many funds and strategies work with financial derivatives and hold large cash reserves, which are earning handsome interest by now that ultimately accrues to investors.

What defines the start of a bull market? Many say that it “only” requires a 20% rise in a stock index. Others insist that the equity market must first have hit a new all-time high. If one follows the second rule, one cannot call a new bull market yet for the US market. There are, however, good reasons to hope for a bull market because the S&P 500 index in July already climbed to within 5% of the all-time high set in early 2022. In the past, that kind of momentum was consistently followed by a new all-time high without a relapse to a lower level. If one compares the new bull cycle that is potentially already up and running with the first year after other inflection points in history, one can see that the current stage of the upturn is comparatively less dynamic. The bulls have time until mid-October to alter this statistic a bit.

Chart in the Spotlight

Timid bulls | The current rally is a subpar one The first years of a bull market (since 1950)

Sources: Bloomberg, Kaiser Partner Privatbank

Theme in Focus

Past performance is not… (helpful!)

Investing is sometimes similar to driving a car: a glance in the rearview mirror is not enough by itself to get you to your destination unscathed. Analogously, equity funds that have performed well in the past very rarely succeed at persistently earning above-average returns over the long run. Historical returns also foretell little about the future performance of private equity funds. Artificial intelligence could help financial analysts to sniff out future outperformers.

Warranted disclaimer

“Past performance is no guarantee of future results” – the information leaflet for nearly every investment product bears this warning or one like it. But in contrast to many other types of perhaps exaggerated disclaimers, the one above should not be construed as a legal safeguard (for the issuer of the investment product) against the unlikeliest occurrence conceivable. One can interpret it more as being a well-intended and above all fact-based word of advice for investors who may be somewhat overly naïve as well as for purported investment pros, because the statistical evidence is clear: equity funds that have performed well in the past very rarely succeed at persistently earning above-average returns over the long run. S&P Global supplies fresh numerical data on this phenomenon every year. According to its US Persistence Scorecard published in May, only 48.6% of top-quartile US equity funds in 2018 were still in the top 25% of all mutual funds one year later, and not a single former top

performer was still in the uppermost quartile as soon as four years later. The findings are sobering, even when the bar is lowered significantly. Of the equity funds that ranked among the best 50% of all mutual funds in 2018, only 16.8% were still in the top half three years later and just 2.7% were still present there four years later. Observation over a longer period shows that these numbers weren’t distorted by the difficult pandemic years for fund managers: of the equity funds that ranked among the top 50% during the 2013–2017 period, only 37% managed to stay in the top half during the subsequent five-year period. If fund-manager performance were completely random, one would expect 50% of the winners in the first five years to post an above-average performance also in the second five years; if substantially more than 50% of the winners won again in the second interval, that might even be evidence of the existence of consistent fund-manager skill. The actual findings, however, clearly refute this.

„I don’t know any investors who shouldn’t act as if markets are efficient.” | Eugene Fama Performance persistence of US equity funds ranked in the top 25% and top 50% in 2018

Equity funds that have performed well in the past very rarely succeed at persistently earning above-average returns over the long run.

Sources: S&P Dow Jones Indices, Kaiser Partner Privatbank

This makes selecting private equity funds a particularly difficult undertaking. Artificial intelligence could remedy this situation in the future because even though ChatGPT cannot replace private bankers anytime soon, smart algorithms could definitely provide helpful assistance for financial analysts in the future.

The evidence in private equity

In contrast to the situation with regard to conventional equity funds, for a long time it was a common practice among investors in private equity funds to bet on funds (and managers) that were winners in the past. Even to this day it is a prevalent tactic to select top-quartile funds exclusively if possible in the hope that they will stay at the top of the pack in the future. This received wisdom about the performance persistence of private equity managers had for a long time also been underpinned by academic studies.1 However, earlier analyses were often based on data from the 1980s and 1990s. That data has proven, in the meantime, to be qualitatively substandard. Moreover, the earlier research, which is already outmoded today, does not reflect the massively enlarged size of the private equity universe since the turn of the millennium, nor does it reflect its greatly increased level of professionalization. Newer research in recent years has debunked the earlier assumptions in the meantime. For example, one study bearing the title “Has Persistence Persisted in Private Equity? Evidence from Buyout and Venture Capital Funds”2 demonstrates on the basis of current data (through end-2020) drawn from the high-quality database from Burgiss that there is practically no performance persistence among classical private equity buyout funds. Past performance says nothing about future (out)performance, particularly when the database available to the investor at the time of the investment decision is the one used as the information basis. Since it ordinarily can take 12 to 15 years until the full redemption of a private equity fund, meaning that it can also take that long to determine the definitive final performance numbers, investors can only factor the interim “live” performance of private equity funds into their deliberations. Venture capital funds are an exception, though. The authors of the study find (compelling) evidence even today of performance persistence in the venture capital space – top VC fund managers remain more successful than average more frequently than pure random chance would have it.

