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Vontobel Private Banking The magazine for private clients Autumn Edition 2012

Cities Habitat of the future.

“Cities are schools for coexistence.” Prof. Dr. Karl Schlögel, Historian

Editorial

Dear readers, It is an honour for me to extend a few words of welcome to you in blue. In the future I am here to serve you, our clients, with all my enthusiasm – and I look forward to it very much.

Metzler, discuss the recent intervention of the European Central Bank into the interest rate structure. They and their colleagues have their finger on the pulse of the markets.

The stations that have highlighted my professional journey over the last few years include Zurich, Helsinki, Tallinn and Copenhagen. In early August, I returned to Zurich to assume responsibility for the Private Banking division of the Vontobel Group.

Helsinki, Tallinn, Copenhagen, Zurich: each of these cities has a different pulse, but they have one thing in common. They regularly rank among the very top of the world’s most liveable cities. An impressive track record, one that results from the complex interplay of various factors. It’s also a winning performance that serves us as a model at Bank Vontobel. In Private Banking, we want to rank at the top for you. That is both a claim and a promise.

A few weeks in this function have been enough to confirm something I had previously suspected: At Vontobel, a firm shaped by its founding family, there are strong values that guide our actions, and there are solid principles that underlie them. Right from the start, I have felt very comfortable in the “Vontobel family.” And with the scene thus set, I am very happy to take on the tasks awaiting me and look forward to providing you with convincing, first-class services. This is also a must, as the current environment presents challenges for all of us. Preserving the value of our clients’ assets is our top priority. You rightly expect from your bank a concrete answer to the question: In a world of low interest rates and high volatility, what investment strategy will best meet my requirements? The answer depends on your appetite for risk and your investment horizon – but in any event, this question must be at the core of every dialogue we have with you. Our task is to achieve the best possible results for you. To do this, we count on experienced specialists, who not only look after the assets of many private clients but also those of large institutional investors. On page 24, two of these specialists, Christophe Bernard and Walter

I look forward to getting to know you in person soon. Meanwhile, I wish you a good read with this issue of blue. Yours sincerely,

Georg Schubiger, Head of Private Banking

Would you also like to read “blue” on your iPad? To download the app, or get more information about it, visit www.vontobel. com/blue or go to the App Store directly.

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6 The future belongs to the green city. What does the future of the city look like? Is there a single ideal for the sustainable city of the future? What is desirable, what is feasible? We profile Gerhard Schmitt. 4 blue

Photo: Peter Bialobrzeski/laif

Photo: O Design

Photo: Gordon Welters/Laif

Content

12 Amazing, shocking, trendsetting: cities and their many facets. Facts about life in the city.

14 From Hawangen to Moscow. With stops at many stations. Karl Schlรถgel has his own special way of looking at cities. For him, cities are schools for learning how to live together. A look at various cities of the world.

Photo: Getty Imgages Photo: Laif

20 Wild animals are conquering the city. As a wildlife management specialist for the city of Zurich, Erwin Nüesch is responsible for the welfare of the wild animals that are encroaching ever closer to the city’s human population.

Column: Where things are decided. Dr. Manuel Bachmann on the city as the place where decisions are made, about winners and losers, “in” and “out.”

Photo: Getty Images

Macro: The European Central Bank takes control.

Blue Pages: News from the Vontobel Group. A compilation of news from all our business areas.

32 28 Opportunities: New energy sources, new materials. What investment opportunities are arising from oil and gas production from deepwater sources? What about shale gas extraction?

The Vontobel Guide: Tips for going out. Vontobel teams from Geneva, Bern, Vaduz and Munich introduce you to some of their local highlights.

Book Corner In the Life of Cities – Parallel Narratives of the Urban. blue 5

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The eco-park “Gardens by the Bay” is the largest of three such parks in Singapore. The planted tree structures are ventilation shafts for greenhouses and the power supply.

Theme: Sustainable city

The future belongs to the green city. By Marlies Keck & Angela Obrist

Urbanisation is one of the most powerful developments of our time. Fast, inexorable, barely controllable. Is the threat of collapse a reality? “No,” says Prof. Gerhard Schmitt, who directs the Singapore-ETH Centre with the Future Cities Laboratory of the ETH Zurich.

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Photo: Chris McGrath, Getty Images

The world is experiencing a city boom like never before in its history.

Professor Schmitt, why is a laboratory necessary to explore the future of cities? Because today’s cities are not sustainable. And if this trend continues, mankind will be faced with enormous problems. How, and where, is this being manifested? Today, more than half the world’s population lives in urbanized areas. The problems are particularly evident where the density and influx into cities are the greatest. This is the case in the tropics and in a belt around the equator – in other words, where the majority of the world’s population lives. We know that over the next 30 years, more than two billion people will need a new home and a new workplace in these geographic areas. If you were to simply transfer the European or American city model into these boom regions, exactly the same problems would arise that have taken Europe many painful years to resolve.

Since 2010, the ETH Zurich has been exploring what this sustainability might look like in its Future Cities Laboratory in Singapore. Why is this work being undertaken there? Switzerland is home to about one one-thousandth of the world’s population, whilst in Singapore, we are in the geographical centre of a booming region. Singapore is a dynamic platform between East and West, between India and China, and it also offers an efficient interface between theory and practice. At the same time, we can learn a lot from its existing infrastructure – for example, the transport system, which functions in a densely built city with five million inhabitants, all living in a space the size of the surface of Lake Geneva. Of the nearly 140 employees of the Singapore-ETH Centre, for example, not one drives a car. Everyone uses public transportation, taxis or bicycles. We ask ourselves, could this work for others as well? What could be optimised?

So the idea is to avert the impact on people and the environment in these regions right from the outset? To some extent, the problems are already there. They range from air and water pollution to water scarcity, excessive density without services – including the social and health problems associated with it – and high fossil energy consumption. Not only does generally increased mobility lead to more traffic and thus more noise, air pollution and heat, but so does the increased separation between home and work. You see, it’s a spiral of problems that is set in motion. This is why new cities, as well as cities that already exist but are expanding, must absolutely become more sustainable.

Couldn’t you also conduct the research from Zurich? Part of the research is done in Zurich. But if you really want to understand a city, a region and its culture, you have to be present locally. However, in order that students in Zurich can draw the maximum benefit from our location here, I give lectures in Singapore that are transmitted via telepresence to Zurich. To do this, we built a mirror of the Value Lab Research Laboratory based at the ETH Zurich here in the Future Cities Laboratory in Singapore – a day-lit room outfitted with the most advanced equipment, with large touch screens and excellent video transmission capabilities.

