Pictet’s funds branch free of family secrets

But the bank has not totally severed its control over the funds arm.

After Jacques de Saussure, who oversaw funds business in the early days, returned to private banking in 2002, mutual fund distribution became the sole responsibility of Rémy Best. Asset management is overseen by Renaud de Planta. All three remain key partners of the private bank.

Change of culture

Officially, Pictet’s strong Swiss private client ethos is deeply entrenched across all business lines, from the family office to the global custody operation. But in reality the growth of funds distribution has led to a cultural shift.

Day to day responsibility for striking up distribution agreements and partnerships has been handed over to a funds man with much international experience, Laurent Ramsey. His role is not to ignore Pictet’s private banking clients – who still account for 45 per cent of the SFr120bn (E80bn) under management – but to increase assets managed for external clients through European alliances.

His 45-strong sales team also persuades banks into outsourcing mandates on a white-labelled basis, as Pictet runs its business in terms of client segmentation, rather than product segmentation.

Pension funds and charities remain the responsibility of Pictet Asset Management’s “Alpha factory”, believed to have won major clients such as New York City Police and Compaq, yet reluctant to discuss them.

Mr Ramsey’s distribution team, on the other hand, has been striving for greater openness, with some success.

The private banking partners breathing down his neck have had to make some accommodations. After all, they are demanding that Pictet becomes and remains one of the “five most reputable European-owned asset managers on a sustainable basis.”

Last year saw net inflows of E1bn. Pictet is currently ranked 41st in Europe in terms of funds under management. But in Switzerland it is fourth, behind UBS, Credit Suisse and Swissca. Not surprisingly, Mr Ramsey started his distribution challenge in this home market, targeting the biggest institutions, before moving further afield.

“Credit Suisse started to use our products three years ago, and UBS two years ago, as it opened up to external funds slightly later,” reveals Mr Ramsey. “The Credit Suisse Fund Lab has been extremely successful, and UBS has put in place an excellent business model for fund distribution.”

Wider client base

External distributors now account for 30 per cent of assets under management. “Bearing in mind that in 1998, 100 per cent came from the private bank, we have managed to diversify hugely in terms of our client base. In this time-span, with the rough markets of the last three years, this is an extremely good result.”

After the initial successes in Switzerland, Pictet Funds set up client servicing teams to look after Germany, Italy, France and the Iberian region. Benelux, Scandinavia and Austria are on the radar, but judged as peripheral markets.

The most recent office opened was in Spain. Under Gonzalo Rengifo, the Madrid operation was established as a subsidiary of Pictet’s private bank in Luxembourg, yet caters solely for fund distribution.

“We threw a very good message to the Spanish market, as we are a private partnership, without any pressure from shareholders, so we have no profitability squeeze,” says Mr Ramsey. “When everyone else is going out, we are just going in. Spain is an extremely tough market to cover for foreign banks.”

An agreement has already been struck with Allfunds Bank, a subsidiary of Banco Santander Central Hispano to market Pictet’s Eurobond fund. “BBVA is also beginning to talk to foreign fund providers,” says Mr Ramsey. “The Spanish market is the most concentrated in Europe, as those two banks account for 85 per cent between them.”

Key clients

Pictet works with SocGen Global Private Banking and the fund of funds arm of BNP Paribas in France. JPMorgan Asset Management is a key client in the UK.

“Global players based in the UK are an important target,” reveals Mr Ramsey. “The challenge for fund promoters like us is to be able to cover pan-European groups, to contact the selection centre and then to make this our goal in every country.

“Due to internal politics, these clients are very badly covered. This situation does not serve the fund manager or distributor. If we can put together a system to serve these global players, we can enjoy a fair amount of success.”

Selection teams for private banks and fund of funds arms often work closely together. “The line is pretty thin between them,” admits Mr Ramsey.

He says the processes at UBS and Credit Suisse resemble an institutional fund selection procedure. “They have a selection process tougher even than the traditional consultant-led institutional world,” he admits. “They are investment professionals who start with a long-list, use quant strategy screens, requests for proposals (RFPs), a beauty contest and one-to-one interviews.”

Fund ratings are ignored by many of these banks, according to Mr Ramsey. “They are not so meaningful in Europe. We are talking to banks and asset managers who rely on their own research capabilities. To know that you can analyse 20,000 funds internally and find the best fund is impressive.”

However, Mr Ramsey is concerned that some European distributors are choosing external funds based on fees rather than performance or process.

“Continental Europe has a lot of effort to make in this field in terms of transparency. If we don’t regulate ourselves, then the regulators will do it for us. We need equilibrium for different actors, so that the best product is selected and not the one paying the biggest fee to the distributor.”

Pictet pays 30–50 basis points of fund assets – coming from the management fee – back to the distributor, depending on the country. “The distributor’s activity comes at a price, so the trailer fee does have economic legitimacy,” says Mr Ramsey. “But today, that price is not transparent.”

Funds for showing off

Pictet Funds has two “flagship” product areas marketed to Europe’s distributors.

Fixed income, in its broadest sense, is the first, with 25 investment

professionals managing a range of money market, emerging debt, corporate and high yield instruments.

“Five years ago, we were an equity house, now we are also a fixed income house, and we have a balanced portfolio between the two,” admits Laurent Ramsey, chief marketing officer at Pictet Funds.

A “handpicked” global fixed income team operates out of Geneva under Jaime Arguello, previously at Crédit-Agricole Inndosuez subsidiary CPR Asset Management. Performance of Pictet’s Global Corporate Bond fund is well ahead of the Citigroup fixed income index over one and three years, and the Global Bonds fund is slightly ahead of its Merrill benchmark over the last year.

The second flagship area is “specialist” equity. “Flows are coming back into emerging markets, whether global or Eastern Europe, where we have been pioneers since 1986,” comments Mr Ramsey.

Yuri Ostrovsky’s Eastern Europe fund relies on a unique database of balance sheets and audited figures for Borscht-belt companies, rather than cashflow and earnings projections.

Pictet runs Europe’s biggest biotech fund, holding assets of $1.2bn (E1bn), under Michael Sjöström. This fund has underperformed the S&P 500 Biotechnology index over one, three and five years but has still gained 254.52 per cent over five years and is ahead of all of its peers (see table).

“There is renewed interest in this product since the beginning of the year,”

says Mr Ramsey.

‘If we don’t regulate ourselves, then the regulators will do it for us’
Laurent Ramsey, Pictet Funds