“I experienced a merger earlier in my career at UBS,” says Mr de Planta, who rose in less than 10 years from graduate recruit to global head of equity derivatives for the Swiss giant, before transferring to the family-run Pictet in 1998.
“Any merger in the financial services industry is highly traumatic and highly disruptive for most of those involved, and in most cases, let’s face it, value disruptive. Our focus is on asset and wealth management. We are not desperate to grow and diversify in many ways. Being a partnership also helps us resist temptations to acquire and merge. We have grown organically over 200 years, and it helps us to reach a higher quality as an investment organisation. Work flows better this way than going through leaps, bounds, creating additional structures, and lengthy and stressful mergers and consolidations.”
Necessary condition
Financial strength, stability and independence are intimately related to the partnership structure, believes Mr de Planta. “In itself, this is not a guarantee of success, but it is a necessary condition.”
Mr de Planta feels happy running his small kingdom in Geneva. Assets of $63bn (€52bn) suit him down to the ground, although he sees plenty of scope for growth, provided this is accompanied by rising fee income.
“I am not sure whether asset targets are the key markers in this industry,” says Mr de Planta. “In some commoditised businesses the revenue figure is much more relevant than straightforward AUM.”
The general hope in the 200-year old bank, whose asset management subsidiary is just 25 years old, is that assets and revenue will grow at between 10 and 20 per cent a year. This type of growth can only be achieved through solid investment performance. This, rather than service or brand, is the only real driver of asset flows, believes Mr de Planta. “If you get performance right, then everything else will follow and you will grow at a faster pace than you can possibly dream of,” he says.
“Our efforts over the last few years have concentrated on refining the investment factory and investment teams to build the business. We are not obsessed with asset gathering, but we are obsessed with investment quality. Firms who are putting things the other way round end up with lacklustre development, unless they have an enormous captive distribution channel in Europe. Then they have slightly different priorities.”
This thinly veiled reference to Mr de Planta’s Swiss, cross-border competitors such as UBS and Credit Suisse, who enjoy the benefits of an internal distribution networks, does not however purvey any jealousy.
While Mr de Planta has respect for his rivals, he does not envy the big group atmosphere, with its reversion to the mean in terms of product innovation. “Product development, like everything else at Pictet, is entrepreneurial and dynamic,” says Mr de Planta.
Small player appeal
“We attract slightly different people with an original point of view, some of them refugees from large asset management groups. Nobody ever leaves Pictet to go to a larger group.
“We are able to move quite swiftly, to seize the opportunity. In those big bureaucracies, many of these types of projects get delayed or sidetracked. Creating a successful product should always be about matching your internal capabilities with the market outside, not just presenting them with what you think will sell,” says Mr de Planta.
“Potential clients also see Pictet as different and expect us to give them something different. We can’t go to them with a US large cap product, as everybody else does this. They expect us to have a more unusual approach,” he adds.
This approach has involved the launch of esoteric products such as thematic, sector funds investing in biotechnology more than 10 years ago, but also specialist emerging markets funds investing in areas such as Russia since 1994, with mandates from big US pension funds first awarded in that same year.
But it is also about launching products against the current fashion. “This is a cyclical business, and sometimes you need to move into asset classes when they don’t look attractive,” says Mr de Planta. “Nobody was interested in emerging markets when we started in the late 1980s. Then we built a fixed income business in the late-1990s, when other people were only interested in technology stocks and the Nasdaq. It’s very important to have a healthy position on contrarian behaviour.”
There is also more to Pictet’s asset management offering than a few niche asset classes. It has had to vastly improve its process in core European equities after “performance problems” were identified. “There were a few personnel changes four years ago,” admits Mr de Planta. “But things are now in good shape and bouncing back.”
In Switzerland, they are expected to provide a solid service for local investors, and success in the home market is a compulsory requirement for the partners, if they are to show their faces at Geneva’s high society events.
One of the problems Pictet has been combating in its home market has been that of underfunded pension plans, though the situation has improved substantially over the last two years. Nevertheless, the use of total return mandates, which were originally designed to alleviate the underfunding situation has continued to gain in popularity.
“There is a continued appetite in Switzerland and outside, in countries such as Germany for more total return-type mandates,” believes Mr de Planta. “We are in a good position for developing these mandates, which are uncorrelated with global securities markets, generating a return which is steady and positive, not shooting the lights out, maybe 5 to 10 per cent in Swiss Franc terms. These are mandates with pure alpha constituents as opposed to beta.”
Although Mr de Planta believes we are still at the beginning of the cycle favouring total return products, he does not expect to see the total demise of benchmark-linked investing.
“I would not go so far as predicting the death of the benchmark,” he says. “There is a strong cyclical element in the thinking of most retirement funds, and we must take some of the recent trends with a pinch of salt. The whole pensions industry cannot live on pure alpha alone, as there is not enough of it to satisfy the return requirements of most pension funds. Returns from beta need to be a real part of pension funds, and it is naïve to think we cannot live without them.
Broadening benchmarks
“We don’t think benchmarks are dead, but they are being broadened a bit to include more peripheral mandates such as commodities, property, hedge funds, absolute return and capital protected strategies.”
Although Pictet plans to continue its commitment to its home market, the opportunities are clearly greater for the Swiss bank in the US and Asia. “We have achieved a certain share of the Swiss market and would like to replicate that elsewhere. We don’t plan to de-emphasise Switzerland in absolute terms but growth will be faster outside Switzerland. The opportunities in the US and Asia are immense.”
PICTET CAPTURES BIG BUSINESS AS JAPAN COMES OUT OF THE ABYSS
One of the high points of Pictet’s international achievements has been its success in winning assets in Japan, where it has attracted assets from pension funds, securities houses and trust banks. Pictet is also servicing third-party distributors experiencing a renewed level of interest from private investors, after the entry of banks into the mutual funds market from years ago.
“The situation with Japanese pension funds has been very similar to that in Switzerland,” reflects Mr de Planta. “After big problems of underfunding, they are coming out of the abyss, building up big allocations in Japanese equities and working to diversify their managers. We have been able to capture a lot of this business through some very big names.”
Pictet installed some key staff members in Japan when it opened its Tokyo office, as early as 1979, with frequent visits from the bank’s senior partner Ivan Pictet. “We have had a strong commitment to Japan since then,” says Mr de Planta. “Several of us have lived there and saw the potential of the second largest savings market in the world.”
The second key success factor has been Pictet’s ability to import “semi-finished” investment goods from the bank’s factories in Geneva and London. The concepts are then adapted for local tastes.
“That’s where a lot of groups fail,” says Mr de Planta. “Many have local offices and products, but can’t put the two together. It has not been an easy ride for us. It has taken 20 years to get it right, which is a good indication of our long-term focus. A lot of firms would have thrown in the towel.”
The Tokyo office was, in fact, refashioned in 1996, and the operation given a real focus, to develop expertise to serve pension schemes with a specialist Japanese equity capability, and mutual funds, which could be sold through brokers and insurance companies’ wrap products. This re-organisation was in response to liberalisation of Japan’s pension funds sector, which had started in the early-1990s. Until then, Pictet’s business in Japan had been dedicated purely to private wealth management.
Even after this shake-up, Pictet was losing much of the value gained from new assets in currency and market movements and was not really getting anywhere. “Many times, in the dark days of Japan, we were wondering whether it was all worth it,” says Mr de Planta.
While many US firms closed their Japanese subsidiaries after three years, Pictet was able to stay until the eventual upturn, as a result of its partnership structure, says Mr de Planta. “If you are not a partnership, you have a quarterly profit target and are under pressure to pull out of a difficult market.”