Future workshop for cities The Future Cities Laboratory in Singapore is a novel platform for urban development. Together with the National University of Singapore and Nanyang Technological University, scientists from the ETH Zurich are exploring and designing the urban phenomenon, based on a holistic interdisciplinary approach. The focus is on three key areas: sustainable building technologies, the city as an urban system, and the relationship between urban and rural areas. Their guiding principle is to regard the city as a kind of organism, one whose metabolism can be modeled and improved by self-organisation with the goal of controlled sustainability. The laboratory’s ca. 140 architects, planners, engineers, sociologists and computer scientists see and design the city as a dynamic system in which people interact and resources like energy, water, space, capital, materials and information are constantly in flux. In their work, the researchers use, among other things, actual construction projects and cities as laboratories for new developments. This makes possible the direct application of innovations in the real world.

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In the photo, Gerhard Schmitt is seen with a drone which provides the aerial photography that allows the laboratory to create 3-D models of designated metropolitan areas.

Let’s talk about some the findings of your laboratory. Worldwide, will all cities grow? In Europe, cities will grow – if at all – predominantly because of internal migration. In most Asian countries, cities are growing mainly by migration from rural to urban areas within the same country. An exception is Singapore, which is experiencing significant immigration from other countries. In many Asian regions, for some time we will see developments like those that happened in the 19th century in Europe and America. London, for example, tripled its population between 1830 and 1890 – as did Singapore between 1960 and 2010. What developments do you see for the cities of Africa? Globally, the fastest population growth is occurring in Africa, and to this trend you have to add the increasing internal migration. Together, these two factors mean that in the next 20 years, many cities there will undergo significant expansion. Simultaneously, Africa is a continent that still has sufficient surface area to produce food. So international pressure on Africa will greatly increase. African cities will have to make sure that the exodus from rural to urban areas is not excessive. Otherwise, the population’s connection to the land will be destroyed, and sustainable production will decline rapidly – which would lead to additional problems. So despite, or because of, increasing urbanisation, rural areas will remain very important? The balance of urban and rural areas is essential; you should not favour one over the other. In rural areas, food production, the unbuilt land, the peace and quiet, and nature itself all have value. The city is the source of dynamism and great innovations. In the city, many green technologies – green tech and clean tech – are being developed in order to make agricultural production more sustainable, whilst at the same time in rural areas, technologies are being developed that people can also introduce into the city – for example, urban farming or urban fish farms that can increase the respect for food production. If you could fly over a prototype of the city of the future, what it would look like from an architectural and planning point of view? That depends very much on where this city is located – in the tropics, at an altitude of 2,000 metres, or on the coast? There is

Photo: Callaghan Walsh

How is the Future Cities Lab different from other laboratories set up to study urban development? Three things differentiate us: We conduct basic research, looking at the entire range of relevant categories. If you want to build and develop a city, you have to have deep understanding of economics, air, water, materials, energy, sociology, flows of information, and especially people – amongst many other things. We are transdisciplinary. And we question the traditional way of planning cities and regions. Our work goes beyond the notion of architecture, as we are concerned not only with the city’s buildings, but with the entire habitat.

Prof. Dr. Gerhard Schmitt (58) is the Director of the Singapore-ETH Centre (SEC) for Global Environmental Sustainability, with its first research programme “Future Cities Laboratory”. In addition, he teaches information architecture at the ETH Zurich. Schmitt studied architecture in Munich, Los Angeles and Berkeley. His current areas of research and teaching include the Simulation of Future Cities, Knowledge Visualisation and spatially distributed Collaborative Design. Schmitt lives with his wife and three daughters in Singapore.

no such thing as “the” city of the future; the ideal sustainable city will look different in every geographical setting. And this is a wonderful thing, because it means that the regional character of a city will still be expressed. What they have in common is that, at the end of the day, all cities consist of physical elements and infrastructure in which energy is transformed. The production of that energy will, to some degree, take place within the city. Every type of climate will exert its own influences on how sustainability is achieved. In what direction will a German city develop? In German cities, as in almost all European cities, population growth has come to a standstill. However, there is a large need for maintenance and renewal. You can transform the functions in the city to bring working and living closer together again, and thus reduce the daily requirement for mobility. Or you can transform individual buildings into small “power plants” that produce blue Theme 9

more energy than they consume, which would be useful for electromobility, among other things. This could give the muchcriticized single-family houses an additional function and change attitudes towards energy. And what does the future hold, for example, for Asian cities? In the temperate regions of Asia, the cities could function much like those in Europe. Use of fossil fuels would be reduced, and the (preferably renewable) energy produced is ultimately transformed into heat. The resulting heat islands benefit the urban climate in the colder months. In tropical parts of Asia, however, the situation is completely different. There are several reasons why it is better in those regions for density to remain higher, with shorter distances between services and greater infrastructure efficiency. High energy consumption there generates too much heat – and this is to be avoided in order to prevent any further increase in demand for energy needed for cooling purposes.

alent of a government ministry. In Brazil, on the other hand, it is different, as you have large communities that come together and get involved. We invite the stakeholder groups and, by using simulations, we can show them images of what their city would look like in the future. In Switzerland, we also work with stakeholder groups in a participative way. In this way, we gradually move from the desirable toward the feasible. What changes are needed in the field of architecture for the city of the future? Building materials and their combination are very important for sustainability. The development of glass is interesting, for example, as it will have more functionalities in the future and play an increasingly important role in architecture. In addition, every building will be more closely linked in with its environment, through sensors, dynamic earth storage systems, and heat pumps. These are technologies that are already in use and are able to reduce the total fossil fuel consumption of a building while providing more freedom in design. Optimised and applied more broadly, these technologies will have a massive impact on the sustainability of a city. If you can manage to use fossil-fuel based energy only in those applications where a substitute is difficult, such as fuel for aeroplanes or certain other vehicles, then we will be making good progress.

“There is no such thing as ‘the’ city

of the future – they will be different all over the world.”

So the city of the future can assume a very different shape depending on the differences in the prevailing conditions from one country to another. Are there also cultural differences in the way a sustainable city is understood? Oh yes, there are huge differences. A Brazilian description of a sustainable city is fundamentally different from, for example, one that is German or Chinese. In areas that are in a major expansion phase, it is often economic development that is associated with “sustainability”. The factors Europeans take into consideration when thinking about sustainability, for example environmental friendliness, are only second or third on the list. On the other hand, countries that have extensive oil resources but little water cannot understand that we use water to produce or store energy. For the most part, sustainability is, unfortunately, focused on only two or three aspects at the present time. This is why it is so important that we try to comprehend all the aspects of sustainability in a city. Only the totality of all these factors can give us a picture of whether a city is sustainable or not. The automobile pioneer Henry Ford once said, “If I had asked people what they wanted, they would have said: faster horses.” How do you make sure that your solutions don’t bypass the needs of the people? That’s a good quip. Well, we are trying to understand the city of today and explain the changes that will be necessary for the city of the future. In every city in which we are active, we encounter a different culture, different decision makers and conditions. In other words, we talk with many, many people and try to explain to them our ideas and future scenarios. In Singapore, we are working with the Agencies, i.e. the city authorities. However, since Singapore is a city-state, such an office is almost the equiv10 blue Theme

