Pictet pulls together to boost market share

From Wealth Management / Profiles 31 January 2013

Laurent Ramsey, Pictet

By Yuri Bender

Laurent Ramsey, CEO of Pictet Funds, believes that it was by prioritising the needs of clients that the Swiss institution expanded during the 2008 crisis and then managed to consolidate those gains

The experience of catching the number 15 tram, along with other commuters, from Geneva’s Cornavin station down one of the city’s busy thoroughfares, may be a world of away from the old pleasant lakeside stroll to Pictet’s previous headquarters, with the picturesque snow-covered Alps looming in the background.

But the move in 2006 to purpose-built offices on the Route des Acacias has allowed both asset management and private banking to finally rest under one roof. Previously the partners of the bank, formed in 1805, were keen for the two disciplines to be kept very separate.

But there is a realisation, both within Pictet and Swiss private banking as a whole, that the future lies not in building secrecy-led structures for foreign oligarchs, sheltering their money and minimising their taxes, but in effective management of portfolios of wealthy families.

The institutional techniques used to run the assets of the world’s pension funds are now key to Pictet’s very future as a private bank. “If you want to remain part of the Swiss private banking industry, you need to compete on what is important to clients,” says Laurent Ramsay, CEO of Pictet Funds and the bank’s global distribution boss.

“The advice you provide on investments and the performance you can deliver, which must meet client expectations – that is the name of the game. Banking secrecy is in the past. If you want to be successful, you need to deliver what clients expect.”

This efficient delivery helped Pictet’s funds division gain market share and increase managed assets throughout the crisis, with record inflows of $10bn (€7.6bn) in 2012, boosting total client monies to $140bn. Top strategies include emerging debt and money market funds.

“We have been better diversified than in previous years, even if the market is subdued for much of the industry,” says Mr Ramsay. He puts the success down to strength in ‘spread’ strategies including corporate bonds, high yield and long-short credit, in addition to the traditional thematic range of timber, biotech and luxury brand-based investments.

NEW CLIENTELE

In fact, if there was a tipping point in the Pictet story, it was probably the 2008 crisis. While the customers of many Swiss banks ran for cover, Pictet launched a range of multi-currency money market funds to encourage clients of bigger competitors such as Credit Suisse and UBS to switch some of their custom.

The strategy worked a treat and Pictet managed to keep many of the new customers after a market rally started in June 2009, gradually switching them into bond markets, scuttling up the yield curve into emerging debt and eventually equities as they gained confidence.

“Money market funds have really been a buffer for us,” admits Mr Ramsay, revealing the bank’s long-standing strategy. “It has given us the chance to meet new clients and then convert them little by little into higher risk asset classes.”

At the high point, with many institutions and wealthy families switching between market exposure and safety through ‘risk-on/riskoff’ cycles, money market allocation among Pictet’s fund clients hit 25 per cent. Today, it is down to 15 per cent of assets.

Rather than purely the pension schemes, which drove the bank’s initial exposure to the asset management world, it is the bank networks in 35 countries, served by 17 offices, which are pushing through the largest fund flows.

Mr Ramsay’s funds division works closely with financial institutions such as Deutsche Bank and Italy’s Unicredit, which have both selected Pictet’s product ranges for distribution to their customers. Many of these relationships went very quiet during the crisis, but are slowly being re-ignited, he says.

“Throughout the crisis, a lot of banks had to beef up their balance sheets and moved their customers’ assets out of mutual funds into term deposits, but now that is changing,” says Mr Ramsay. “We believe there is still too much cash in the system, but the flows are coming back into mutual funds.”

LOOMING REGULATION

The next big hurdle to expansion of distribution will come from regulators, he believes. “Depending on what happens after Mifid II and the whole debate about a potential ban on inducements, there may be major consequences on how ‘open architecture’ functions in big organisations,” says Mr Ramsay.

Although he does not believe a complete ban on retrocessions paid by asset managers to distributors is the best way forward, he thinks it may well happen and that independent and private bank-owned fund houses such as Pictet need to prepare for the eventuality.

“Proprietary institutions, who have their own fund managers, will sell only their own products if this happens,” he says. “They will no longer sell products of third party managers, as they will not receive retrocession payments.”

Banks may also be able to charge advisory fees, athough there are doubts as to whether clients will pay and whether the economics of distribution will allow banks to offer proper advice for a €200 annual fee to mass affluent clients. “The result may be that those who need advice the most will not be able to get it,” says Mr Ramsay.

In order to react to such game-changing regulations, he expects financial institutions to start packaging advice into products through a fund of funds structure, where the bank or insurance company chooses the products and allocates assets on behalf of the client.

This can include sub-advisory arrangements, allowing a bank to launch funds in its own name, but give the mandate to manage assets to third party investment houses. “This might change quite dramatically the way that open architecture functions today,” he predicts.

Much of the regulation, which will spur the evolution of new distribution models, is a knee-jerk reaction to the accidents of the past, which will often lead to higher fees for endclients, believes Mr Ramsay.

“A lot of regulation is more politically driven than by any real urge to protect investors,” he reflects. “Asset management is already very highly regulated and there is a danger that excessive regulation will paralyse the industry. The time we are already spending on managing compliance to these rules rather than clients’ assets is already a big disruption to what we are supposed to be doing.”

The rules are a burden on client access, operations, custody and distribution – “the whole value chain” – with very little effective cost-benefit analysis from regulators on the business effects of their actions, says Mr Ramsay.

But despite his outspoken criticism of regulators, he is more respectful of key competitors, leading asset management houses such as BlackRock, JP Morgan and Wellington. “We are not comparing ourselves to them – let’s not forget where we are from,” he cautions.

“We want to be one of the top Europeanbased asset managers with a reputation for service, performance and integrity. This is how we define the elite. We are not obsessed by size or profits. If we can deliver performance and service excellence without operational problems, our mission will be fulfilled.”