Help from artificial intelligence

The quite important role that historical fund performance plays in the world of private equity owes in large part to the opacity of the industry to date. Whereas enormous databases on conventional equity funds exist, as does copious research on most publicly traded companies, the public availability of data on private markets is much scarcer. A very lopsided information

asymmetry exists between investors and private equity managers, and managers have lots of leeway to frame their track record in a favorable light for themselves. This makes selecting private equity funds a particularly difficult undertaking. Artificial intelligence could remedy this situation in the future because even though ChatGPT cannot replace private bankers anytime soon, smart algorithms could definitely provide helpful assistance for financial analysts in the future. A quintet of scholars led by Oxford Professor Ludovic Phalippou applied just such machine-learning algorithms to the prospectuses of private equity funds.3 In their study titled “Limited Partners versus Unlimited Machines; Artificial Intelligence and the Performance of Private Equity Funds”, artificial intelligence proved very successful at extracting performance-relevant insights from the sections of fund prospectuses in which managers describe their investment strategy and at using that information to predict potential outperforming and underperforming funds. An algorithm trained on data from 2003 through 2013 sorted funds with vintages from 2014 to 2016 by their probability of outperformance. The top quartile of funds (signifying the highest probability of outperformance) achieved a total-value-to-paid-in-capital multiple of 2.09 through end-2022, 0.23 points higher than the average for all funds. Since private equity funds usually hold their investments for five years on average, this translates into an annual outperformance of 4 percentage points, which is a handsome excess return. Artificial intelligence was thus actually able to derive performance-relevant added value from qualitative information to make assertions about the future performance of private equity funds. In contrast, quantitative facts, such as investor interest in private equity fundraising for example, were much poorer indicators of a good future performance. Historical fund performance, which the study also put to the test, yielded added information value as well, though differently than one might think: to wit, (former) top-quartile funds underperformed significantly and did worse than the median of all funds. “Past performance is not indicative of future returns” therefore also goes for private equity funds. Meanwhile, “big is beautiful” is a much less valid tenet than many an investor might suppose. The bottom line is that when investing in private-market assets, it is very important to work together with experts, possibly also with the aid of artificial intelligence in the future. Moreover, especially in this asset class, it pays to heed the advice to take diversification to heart and to avoid putting all eggs in one basket.

Looking back at past performance doesn’t help… | …but qualitative information and machine learning definitely do help Performance of selected funds

. . . . . . . all f nds onl pper q ar les onl pper half onl pper q ar le Machine Learning F ndraising Past Performance

Sources: R. Braun et al (2023), Kaiser Partner Privatbank

*1) Including, for example, Steven N. Kaplan, Antoinette Schoar (2005): “Private Equity Returns: Persistence and Capital flows”

*2) Robert S. Harris, Tim Jenkinson, Steven N. Kaplan, Ruediger Stucke (2022): “Has Persistence Persisted in Private Equity? Evidence from Buyout and Venture Capital Funds”

*3) Reiner Braun, Borja F. Tamayo, Florencio López-de-Silanes, Ludovic Phalippou, Natalia Sigrist (2023): “Limited Partners versus Unlimited Machines; Artificial Intelligence and the Performance of Private Equity Funds”

Ask the experts

What stirred our clients (and moved the financial markets) in August 2023

We are always available to our customers for concerns and questions about their portfolios. As a representative of this, once a quarter we summarize the most frequently asked customer questions and the answers provided by our experts, thus giving you direct insights into our asset management and investment advisory services.

Asset Allocation: Market interest rates (and bond yields) have risen substantially over the last 18 months. Should I as an investor (with the USD, GBP, or EUR as my reference currency) continue to take on any risk at all associated with stocks or alternative assets?

Kaiser Partner Privatbank: A similar question was asked of us back at the start of this year. At that time, we explained why investors shouldn’t put all of their eggs in a basket full of bonds despite the rise in market interest rates. To summarize the explanation: (1) the comparatively high indicative yields on bond funds and bond ETFs are not guaranteed, but instead depend on the future trajectory of interest rates, and (2) the act of buying and holding individual bonds until their maturity date entails its own set of pitfalls and risks. Central-bank policy rates and the yield levels on fixed-income markets have climbed higher since February. At the same time, equity markets have performed well, particularly in the USA, and have become even more expensive than before relative to bonds. Our reservations against holding a portfolio concentrated on bonds have lost none of their validity, however. On the other hand, though, a different asset category – cash and money market-like