What about a city’s slums? Will they be left behind by these developments toward more sustainability and quality of life? On the contrary. Slums are a manifestation of imbalance and injustice that are maintained over a long time. But temporary imbalances can exist as well, such as imbalances resulting from historical development. These are reflected, for example, in the favelas in Brazil. Expulsions, occupations and rapid migration into the area are some of the reasons they came into being. To improve the situation, missing infrastructure has to be created, the root causes of drug trafficking and oppression of the people by gangs have to be removed, and efficient governance needs to be established. All these things sound logical from today’s European perspective, but to be effective, they require a better understanding of the interrelationships at work, opportunities to take effect, and time. Can one already point to any promising developments in these favelas? Yes, the favela called Complexo do Alemão in Rio de Janeiro would be one case in point. More generally, the situation for people in the favelas is improving, for example, thanks to the use of new means of transport such as cable cars – already in use in Rio and Caracas. There, the favelas are built on hillsides, and the cable cars connect important points with each other and are

creating a new transportation mode. In Rio, a situation that a few years ago would have been unthinkable, is that foreign students are renting small apartments in the favelas, whereas earlier they had to take rooms in the safety of a hotel. But concrete measures are also possible in other favelas and disadvantaged neighbourhoods in South America: our ETH colleagues Brillembourg and Klumpner were recently honoured with the Golden Lion at the Venice Biennale for their work on â€œTorre David / Gran Horizonte,â€? focusing on an informal community that has occupied a high-rise building in Caracas. May we dare to conclude with a glimpse into the future of the Future Cities Laboratory itself? What will be the long-term result of the laboratoryâ€™s work? Of course, our output will include guidelines, books, reports, computer programs, inventions, patents, and practical examples of sustainable urban development. But another important objective of our work is to create a new university curriculum that

comprehensively and region-specifically covers sustainable urban and territorial planning. Today there is still no adequately complex and deep understanding of this type of urban planning. Only by combining a large number of specialists from different fields and countries will it be possible to address the large spectrum needed to make responsible judgments about a city and shape its development. We work in a field of research which is being met with great interest and which is significantly gaining in importance. For a sustainable urban development of the future, we are already preparing the curriculum now.

More on your iPad More photos from the Future Cities Laboratory.

Singapore is a dynamic platform between East and West, between India and

Photo: Darren Soh, Singapur

China, and is the geographical centre of a booming region.

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828 m

is the height of the tallest building

in the world, the Burj Kahlifa in Dubai.

80%

of global greenhouse gas

is emitted from cities, which also account for 75% of the total energy consumed globally – even though they make up less than 1% of the earth’s surface.

2050,

70% of the world’s population will live in cities.

1950,

only one city in the world had a population of more than 10 million inhabitants. In the year 2000, there were already twenty. Today it is well over 50.

1,300,000 people per square kilometre was the highest population density ever recorded on earth. This “achievement” was attained by Kowloon’s Walled City, a district of Hong Kong that was demolished in 1993.

10.58% per year is the growth rate

of the Chinese city of Beihai, the fastest growing city in the world by 2020.

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34,500,000 people live in Tokyo, the world’s largest city in terms of population.

23 inhabitants is the total population of Hum in Croatia, the smallest city in the world. Its townsfolk take turns running the village pub. To elect the mayor, the candidates hand each of Hum’s citizens a piece of wood with his or her initials carved in it. Voters simply cut a notch in the wood of their preferred candidate.

5000 t of pollutants

are the amount belched out every day by the factories in the Siberian city of Norilsk. It is considered the world’s dirtiest city. Copper, platinum and nickel are found under the city. The people who live there earn a good living in the mines and smelting works, but they pay a heavy price. Many of the town’s inhabitants don’t live beyond the age of 60, and lung disease is already prevalent in children living there. The cleanest city in Europe, by the way, is Riga in Latvia.

180,000 people move every day from the countryside to the city.

77,000 people per square kilometre live in the “Florida” quarter of the Spanish city of L’Hospitalet de Llobregat, making it the most densely populated district in Europe.

More on your iPad More facts, pictures and videos

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Interview by Urs Thaler

Karl Schlögel is many things at once: a city wanderer, historian, observer, professor, long-distance train traveler, journalist and raconteur. His subject: the city. From Berlin to far in the east. Herewith a conversation with stops in Prague, Vienna, St. Petersburg and elsewhere.

Theme: City stories

From Hawangen to Moscow. With stops at several stations. Professor Schlögel, you grew up in Hawangen in the Allgäu region of Bavaria, the son of a farming family. But in your work as a historian and writer, you don’t deal with the countryside, but rather with the city. What made you turn away from the countryside? I was born in 1948. After the Second World War, refugees were billeted in our area of Swabia. Most came from cities like Wrocław, the South Moravian town of Znojmo or Carlsbad. These strange people fascinated me. They took me out of the small world of a Swabian village. Another important experience I had was a trip to Prague, probably in 1965. I visited the high school, and the trip for me was a great epiphany, because Prague was an intact city. Until then, I only knew cities that had been destroyed in the war, like Ulm or Memmingen. In the fifties and sixties, many German cities had been rebuilt. But what often arose were cities of concrete. Prague was completely different. What accounted for this otherness you experienced in Prague? The whole of European history could be read in the face of this city, and, strange as it may sound, Prague in the mid-sixties was an international city. Things started to move a bit here – it was the incubation period of the Prague Spring. For me this exposure to Prague was a chance to experience a large, intact city beyond West Germany. I was probably only able to have this experience because I came from the countryside, and sensed the otherness and strangeness of the city much more than I would have if I had been a city person. But today, like John F. Kennedy, you can say: “Ich bin ein Berliner.” No, I’m not a Berliner, although I’ve lived here for several years now. The friction at the strangeness of the city inspires me to 14 blue Theme

this day and makes me see things that wouldn’t stand out to me if I were born in the city. I benefit from the privilege of being a stranger here. You have developed your own way to look at cities. It somehow came about. When I first lived in Moscow for an extended period of time, I was working on a study of the Russian intelligentsia before the Revolution. That involved me spending a lot of time in archives and libraries. That’s why I had a certain pre-conceived notion of the Soviet capital in my head. But when I arrived in Moscow, I quickly realised that the city I had in my head had little to do with the ubiquitous cliché of Moscow, which is made up of St. Basil’s Cathedral, Red Square and the May Day parades. What was it that connected you to Moscow in the first place? The show trials of the 1930s, the novels of Arthur Koestler, the Russian avant-garde. I began to wander around in Moscow and

Prof. Dr. Karl Schlögel (64) teaches the history of Eastern Europe at the Europa University Viadrina in Frankfurt an der Oder and lives in Berlin. He studied history, philosophy, sociology and Slavic studies. Prof. Schlögel’s research has taken him several times to Moscow and St. Petersburg, and he has been prolific in both scientific as well as publishing terms. His most recent work is entitled Terror und Traum – Moskau 1937 (“Terror and Dream – Moscow 1937”), and he is currently working on a book on European networks and creepage as well as informal processes in urban development.

