Pictet targets cash conversions for funds

Pictet, epitome of the white-gloved, family run private banks, is stepping up its efforts to break out of its Swiss home market and spread its tentacles through Europe and further abroad, with fund distribution seen as the fastest area of growth.

While Pictet Funds, with SFr105bn (€76bn) under management for a mix of private and institutional clients, is nudging Swiss stalwarts UBS and Credit Suisse for share of its home market, it is the opportunities in neighbouring countries which are leading the banks’ antennae to twitch.

“Looking outside Switzerland, we are benchmarking ourselves against Schroders and Templeton,” says Laurent Ramsey, CEO of Pictet Funds, responsible for a 235-strong staff maintaining, developing and selling products for the private bank’s distribution arm.

Ambitious targets

But his long-term aims are even more ambitious, with plans to be jousting for new business with JP Morgan and BlackRock, among Europe’s funds elite.

Doubling growth every five years and achieving 15 per cent per annum on a rolling basis are among the challenging criteria laid down by the bank’s seemingly easy-going partners when they hold their morning meetings over early morning coffee in Geneva HQ.

It was important for the partners’ faith in the funds arm – one of the more recent initiatives for the 205-year old bank – that the relatively new activities held up well during the crisis. Not that they are likely to lose faith in a business that is increasingly rivaling their core wealth management pre-occupation.

The star turns of 2008 for Pictet ended up being the humble money market funds, previously a commoditised product managed by proprietary funds arms at Swiss private banks. “Nobody was buying any equity fund products during the crisis,” remembers Mr Ramsey.

“But the crisis has taught us that money market funds are much more complex than people ever thought. A lot of investors have now started to ask to see holdings of money market funds, to make sure we do not hold structured products. Plus banks wanted to diversify their counterparty risk and did not want funds holding a player with just one name, as that would be dangerous.”

The end of the dotcom bubble saw investors deserting their banks’ equity products and heading for safety of money market funds manufactured by the same institutions. “This time round they moved out of equity into other people’s cash funds.”

Pictet saw this surge coming and quickly launched sovereign funds out of Luxembourg and Switzerland, denominated in a range of currencies. “We were one of the few providers with a full range,” he recalls, leading to record inflows for his funds unit in 2008.

But the challenge which followed was to convert this quickly acquired cash from low margin business into fully profitable equity and bond funds in the years to follow, with the looming danger that increasing risk appetite will lead the new clients to take their custom elsewhere.

That’s why Mr Ramsay’s 80-person sales team is working hard to convince the market of a small selection of funds. It is a gradual sell, moving along the risk curve from short-term bonds, through emerging market debt eventually to the equity product menu which includes themed and regional funds.

Last year, his team battled against the tide, as $4bn (€3bn) was redeemed from the Pictet Funds money market range, yet $5bn was sold into higher margin products to keep Mr Ramsay’s team in credit. Sales figures in 2010 are already approaching the same levels at half-year stage.

Pictet stresses that its themed funds, a trend many Swiss private banks are following as they struggle to re-invent themselves, are not a cyclical short-term product, but are designed for long-term success.

“We never time the market,” claims Mr Ramsay. “We launched our water fund in 2000 at the peak of the market, as we believed in it. It is now up above the MSCI by a wide margin.”

But that does not mean themes cannot be shelved or modified if they have clearly fallen out of favour. Mr Ramsey remembers the popularity of the telecoms theme in the late 1990s, when indices were launched to track industry stocks, with telecoms investing establishing itself as mainstream value play.

As the industry changed, Pictet “repositioned” its telecom themed fund into a “digital communications product” and began to move this family of funds upstream, to embrace more institutional money alongside that of private clients.

That is not to say Pictet is deserting the retail and wholesale distribution models which have served it well in recent years, indeed far from it. Mr Ramsay hopes his sales team can exploit the trend in Europe towards so-called “guided architecture”, where banks tend to partner with fewer third party investment houses to serve their private clients.

“It’s very difficult to train a financial advisory sales force on too many providers or products – most banks try to choose six to 12 providers,” he says.

“If you are one of these, there is a tendency to switch out of one product and choose another one from the same provider. So it’s always possible to convert a client from one product to another story.”

Private banks, says Mr Ramsay, tend to use more providers than their retail brethren, although due diligence has improved in both segments since the crisis, he believes.

“Banks must now look at operational processes, because there was much mis-pricing of fixed income products during the crisis. They need to look at conflicting activities within a group: whether the funds firm has an investment bank and what consequences that can have.”

Private banks’ fund selection teams also need to look at corporate structure and solidity when they choose products, he believes, as an unstable structure can bring down even the most talented of fund managers. “Due diligence now must work from the top of the iceberg down,” warns Mr Ramsay.

“If you look at Pictet, we just do asset management and we are not entangled with the major problems of the industry. We are a private partnership with no debt.”

Striking the deals

Pictet Funds has worked hard to sign distribution deals with Europe’s leading banks, selling its funds through houses including Italy’s Intesa Sanpaolo, and UBS and Credit Suisse on its own home turf.

It is believed that Mr Ramsay’s team has also managed to seal a deal with Deutsche Bank’s demanding Private and Business Clients unit, which ensures distribution of strategic partners’ products not just in the German home market, but also further afield in Belgium, Spain and Poland.

The retail banking arm of ABN Amro in the Netherlands also sells Pictet’s funds, having been forced to dispose of its own funds business. Mr Ramsay believes this will be an increasing trend. “More and more distributors sold their asset management arms in the crisis. This reduced their imperative to sell their own products and is very positive for us as an asset manager,” he says.

“It is also positive for the client, because he gets more advice and positive for the bank, which can focus on its core business of advising clients.”

Laurent Ramsey, Pictet Funds