assets – that for years had practically been perceived as an unviable investment alternative has been moving increasingly into the foreground. Given the very short duration of cash and money market-like assets, investors in this asset segment receive high yields these days without having to put up with any notable volatility in exchange. In fact, rarely has parking one’s money in cash been as lucrative as it is today. So, should investors now go all in on cash? That wouldn’t be advisable, not just because doing so would violate a cardinal principle of any long-term investment strategy – i.e. diversification – but also because shareholdings in businesses, no matter whether via public or private equity, still promise substantially higher returns over a time horizon of more than five years. Moreover, the interest-bearing asset sector outside the money market is also very attractive at the moment. Government bonds, for example, are a good hedge against a recession – if one materializes, double-digit precent price gains on long-term sovereign debt securities can be expected. The private credit segment, in turn, is profiting from the increased policy-rate level just like money-market investments are, but it offers a hefty risk premium on top of that, making double-digit precent returns a reality already right now. The upshot is that every investor should hold a certain cash position in his or her portfolio at all times. It enables flexibility and allows an investor to seize sudden investment opportunities. Given the high interest-rate level, a cash position could currently make up even 10% to 20% of a portfolio at present. However, even larger holdings of money market-like assets aren’t advisable unless they are earmarked for other purposes (e.g. for investments or consumption) within the next two to

years.

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Half-Year Report

Kaiser Partner Privatbank enhances performance in various dimensions

You can find the complete half-year report of Kaiser Partner Privatbank at: kaiserpartner.bank/2023-en

Kaiser Partner Privatbank enhances performance across various dimensions

In an ever challenging economic and geopolitical environment, Kaiser Partner Privatbank AG was able to further increase its performance in multiple dimensions during the first half of 2023. We achieved an increase in operating income of CHF 2.1 million to CHF 18.1 million (+13%) and a significant increase in profit to CHF 2.9 million (+19%) compared to the 2022 reporting year. The Central Bank’s interest rate policy was a contributing factor to the positive operating result, leading to a significant increase in net interest income to CHF 3.4 million (+71%). Net fee and commission income amounted to CHF 9.5 million, a slight decrease of -1.5%. Income from financial operations increased by 2.5% to CHF 4.2 million.

The growth in revenue allowed us to continue investing in digital infrastructure to support our growth, resulting in a 15% increase in operating expenses. Despite volatile markets, assets under management increased

from CHF 5.4 billion to CHF 5.5 billion, an increase of 2.6%. Clients entrusted us with additional assets of CHF 104 million during the period. The positive figures are a strong testimony to the stability and high level of trust that our customers place in us - trust that our employees have earned over many years in every aspect through their expertise, reliability, and consistent focus on the needs of our customers. In June, we successfully launched an offering for the custody of and trading in digital assets that meets the highest standards of security and convenience. This offering was carefully developed in intensive exchange with our customers and partners and will be continuously expanded in the coming months and years to meet the increasing demands of both wealthy families and institutional investors from the digital asset industry.

We are confident that we will be able to sustainably improve this result in the second half of the year and beyond, based in no small part on the continuous expansion of our range of services geared to the needs of our customers.

The Back Page Asset classes

On our Agenda

• September 27: Women’s Business Day in Liechtenstein

As a central meeting point for female decision-makers and entrepreneurs and women interested in business, this economic forum for women aims to deliver formulas for success and inspirational impulses. The forum’s program features fascinating talks, food for thought on best practices and, last but not least, plenty of opportunities for networking. With over 500 guests from across Switzerland, Liechtenstein, and the Vorarlberg region of Austria, the event has consistently sold out in recent years.

• September 29: IDAFLW

For once there’s an annual awareness day whose acronym is unpronounceable in English, but that doesn’t make this year’s fourth observance of IDAFLW – the International Day of Awareness of Food Loss and Waste – any less important. Over 700 million people worldwide experienced hunger in 2022. An estimated 13% of food is lost along global production chains each year, and another 17% gets wasted by households, restaurants, and supermarkets.

• October 4 to 10: World Space Week

Outer space is increasingly gaining economic and military importance, but not without adverse side effects like the rapidly growing cloud of debris circling the Earth. The race between spacefaring nations looks destined to leave its mark on the decades ahead. World Space Week commemorates the advent of space exploration (launch of Sputnik 1 on Oct. 4, 1957) and the right of all countries to use outer space peacefully (signing of the Treaty on Principles Governing the Activities of States in the Exploration and Peaceful Uses of Outer Space on Oct. 10, 1967).

This document constitutes neither a financial analysis nor an advertisement. It is intended solely for informational purposes. None of the information contained herein constitutes a solicitation or recommendation by Kaiser Partner Privatbank AG to purchase or sell a financial instrument or to take any other actions regarding any financial instruments. Furthermore, the information contained herein does not constitute investment advice. Any references in this document to past performance are no guarantee of a positive future performance. Kaiser Partner Privatbank AG assumes no liability for the completeness, correctness or currentness of the information contained herein or for any losses or damages arising from any actions taken on the basis of the information in this document. All contents of this document are protected by intellectual property law, particularly by copyright law. The reprinting or reproduction of all or any parts of this document in any way or form for public or commercial purposes is expressly prohibited unless prior written consent has been explicitly granted by Kaiser Partner Privatbank AG.

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