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Photo: Gordon Welters/laif

seek out these scenes. Lo and behold, the city rose up to meet me, but it was a completely different city that I began to read and decode. I gained a new image of the city. For example, Moscow was a veritable open-air museum of European Constructivism – it was an incredible collection of world-class architecture from the so-called White Modern period from the 1920s. This included also the prime locations of the Stalinist era: prisons, trials, the apartments of artists and other people who disappeared from one day to the other. Not to mention finally the Moscow of merchants and manufacturers with their Art Nouveau villas. More and more, I got the impression of Moscow as a European city that geographically and politically was far removed from us in the West – and yet historically very close, at least if you looked carefully enough. It is actually amazing that this realisation came to you by way of cities in the East, which at that time were distant and strange for many Western Europeans. My dissident friends in Soviet Moscow often couldn’t understand at all what it was that excited me and held me in such thrall

1 St. Petersburg, Russia’s most European city, is experiencing an upswing. 2 Moscow’s banking district. The growth of the capital is enormous.

on my walks through the city. For them, the Soviet avant-garde was associated with communism and Bolshevism, which they rejected. Therefore, unlike me, they could no longer see what this avant-garde meant for the Russian city, or at least had once meant. Namely, an explosion of new architectural forms that, back when they were created, took the world’s breath away. It wasn’t easy to get to all of the many places that interested me. In the Soviet era, for example, factories were off limits to foreign nationals. But I wanted to see the factory in Moscow where there had been an assassination attempt on Lenin back in the early days. Thirty years ago, an independent exploration like this in the Soviet Union would almost have been considered espionage. And that, of course, made the whole thing doubly attractive. I was having a kind of Columbus or Humboldt experience: pushing into unknown terrain not knowing what could happen. What is it that actually makes a city a city? The city is the point of maximum compression of human activity. There are various spheres and compressions within it that can be analysed scientifically. An important focal point of a city, for example, is the marketplace. This is where exchanges take place, commercial relations are established, as well as where lines of traffic intersect; people come and go. Where this marketplace is located is not only crucial for the market but also for the city

3 Moscow’s population will punch through the 20-million mark in the

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Photo: James Hill/Laif

Photo: Martin Adolfsson/Gallerystock

Photo: James Hill/Laif

foreseeable future.

itself. It is only where important lines of connection cross that a city can grow and evolve. We should not underestimate the intellectual and cultural spheres that can turn a city into a centre, either. Historically, cities have always been places of refuge that could be defended. But whichever aspect we choose to emphasise, it’s always about compression into the smallest space. The real miracle of cities is the coexistence of so many people in a limited space. Cities are schools for coexistence. There are cities that are very homogeneous and others that are extremely heterogeneous in their composition. Every major city of any consequence is heterogeneous in principle. The question that this raises is, which heterogeneity works and which doesn’t? There are some examples of cities – unsurpassed to this day – where heterogeneity functioned in the smallest space. I’m referring to the old imperial cities, which include Vienna, St. Petersburg, Constantinople, or the London of the British Empire. Such places were not multicultural in the modern sense, but they were spaces conforming to an imperial sense of order, in which the rule of law reigned. I don’t deny that the subtle social fabric was subject to all sorts of distinctions and even discriminations, but imperial power was not ethnically defined. The power of imperial law allowed the more or less peaceful coexistence of very different religious, linguistic and

ethnic groups. The great tragedy of Europe in the 20th century is that these cultural and social accomplishments were destroyed through nationalisation and the dissolution of the empires. Let’s talk now about Berlin, the city in which you live. For decades, the city was divided for political reasons. And yet, West Berlin stood its ground thanks to a resolute toughness. Is it not miraculous what a city with a strong will to live is capable of in crisis situations? A lot of things that we can’t fully explain, we calmly call “miracles”. I also use the term miracle from time to time. For example, for the non-violent end of the Soviet empire, which could have ended in a bloody Armageddon. Until the end of the Soviet Union has been explained and clarified in all its key stages, it will remain a miracle for me – one that no one was able to foresee. After the Second World War, the resumption of life in completely ruined cities also belongs in the category of miracles, I think. Broken Berlin after the war was a place of scorched earth. I’ve often wondered where the people of this city got the strength and energy to start all over again and rebuild a city life.

Karl Schlögel: “Berlin after the war was a place of scorched earth. I’ve often wondered where the people of this city got the strength and energy to start all

Photo: Alessandro Rizzi/Gallerystock

Photo: Corbis

over again and rebuild a city life.”

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In Europe, if we speak of modernism, we think of Paris, Vienna and Berlin. St. Petersburg doesn’t figure on the list. But you insist that St. Petersburg’s contribution be included as well. That city, like others as well, has provided its share of civilisational achievements to modernism. It was involved and gave significant impetus to literature, painting, and music. Thanks to St. Petersburg, Russia opened up and moved closer to Europe. Modernism combined national motifs and achievements with the international language of design. Russian modernism around the year 1900 was understood as international, but it retained its own tone and expression. But even more important was something else. And what was that? In 1900, St. Petersburg was the capital of the Russian Empire. It was a highly dynamic period, crisis-ridden and in some respects completely off-balance. And yet, in St. Petersburg it was possible to discuss and formulate modernism in an appropriate way. Against the background of all the political and social upheavals – which were significantly greater in St. Petersburg than in Vienna or London – that is quite astounding. St. Petersburg, Petrograd and then Leningrad became the place where not only the Silver Age thrived with its symbolism and Art Nouveau, but also the innovations of the Soviet avant-garde. In a very short time, the city experienced a huge, sometimes ecstatic productivity in many areas of art. Then later, this excessive productivity was transformed into a phase of extreme destructiveness. How did that happen? The First World War was the trigger. The big bang, so to speak, that fundamentally changed the commercial basis – not only for the big cities of Russia, but also for those in the West. St. Petersburg was the most endangered place. Before the cultural flowering of the city came to completion, the seeds of death – pathetically expressed – were already in the air. You can see that this was the case, for example, by looking at figures that never existed like this in the West. In any case, I’m not aware of any entrepreneurs who financed revolutionaries and who welcomed professional revolutionaries and terrorists into their salons – but in St. Petersburg it happened. And yet St. Petersburg survived the revolution, two world wars and many temporary aberrations as well. Before the First World War, St. Petersburg was the focal point of everything in Russia: the Tsar’s court, finance, technical innovations, the arts and sciences. The city was the heart of Russia in everything that mattered, and it remained so even in the first few years after the revolution in 1917. But then, the leveling began, pulling St. Petersburg down. A substantial weakening of the city’s status in favour of Moscow and other Soviet cities took place. The people of St. Petersburg took this as an insult. A defiant self-confidence set in, and a will to assert the city again, even though it was impossible to avoid a drift toward provincialism. This process would have continued unabated, if the Soviet 18 blue Theme

