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Increasing impact of ESG on financial assets
Laurent Ramsey has been Managing Partner of the Pictet Group since 2016
Interview published in Hong Kong Economic Times, on Tuesday 21 December 2021.
Laurent Ramsey discussed that Pictet as an investor has the power to influence issuers on the basis of ESG practices, and to push ESG development forward, it also requires support from regulators and the consumers to change their consumption habits. As Pictet Group celebrates the 40th anniversary in Asia this year, Laurent also reiterated the region’s pivotal role in driving overall business growth and Asia is one of Pictet’s key strategic priorities for the next 10, 15 years.
Hong Kong investors’ growing interests in funding environmental investment solutions
Appetite for thematic investing increases in recent years. Pictet launched its first thematic equity strategy as early as in 1995, and now has 15 thematic strategies. Laurent Ramsey, Managing Partner of Pictet Group, said that there are new trends and investment opportunities emerging from the pandemic, and it’s of tremendous importance to spot the trends early, as the impact of non-financial factors, such as ESG (environmental, social and corporate governance), on financial assets continues to increase.
One of the biggest challenges of an asset management firm is to manage the difficult balance between having a comprehensive offering that allows us to provide solutions to our clients regardless of market cycles and at the same time, we have an offering which is focused enough so that we don't proliferate strategies that lose our focus. For our strategic capabilities in thematic strategies, these can capture opportunities from the megatrends. To stand out, one needs to spot these trends earlier than its peers, said Laurent Ramsey, Managing Partner of Pictet Group and Co-CEO of Pictet Asset Management, in an interview with Hong Kong Economic Times.
Pictet Asset Management has over 26 years of experience in environmental and sustainable investing. 50% of our assets are in strategies that you could qualify as Article Eight and Article Nine of the European definition of SFDR. And if you look at the flows over the last two years, close to 80% have gone into those types of strategies.
He added that Pictet can provide solutions and investment products that are taking ESG into account, and is providing capital to solution providers in the area of environmental social challenges. But if clients don’t direct the capital towards the solutions, it’s not good. And this is where Pictet is very happy to see the momentum of inflows to such strategies. In addition, Hong Kong investors are also increasingly interested in ESG-friendly strategies.
Changing individual’s consumption habits to push ESG forward
He pointed out that Pictet as a firm, can take steps to have some advocacy in partnership to raise awareness, while as an investor who deploys billions of dollars of assets of clients, it has the power to feed or starve issuers on the basis of ESG practices. But Pictet can’t do it alone as huge leverage will be needed to accelerate that transition. We also need the entire investment community and regulators’ support.
Regulators have the power to accelerate the transition according to what we've seen in Europe, the European green deal is accelerating tremendous momentum; towards building green finance, we need the regulator, and the consumers as well.
Laurent explains, the first dimension of the individual is that the consumers change their consumption habits. For a start, if you go shopping and you refuse to get the plastic bags, at some point, they're going to give you paper bags and get rid of plastics, we tend to underestimate the power of the consumers. The second dimension is that the individual as a citizen that elects the people that govern us. And the third element is individuals as investors. We can provide solutions and investment products that are taking ESG into account, according to Laurent Ramsey.
In terms of ESG development, he said that Asia is perhaps a little bit behind Europe, yet it’s catching up. But Asia is not behind North America. Clients globally are increasingly looking to make responsible investments in climate strategies. ESG is an area where we see growing appetite and we cooperate very closely together with our wealth management business on that.
Innovation is key to spotting trends early
He pointed out that as far as ESG is concerned, Pictet has a sustainability and stewardship board, which aims at making sure we share best practices and as a group we move at the same pace in the area of ESG.
Besides ESG, if looking at the technology area, Pictet’s Robotics strategy has been extremely successful. And its biotechnology is the first thematic strategy it launched in 1995. Pictet’s other thematic strategies also include digital, clean energy, smart city and etc., with an AUM of USD$79 billion.
I think innovation is critical for us. Innovation comes from listening to clients and trying to spot trends early. We have a tradition of innovation. For example, we launched our Water strategy in 2000, when few people focused on that. We also launched the RMB bond strategy when few people thought it was going to become a reserve currency.
Pictet Group Asia achieves excellent performance
This year marks the 40th anniversary of Pictet Group in Asia. Asia is strategic to the Group both as a destination and as a source of assets and is one of the Group’s key strategic priorities for the next 10, 15 years. The growth that the Group has experienced in the last couple of years is very promising and there is an increased brand awareness in the region. The Group would like to see an increase in the share of Asia in its business mix. In addition, Pictet is looking at adding resources in Asia where it wants to be able to provide in the region the same level of service it provides in Europe, said Laurent Ramsey, Managing Partner of Pictet Group.
He added that the Group has been in Hong Kong since 1986, and has incrementally added resources afterwards. And Hong Kong becomes an engine of growth and an important investment hub for the group. Pictet manages from Hong Kong the Chinese bonds, equities, equities long/short, multi assets, and also has a number of strategies where the PMs are on the ground.
Continuing to introduce green/ESG funds in Hong Kong, an international platform
With an increasing number of Chinese asset managers setting up offices in Hong Kong, Laurent commented that Hong Kong is a great international platform, and "strong competition makes you better" and he's confident that the DNA and the culture of the firm set Pictet apart from other main asset management companies. More importantly, the Group has been investing in Asia for a very long time , and it is one of the first to launch an RMB bond strategy, as it has very strong investment capabilities in Asia.
In addition to the mutual recognition of funds (MRF) scheme, we are taking advantage of the Wealth Connect scheme and hope to continue to launch more Hong Kong-domiciled funds and green/ESG funds.
Pictet Group currently has 30 offices globally. Laurent said, to build relationships with clients is based on trust. And trust is a combination of skills and capabilities in managing assets and intimacy. Intimacy is to understand the client's needs and to build that intimacy.
You manage people’s assets, and their long-term savings for their retirement. So, this element of trust is absolutely critical. So for us being able to partner with clients is important and that takes time.
Laurent told HKET that, unlike other fund managers, the cross-selling between Pictet's Asset Management and Wealth Management is very low, which means that 90% of the revenues of the Asset Management business comes from third-party clients, sovereign wealth funds, pension funds, and financial intermediaries, and less than 10% of revenues comes from its Wealth Management clients. It means that its asset management business needs to stay on its toes and make sure that it is very competitive. As of the end of March 2021, Pictet Asset Management ‘s AUM was at USD $258 billion.