Pictet taps up banks for mass affluent Push

After two years of work, Pictet Funds’ Amy Cho believes she has the formula for attracting Asian capital to the brand. And it is probably just in time, as wealth creation in the Far East becomes one of the most influential drivers of world markets. “We have good performing emerging markets equity, Asian equity, Japan equity, Greater China equity, but it wasn’t right, because we were lacking the source of inflows from Asia, because we do not have a strong enough local sales and marketing presence to access the right channels and the underlying client segment,” she says. “So there was a major move made by the company two years ago to reinforce this Asian presence. “The opportunity is robust in the region, given the wealth growth. At the same time, it’s no easy region at all because of the very tough competition. We’ve got quite a good number of established players in the market, and increasingly we’re seeing new players.” When Ms Cho started out at Pictet two years ago, the company’s funds were distributed through private placement with several global private banks. At the time, many were satellite offices of their European parents, and as such tended to choose their funds based on recommendation lists generated on another continent. As these banks have gained more autonomy they have started to tailor their fund distribution more towards local investors. Push markets In the same way, Pictet has needed to adapt its products to meet the needs of local distributors. “The markets here in Asia are still pretty much push markets,” Ms Cho says. “That is, the distributors are to promote actively the funds that could add value or that are of interest to the investors.” Many investors, particularly those whose wealth is first generation, have typically been depositors and not investors. “They don’t necessarily do a lot of proactive work themselves. They might go to websites or look for investment information in newspapers and magazines, but they don’t do their own investment selection,” she explains. They are also unlikely to take a portfolio view of whatever investments they have, preferring high growth products and hot sectors. There is a degree of diversification taking place, but growth is still the principal metric. The distributors need to be able to find a compelling pitch that offers enough diversification without compromising growth, in a package that is readily understandable for the end investor. Pictet’s answer is its global theme funds. Focusing on major growth themes, such as biotech, climate change and luxury goods, the funds mix clear growth opportunities in a global mandate that make sense to investors in a region that is driving these sectors. As Ms Cho says, you only need to look at Louis Vuitton’s flagship stores in Hong Kong and China, and the queues of Chinese and Korean tourists outside the brand’s Champs Elysée branch, to understand what is supporting the growth in the luxury goods fund. “All these themes that are just so timely,” Ms Cho says. “And they’re not rocket science. People don’t need to understand what the underlying investment is. It’s much closer to day-to-day living kind of investments. And these are the key buy-in factors of why [distributors] want to put Pictet funds onto their platform: to give the clients a choice. And also for the salespeople to be more comfortable talking to the end clients.” These funds also tend to play into Asian investors’ preference for emerging markets products. There is still a China bias in many portfolios in the region, due in no small part to the key investor communities in Hong Kong, Taiwan and Singapore maintaining close cultural links with the mainland, although until recently, regulation prevented Taiwanese investors from allocating more than nominal amounts to China. Many first generation wealthy have also made their fortunes through the Chinese growth story and feel that they understand China. The natural extension of this is to move into wider, emerging Asia products, and from then onwards into global emerging markets, says Ms Cho. “I suppose the key fundamental is pretty straightforward,” she says. “These are the manufacturing hubs, the beneficiaries of outsourcing, the beneficiaries of globalisation, they have low labour costs, improved living standards, higher spending capacity and there is the domestic consumption story. Then [investors] see that this is happening in the other emerging markets, like India, the Middle East and Eastern Europe.” Pictet is also pitching emerging market local currency products to act as a proxy to emerging market equities with lower volatility. Public distribution With this product set, Pictet is also looking to go beyond private placement and into public distribution for the mass affluent, a fast growing segment typically underserved in the region. The company has launched five funds for public offering in Taiwan, and fifteen in Hong Kong. “We’re distributing the Hong Kong approved funds particularly through a network of top tier local distributors, including Citibank, Standard Chartered, Bank of China Hong Kong and others more at the high end, like ABN Amro Van Gogh.” “We tie up with these top tier local banks because these are the banks that genuinely want to develop their wealth management business,” she explains. “They do have a very meaty clientele of the SME kind who are not yet ‘high net worth,’ but they do have the wealth. Years ago they would just be major depositors in the bank, but now, given the creation of wealth, they are moving from major depositors to investors, but investors that need major advisory support.” To work out these relationships with major players has not been easy, Ms Cho admits, but it is important for Pictet to be associated with these brands in its growth markets. There is a balance to be struck, however, between getting the funds widely distributed and maintaining the air of exclusivity that the Pictet name, through its private banking background, has worked hard to create. “Obviously, it’s quite tough to tap up these key local distributors, because they have very limited shelf space and a lot of bargaining power,” Ms Cho says. “We feel that Pictet as a brand is a pretty premium brand, and we are already private placing through the other private banks and institutions. If we go down the market spectrum too much as a retail brand, this will upset our existing private banking relationships, as they won’t see the necessity to sell a Pictet fund to their client when their client could easily buy the Pictet fund from any branch in Hong Kong. So we wanted to preserve that and respect that.” Ms Cho says that they have also had to avoid stepping on the toes of their distributors in the way that some of their competitors do. “We don’t compete with our distributors because we don’t do direct clients,” she says. “Any direct clients who call up our hotline will be referred to place an order to our distributors. So there’s no direct competition. In Hong Kong many of the fund houses operate their own investment centres, they have their own websites for online trading. We don’t accept direct clients. It’s always a B2B model that we emphasise globally.” Pictet, for all its pedigree, does not have the salesforce of the banks. It is, however, looking to increase its above the line exposure independently of the seminars and training programmes that it does with its distributors through marketing of its own. Pictet has had to focus on Taiwan and Hong Kong because the regulation permits them, as an offshore manager, to offer funds locally for public offering, although in Taiwan a local master agent is required. Korea, one of the larger and more sophisticated markets in the region, is one that Pictet has struggled to develop in. “Korea is huge,” Ms Cho says. “They allow offshore funds to be locally approved for public offering, but at the moment we are quite clear that we don’t have the on the ground local client servicing presence, and given the language barrier, you need someone who speaks Korean to service the channels, and from there, to cascade to market your funds properly to the end client.” China is an equally tough market to crack. Pictet will be looking to leverage a business partnership with Citibank on a Qualified Domestic Institutional Investor (QDII) product. Before the instigation of the QDII scheme, which allows Chinese investors to access overseas products, China was an entirely different prospect, where operating would have been practically very difficult. “Our reading is that it takes a long time to enter into a joint venture partnership,” Ms Cho says. “And in China the challenge is not just to identify a partner, but also the implementation. How to integrate with your local partner, and then roll out the joint venture operation? We’ve seen enough failures, and at Pictet we have to be frank, we’re not very good at doing joint ventures because we’re a partnership.” Pictet is not ruling out a joint venture in the future, but is unlikely to go down the route taken by some fund houses and enter into partnerships with local distributors, who may then require exclusive access to the resultant products. Instead, more agreements, such as that with Citibank, are likely to follow. “I think Pictet as a company, we’re privately owned, we have the luxury that we don’t have shareholder pressure so we can afford our own pace and time in our initiatives,” Ms Cho says. “We’ve probably had the most success in Japan, you know, we’re the largest foreign fund house and the sixth largest fund house if you count the domestic players. It’s taken us more than 25 years to reach this status. I’m not saying it will take another 25 years to be successful in Asia [ex Japan], but we have the experience of entering into new markets and the commitment to get to know what’s needed in the market and to make available to the required resources.”

Amy Cho