Union had not imploded in 1989. Without its opening to the world, a city like St. Petersburg would never have regained its old strength and vitality. Yet Moscow was dealt the better cards. Moscow is the centre of Russia. That’s the way it is, and that’s how it will remain. In a shocking and hyper-centrist way, Moscow gobbles everything up and curiously distances itself more and more from the Russian countryside. The capital is literally exploding. In St. Petersburg, on the other hand, development has been slower, but here too things are moving forward. I’m amazed every time I visit – it is emotional for me to see how the city is regaining new strength. Neighbourhoods that until recently had completely fallen victim to decay and neglect are coming back, starting to glow again with their old radiance. When I walk through St. Petersburg at night, I discover a city that shines like a diamond, like a precious jewel. I’m speechless each time – simply happy that Russia’s most European city has come so far. Moscow outranked St. Petersburg. As you said, it gobbles everything up. Can a city choke on its own growth? I’m not aware of any case of a city’s self-destruction by growth. It’s amazing how infinitely capable the urban areas of a big city are to expand and compress. This applies to New York and Greater London, as well as, obviously, for Moscow. In New York, many observers in the first half of the 20th century thought the city would destroy itself if it continued to grow unchecked. It’s one of the miraculous things about cities that they are able to compress themselves, renew themselves and organise their social life in such a way that they remain livable for their inhabitants. The city’s strengths seem to be inexhaustible. So Moscow will continue to grow? Yes, it appears that Greater Moscow will punch through the 20-million mark in the foreseeable future. I think that’s terrible in some ways, because like that, all of the country’s life forces will be concentrated in the same place. And Russia needs these forces in other urban centres in the country as well. When I visit, I always ask my Russian friends the same question: “Are there people in your circle of friends who would be willing to move away from Moscow and accept a job in, for example, Saratov or Samara or Nizhny Novgorod?” And everyone tells me, “No, there aren’t.” In the old Russia, it was different. Back then it was well worth it for scholars and intellectuals to go away from Moscow. To Saratov and Kazan. Kazan had, for example, a university with enormous character at the time, which attracted the best people from all over Russia. For me, therefore, an important turning point would be reached if Moscow’s overwhelming dominance would be slowed down, and the other centres were given more possibilities to blossom. Is there any evidence that this is happening? There are a few hopeful signs. When I was in Kazan the last time, I sensed something like a “Shanghai feeling” there: a lot

of construction activity, a lot of modern architecture, an intense reflection on good infrastructure. The opening to the world is progressing in Kazan, too. The question of the distribution of potential in Russia over the whole country instead of merely in Moscow is, in my view, a question of life and death.

get the courage and the strength to do it. But they do. Perhaps simply because they believe in the miracle of the city.

More on your iPad More photos and an interview-

That sounds dramatic. Don’t you believe in the future of cities any more? On the contrary – I am very confident. This may be related to my nature, first of all, and second, to the knowledge that I gain from seeing how things have historically developed. It turns out that people are always in a position to take their chances on a beginning – on burnt, destroyed or otherwise difficult places. When I see, for example, how Lagos, the Nigerian capital, manages to organise the lives of 25 million people fairly without plunging into civil wars, I think that’s a great achievement. That gives us an idea of the invisible forces of the city. And what Lagos can accomplish, cities like Johannesburg, Luanda, or Mumbai can also achieve. In the cities of many emerging countries, I can recognise the workshops of the future, in which people try out what they are capable of. They try out things that are new and also many things that are risky – and no one knows exactly how they

video with Karl Schlögel

An important focal point of a city is its marketplace. This is where exchanges take place, commercial relations are established, as well as where lines of traf-

Photo: Martin Roemers/Laif

fic intersect; people come and go.

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By Gregor Ingold // Photo: Michael Sieber

Peregrine falcons nest on the chimneys of the waste treatment plant; foxes help themselves to rubbish on suburban streets; badgers dig their burrows in the city park. More and more wild animals have oriented their habitat to life in the city.

Theme: The city as habitat

Wild animals conquer the city. “Townspeople have a special relationship with animals,” says Erwin Nüesch, one of the four wildlife management specialists working for Zurich’s Department of Parks and Open Spaces, also called Grün Stadt Zürich (“Green City Zurich”). “You can already see that in the way they feed the pigeons. Many people in the city are lonely. They find a social contact, a mission, in feeding the birds. For other people, animals are a substitute for a partner or child.” For Nüesch and his colleagues, people feeding wild animals is one of the biggest problems they have to deal with. He has already witnessed foxes appearing like clockwork at certain garden benches to receive their daily ration of sausage. There are people in the city of Zurich who treat foxes like trained dogs, even giving them names. More than 150 foxes in the city center Wild animals quickly habituate themselves to humans and lose their natural inhibition. This can lead to problems – for example, if they suddenly appear in someone’s living room, or sit down in the middle of the street with traffic all round. “Wild animals live to survive,” says Nüesch, “and their daily routine is driven by the search for food. If they discover an easier way to feed themselves, they will gladly take it.” In Zurich, as well as in other big cities around Europe, the fox population has increased significantly. In the centre of Zurich, some 150 to 200 foxes have settled – on construction sites, in basements, and on the banks of the Sihlquai. Food carelessly thrown away in the trash, or tossed onto the compost heap in an allotment garden, is for them a sumptuously laden banquet table. Foxes are also happy to partake of cat food; the pets’ owners are delighted to see that their cats have such an appetite, not realising that they are simultaneously feeding the foxes. 20 blue Theme

The quality of the nourishment they get determines how many pups survive. Thus the proliferation of wild animals in the city. As gamekeeper, the task falls to Erwin Nüesch to cull the number of foxes – with targeted kills. The habitat is getting tight In addition to foxes, deer, various species of birds, martens and rabbits have all settled in the city as well. The reasons are obvious: The growing human population requires more and more space for living and leisure. The original habitat of the wild animals becomes progressively smaller, thus decreasing their number. “A city wants to grow,” says Nüesch. “It’s in its nature.” In this way, year after year large green spaces are lost. The wild animals adapt, and individual animals migrate into the city. However, the conditions are not the same for all the animals. When it comes to wild animals, there are those that adapt and those that flee. Adaptors such as the fox or deer are curious by nature and adapt quickly. They are comfortable living alongside humans. The situation is different for those that flee, such as polecats and pine martens. They avoid people and do not risk entering human habitations.

Erwin Nüesch (55) is one of four wildlife management specialists working for “Green City Zurich”. He is responsible for the welfare of wild animals and the regulation of the wildlife population in the area Zurich North (the area on the right bank of the Limmat, including Hönggerberg and Käferberg). In his work, he advises communal authorities, farmers and building contractors, and takes care of informing the public on all matters relating to wild animals. www.stadt-zuerich.ch/gsz-beratung www.facebook.com/gruenstadtzuerich

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Photo: Keystone Photo: Getty Images

Wild animals live to survive. Their daily routine is driven by the search for food. If they discover an easier way to feed themselves, they will gladly take it.

Cars and dogs as a major threat As a wildlife specialist, Erwin Nüesch is the direct contact person for all questions about wild animals in the city of Zurich. He is responsible for their welfare. He is the person who gets called when a wild animal is involved in a car accident, for example. “Unfortunately, it happens often that wild animals are run over by cars,” he says. “Even worse is when the animals are hunted and injured by dogs that are not kept on a leash.” In such cases, Nüesch must track the wounded animal with his dog Centa and then put it out of its misery. Education and information A key part of Nüesch’s work is education and information. Relying on flyers, lectures and especially personal dialogue with local Zurich citizens, he provides information about the correct behaviour to adopt when dealing with wild animals. One thing he particularly enjoys is leading tours of schoolchildren. On hikes through the forest, he shows them how the animals live and 22 blue Theme

where their trails are. When he explains to children that the forest is both the living room and bedroom of the wild animals, and they must respect the animals’ home, he sees the light of comprehension in their eyes. “They are our future,” says Erwin Nüesch, convinced. “We need to get the message across to them that we have to protect and maintain the little living space for the animals that we still have.” The animals’ trails also play an important role Nüesch’s role as an advisor. At building projects, he advocates in the interests of the wild animals. “The pathways used by wild animals are often centuries old,” says Nüesch. Motorways and streets can cut these trails off and make it impossible for there to be a natural exchange between geographic areas. “In these cases it is up to us to establish wildlife crossings and warning systems,” he says. Nüesch also provides advice to farmers, showing them how damage wrought by wild animals can be prevented through simple protective measures.

Column: Dr. phil. Manuel Bachmann

Where things are decided.

Respect for animals Erwin Nüesch has had a very unusual career leading up to his job as a gamekeeper. Trained as a car mechanic, he became instead a colour photo lab technician and worked for seven years in the Crime Photography Unit of the Cantonal police. He then served for twelve years as a fireman. For almost as long, he has now been working as a wildlife specialist. “My love of nature and great respect for animals is what led me to this line of work,” he says. In his free time, he devotes himself to his horses, dreaming to go on tour one day with his team of Lipizzaners. His favourite hobby, though, is beekeeping, which he has practised for decades. On the side, he also offers an exclusive service to private clients: He removes wasp and hornet nests. “You don’t always have to spray them all to death,” he is convinced. “I see myself as an advocate for wildlife.” In his work, he is faithful to this principle – even when it involves killing an animal. As a wildlife specialist for the city of Zurich, Nüesch is responsible for regulating the wildlife population in the surrounding forests. Such measures include an annual census of the animals in his territory and the calculation of how many animals need to be culled. “I do not regard protecting animals and killing them as a contradiction,” he explains. Nüesch is convinced that it is simply no longer an option to leave the regulation of the population to nature. Man has already changed the animals’ habitat too dramatically. A service dog with aristocratic pedigree One of his important hunting colleagues is his dog Centa von der Gundelrebe. He and the Weimaraner bitch with the aristocratic pedigree make a good team. “Her name is worth gold,” says Nüesch. Trained as a guard dog, watchdog and hunting dog, she tracks down carcasses, retrieves injured animals – without hurting them even more – or kills wild animals with a targeted bite. “There are situations – especially in the city – where it would be too dangerous to shoot an animal,” says Nüesch. “In these cases, Centa has to take over and kill a wounded animal as quickly and painlessly as possible.” Although he has a very close relationship with Centa, he considers her first and foremost a service dog, and she is there to work. “If I ever give up my job as a wildlife specialist, I won’t keep a dog any more,” he says. “I am against the humanisation of animals. As much as possible, animals should be able to live their lives true to their nature. This also applies to the animals in the wild: Wild animals should stay wild animals.”

In every culture, the city was a special place, and still is to this day – the place where things are decided. The Second World War was decided by the battle for the last city, the battle for Berlin. It is believed that the ancient Sumerians founded cities in order to decide wars. And perhaps that is why the power of the state is domiciled in the city – with only a single exception to this day, the court of Louis XIV at Versailles. Similarly, economic power erects its representation in the city as well, in the form of skyscrapers, football stadiums or a city within the city. Law is also handed down where the court is located: in the city. Even religion is decided in the Vatican City (Rome), in the Holy City (Jerusalem), in the Forbidden City (Beijing). Outside the city, only things that do not have decisive character happen, from harvesting the grain to launching rockets. In the countryside, people stay only as long as they have to without making decisions. Innovations, strategies, and art may arise there – but they are decided only in the city: at the company headquarters, at the university, in the gallery, on the catwalk. In the 21st century, the city is inexorably becoming where things are decided. Because it stretches out ever further, sucking decision making and decision makers into itself. Even the virtual networks that allow decisions to be made outside the city, giving decision makers unrestrained mobility, and allowing decision-making know-how to be bound to no place – they too are succumbing to the gravitational field of the city. Why? It is where things are decided about the forms of life our society recognises as valuable. It is not the dropouts, adventurers or back-to-nature types who make these decisions. Only in the city is it decided who is on the way up, and who is on the way down, what is interesting, who is “in” and what is “out”. The city’s worldly power of definition culminates in a new term – one which makes no sense at all outside the city: “lifestyle”.

More on your iPad Video about wild animals in the city.

Dr. phil. Manuel Bachmann is research director of the Swiss Engineering Institute in Zurich and the author of the e-magazine for decision makers “absolutum”. twitter.com/ManuelBachmann.

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Photo: Photo: Getty XXXXXXXXX Images

The European Central Bank sets a new course: their announcement to provide

conditions is an important step toward addressing the Euro crisis. But until all

for low market interest rates on short-dated government bonds under certain

the pitfalls have been circumvented, a lot of headwinds can still be expected.

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By Christophe Bernard, Chief Strategist, and Dr. Walter Metzler, Senior Investment Advisor

Macro:

The European Central Bank takes control The European Central Bank wants to massively intervene in the bond markets. With this change in strategy, which aims to eliminate the distortions in the capital markets and help Southern European interest rates regain an acceptable level, the monetary authorities have made a significant contribution to addressing the Euro crisis. The financial markets can now concentrate on “more important” factors. The economic outlook in the Euro area, however, remains rather poor due to continued austerity policies. By contrast, the US economy is relatively robust, whilst a recovery is taking shape in the emerging markets. Over the summer, equity markets recovered from the setback they had experienced in the spring. The deciding factors were once again the events and crisis measures in Europe. At the EU summit in late June, the participating governments decided to grant emergency aid to Spanish banks, as well as take the first steps toward a European banking union. However, these essentially correct decisions brought only temporary relief. A more sustainable impact came from the announcement by the European Central Bank (ECB) to provide for lower market interest rates on short-term government bonds, under certain conditions. The statement primarily targets Italian and Spanish government bonds. Their sometimes blatantly excessive interest rates can only be explained by expectations that the southern European countries would soon withdraw from the monetary union. Caught between austerity and reforms For the foreseeable interventions by the ECB, the question arises: what level of interest rates must they aim for so that Italy or Spain can at least stabilise their debt ratio? In the case of Italy, it will be sufficient if the ECB keeps current interest rates constant. How the debt ratio (i.e. the debt in relation to GDP) changes, depends on one hand on the budget balance, and on the other hand on the country’s nominal growth. The budget is composed of interest payments and the so-called primary budget, which excludes interest payments. A country in Euro-land can hardly influence its interest rates, whilst the primary budget is largely under its control. Interest as a potential pitfall If interest rates are above the nominal growth rate, a country must achieve a surplus in its primary budget in order to keep the debt ratio stable. This is unpopular. But since the introduction

of the Euro, Italy has achieved on average a primary surplus of almost 2% of its GNP. Structural reforms that increase the trend growth are an alternative to austerity policies. However, such reforms only become effective after a considerable time lag – and they are unpopular as well. At first glance, the new strategy of the ECB thus appears as a godsend for the politicians, because it promises relief from the dilemma of choosing between austerity and reform. Before the ECB jumps in, a country must apply to the European Rescue Fund for aid. But support is only granted if the country complies with the economic policy obligations stipulated in the monetary union.

Nominal growth and interest rate in Italy in %

8 6 4 2 0 -2 -4 -6

99 00 01 02 03 04 05 06 07 08 09 10 11 12 10-year interest rate

Nominal GDP growth in %, year on year

Source: Thomson Reuters Datastream

No blank cheque from the ECB What level of interest rates does the ECB need to target so that Italy or Spain can at least stabilise its debt ratio? An analysis of different interest rate scenarios sets out the key points. Assuming a medium-term nominal GDP growth of around 3% for Italy (resulting from 1% real growth and 2% inflation), and a primary budget surplus of 2.5% of GDP, an average rate of 5% blue Macro 25

Photo: Sandro Diener

on its debt would be sufficient to stabilise the debt. This was broadly in line with the average market interest rates for different maturities before the new ECB strategy was confirmed in early September. However, an interest rate of 7% would be unsustainable in the longer term, because the primary surplus would then have to climb to more than 5%, which, politically speaking, is hardly achievable. At an interest rate of 4%, the primary surplus would have to be “only” 1.3% of GDP. A higher surplus could be used to reduce debt levels. And Euro members, in accordance with the revised Stability and Growth Pact, are obliged to do just that. ECB eliminates distortion As the cost of the new strategy of the ECB is manageable, the project is likely to succeed. Indeed, the interest rates on Spanish and Italian government bonds declined significantly after the confirmation of the new policy in early September. The vicious circle of high interest rates, rising budget deficits and deepening recession can be broken this way. For the financial markets, this means that the fundamentals are moving back onto centre stage. The Euro economy will remain weak for the time being Under the influence of government austerity measures and, until recently, high interest rates in the so-called peripheral countries, the economic outlook in the Euro zone remains weak. Meanwhile, even Germany has been affected, even though its economy continues to grow slightly. As the austerity policies will be continued in the second half of the year, growth will remain weak. Against this backdrop are two positive factors. First, the interventions on the bond markets announced by the ECB mean that the extremely high rates of interest in the “periphery” have already peaked (see below chart). We expect that first Spain, and

Christophe Bernard is the Chief Strategist of the Vontobel Group and chairs the Investment Committee.

then Italy, will request help from Europe’s rescue fund, and with the support of the ECB will then be able to maintain their current level of interest rates. This reduces their economic headwinds. Second, the Euro, which until recently has been getting progressively weaker, will support export activity for some time. Relatively robust US economy – brighter picture in the emerging markets In the USA, the latest indicators are pointing to a fairly robust economy. The marked decline in inflation to around 1.5% is having the effect that consumers’ incomes, adjusted for inflation, are rising, even though the employment figures since the beginning of the year have increased only very timidly – the growth rates ranging from 1.3% to 1.6%. In addition, signs are confirming a turnaround on the real estate market, which strengthens consumer confidence further. Looking at next year, a crucial determinant will be whether the US political parties agree on an extension of the tax relief and spending programs currently in effect only until the end of 2012. We expect that, regardless of the outcome of the presidential election, these measures to support the economy will be continued. Otherwise, the US economy in 2013 would once again find itself on the edge of a recession.

Significantly fewer risks 10-year interest rates in % 8 7 6 5 4 3 2010 Spain

Italy

Source: Thomson Reuters Datastream

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2011 2012

In emerging markets, the economic data have been disappointing lately. Inflationary pressure is still low, which has allowed many countries to boost their growth. In particular, in the near future China is likely to rely on both a looser monetary policy as well as public investments to give its economy a shot in the arm. Tough export climate for Switzerland In Switzerland, the European crisis and the strong Swiss franc have affected exports. For example, exports to the EU in the first half of 2012 fell by 2.4%, mainly due to very strong declines in exports to key countries such as Italy (–8.1%) and Spain (–10.2%). Exports to Greece even fell by 18%, although this country accounts for less than 1% of Switzerland’s exports to the EU. The deterioration of the export climate has also spread to corporate investment, which declined in the second quarter by 0.9% from the previous quarter. Construction investment has held up well, however, given the record-low interest rates, and private households are still spending at a fair clip. Consumer spending increased in the second quarter, on a price-adjusted basis, by 0.3% compared to the first quarter, and was thus 2.4% higher than a year earlier. An important reason for continued consumer spending is the low unemployment here, which is still under 3%. Agility in equities is essential The new strategy of the ECB is likely to be viable and therefore successful without exorbitant cost. Nevertheless, we reduced our equity exposure to the Euro area in early September, after having made increases in this category in early August, building up our position at that time to neutral. Since this increase, the Euro Stoxx 50 has gained about 8%, and the stock markets in Italy and Spain have even posted 15% gains, due to the markets’ anticipating the policy solutions. In addition, on the road ahead to saving the Euro, there are still a few difficulties to be dealt with, and these will ensure renewed setbacks. The emerging markets still offer some positive market prospects, particularly China, where we maintain our overweight position. Recently we established a position in US banks. With the turnaround in the US housing market, the environment for banks has improved significantly. In addition, most US banks are well capitalised and favourably valued. Emerging market bonds are proving themselves In the long-lasting low interest rate phase we are currently in, many investors are looking for alternatives to traditional government bonds issued by the solid industrialised countries. In the wake of the Euro crisis this year, Swiss government bonds still managed to post price advances, but a significantly better result was achieved by the government bonds of emerging economies, which increased about 10% by the end of August. As a supplement in the fixed-income category, high-yield corporate bonds are interesting, which gained approximately 15% in Swiss francs this year. However, these bonds are subject to higher volatility. For risk-

tolerant investors, ten-year Italian government bonds are attractive. Paying an interest rate of just over 5%, they offer an interesting current income with limited price risk. Over time, they could attract more investors, which could lead to further price rises. Gold remains interesting After advancing for the last several years, the price of gold in the last twelve months has taken a breather. To a large extent, this reflects the strengthening of the Dollar, as the price slowdown measured in Swiss francs, was not so dramatic. Since then, gold prices in Swiss Francs are back near their all-time highs. Contributing to the price increases since mid-2012 was the new policy of the ECB to buy unlimited government bonds issued by Euro area countries with excessive interest rates. Many investors see a high inflation risk in this new policy, and they therefore want to have a gold position as a hedge. Also, the US Federal Reserve is pursuing a relaxed monetary policy in order to stimulate the weak labour market. The price of gold, therefore, still has potential, which is why we continue to overweight it in our investment policy.

Using selected hedge fund strategies to achieve diversification and return Investor confidence has been shaken since the outbreak of the financial crisis in 2008. Uncertainty completely engulfed the equity and bond markets. Given the current turmoil in financial markets, investors are now asking how they can improve the diversification of their portfolio. The use, or the combination, of individual hedge fund strategies such as “Commodity Trading Advisors” (CTAs) and “Macro” is one possible solution, because their low correlation to equities and bonds contributes to the diversification of a traditional portfolio. CTA and Macro hedge funds almost exclusively use exchange traded futures and are thus active in liquid markets with very large trading volumes. They are also the hedge fund strategies with the greatest liquidity. This paid off during the financial crisis, as investors withdrew funds from CTA and Macro hedge funds at short notice in order to increase their cash holdings. The liquidity of the markets and the easy access and use of futures played a crucial role in allowing them to do this. CTAs, often called “managed futures”, are hedge funds that are based on analysis of historical price data. Investment decisions are implemented by using exchange-traded derivatives. Macro strategies, on the other hand, are based on analysis of macroeconomic fundamentals such as economic growth or inflation. The goal of both strategies is to profit from both rising and falling prices and thereby to capture new sources of return for investors.

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By Sreejith Banerji, Portfolio Manager

Opportunities:

New energy sources, new materials. To tourists, Houston is a rather uninteresting destination. But for travelers in the energy business, it is anything but without interest. That is because the region surrounding the Texan “Oil Capital of the World” is home to a number of companies that have been able to tap into previously inaccessible energy sources, thanks to innovative technologies. Europeans are most likely to associate Texas, the “Lone Star State”, with images of huge herds of cattle, ten-gallon hats and oil rigs. When it comes to Houston, at least, this last image is well-justified: Concentrated in this city of two million, a stone’s throw from the Gulf of Mexico, is the sophisticated know-how required to transport fossil fuels to the earth’s surface. Knowledge centre for the oil and gas industry The oil, gas and chemical industries were also the focus of our attention, as we traveled to the region in mid-2012. We were interested not only in two increasingly important areas – oil and gas production from deepwater sources, and shale gas production – but also in the resulting investment opportunities. Visiting companies that are active in various segments of the value chain enabled us – as former Apple CEO Steve Jobs used to say – “to connect the dots.”

Why this focus on companies that are working in highly specialised and relatively new areas of energy production? The answer is simple: Growth in the supply of oil derived from traditional (or conventional) sources has stalled, according to ExxonMobil, the world’s largest publicly traded energy company. As for natural gas, growth is also expected to slow down significantly (see chart). For this reason, fuels from so-called unconventional sources will be crucial for future production growth. This includes oil and gas from deepwater sources, natural gas liquids (oily condensates that are created in connection with the production of natural gas), liquefied natural gas, next-generation biofuels, and oil and gas from shale rock formations. Shale gas on the rise The advent of shale gas production has significantly improved the competitiveness of industries dependent on natural gas, such as chemical companies and manufacturers of fertilisers. Such companies are investing in the US Gulf Coast region, in order to continue to profit from this situation. This in turn is beneficial for infrastructure companies.

Unconventional sources are the growth drivers of global oil and gas production Source: ExxonMobil 2012 Outlook for Energy

Energy in liquid form

Natural gas

120

700 Biofuels

100 Natural gas liquids

Deepwater

600 500

“Unconventional”

400 300

“Conventional” oil and condensates

20 0

200

“Conventional”

100 0

2000

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2020

2040

2000

2020

2040

Photo: Boeing/Keystone

About half the weight of the Boeing 787 is accounted for by carbon fibre composites. This reduces the fuel consumption of the aircraft tremendously.

An example of a specialised oil and gas industry segment that is benefiting from increasing shale oil production in North America is technology providers in the field of “artificial lift”. This technology is used in oil production to balance the drop in pressure when drilling – a phenomenon that occurs sooner or later in every well – and allow the “black gold” to keep flowing upward. In shale drilling, the pressure usually falls sooner than in conventional recovery methods. Consequently, the demand for such products is high. Worldwide, there is still a great deal of potential for deepwater exploration, since the majority of significant oil and gas discoveries are made in the deep sea. The market for deepwater rigs and ships is still tight. Moreover, this fact supports the positive outlook for a steady expansion of the world’s tanker fleet, which in turn should benefit various equipment and technology suppliers. Here, a keen eye for risks in potentially sensitive areas such as deepwater oil production is important – memories of the “Deepwater Horizon” oil spill of 2010 and the consequences for the companies concerned are still fresh. Environmental aspects are therefore key in the selection of fund candidates. The fund manager focuses on companies, for example, that are up to date with respect to safety precautions and which make use of proven technology solutions.

trial processes. They have already commercially successful products and are not generally dependent on government subsidies. Fibres for aircraft, rubber for cars Examples of innovative materials are carbon fibres, which are increasingly used in the aviation industry, as well as high-performance synthetic rubber, which is used in the manufacture of vehicle tyres. Carbon fibre composites are being used more and more in the manufacture of aircraft. Airlines have suffered in the past ten years under the substantial increase in oil prices. Saving money on the cost side – by lowering fuel consumption – is therefore extremely important for the airlines, and thanks to the use of carbon fibres in aircraft design, it is also possible. The light weight of the carbon fibre – about 50% lighter than aluminium and 75% lighter than steel – reduces an airplane’s fuel consumption, without sacrificing its strength and durability. The material has been used in the industry for some time, but has only gained in significance in the past few years. An example: carbon fibre composite materials make up about half the weight of the new Boeing 787 “Dreamliner”.