Steady build out in the China market, strengthen expertise in Chinese assets

Renaud de Planta has been Senior Managing Partner of the Pictet Group since 1 September 2019 and a Managing Partner of the Pictet Group since joining Pictet in 1998.

This interview was published in 21st Century Business Herald, on Friday 12 November 2021.

Original interview in Chinese and video interview

It’s been a year since Pictet Asset Management set up its Shanghai WFOE, in August this year, Pictet Private Fund Management (Shanghai) Limited successfully registered as a Qualified Domestic Limited Partner (QDLP) Manager, and a month after that, launched its first QDLP product, the Pictet Special Situation Private Securities Fund No.1.

Established in 1805 in Geneva, Switzerland, Pictet is an independent wealth and asset manager, with offices in 30 locations globally, and over 5,000 employees, managing over USD 740 billion of assets. With the opening of China’s financial markets, what plans does this 200-year firm have in the China market, what are the challenges. With these topics in mind, the journalist interviewed the Group’s Senior Partner Renaud de Planta.

Renaud de Planta joined Pictet in 1998 as a Managing Partner and has been the Senior Managing Partner of Pictet since 1 September 2019 and is also Chair of the Group Executive Committee. Renaud previously spent 12 years with UBS, where he held various management positions.

Private partnership model - the key to long term perspective

As a wealth and asset management company with such a long history, can you share your insights and experience on how Pictet has managed to maintain a long-term perspective?

Pictet has managed to maintain a long-term perspective because we have always been a partnership. The managers are the owners. We are currently a group of eight managing partners, with a mix of different ages, background profiles, that gives us a tremendous continuity in the business. In general, we remain as partners for more than 20 years, and we keep a long-term perspective.

We also have five guiding principles at Pictet. First is independence. We want to be intellectually and financially independent, that allows us to be neutral in how we approach the world and the investment opportunity and take the best decisions for clients. 

The second principle is long term thinking which is related to the partnership because we are partners for over 20 years, we think long term with the mission to pass the firm on to the next generation of partners in even better shape than it is today. 

The third principle is partnership. We are a partnership in the legal sense, but it's also a spirit of partnership with clients and with staff. 

And the fourth principle is responsibility - acting with a sense of responsibility towards clients and our colleagues or people, but also the wider community of which we are a part.

The last but not least is the entrepreneurial spirit because if we neglect this we could become a very static defensive organization. And yet over the years, with this entrepreneurial spirit we have been successful at identifying the next great opportunity for our clients and also trying to find the next great clients.

Why did Pictet adopt this partnership model? What are its advantages and disadvantages? how does Pictet appoints its partners and select your talent?

Pictet’s long term thinking is related to its partnership model. In general, we remain as partners for more than 20 years, we are a group of different ages, background profiles, and we identify investment trends which are long lasting, and we stick to our guns in good and more difficult times. 

When selecting talent, the obvious criteria are the skills, the abilities, the experience; the other key ingredient really is integrity.

Opportunities and challenges in China market

We understand that you have been involved in the China market quite early in your career, and China is now in a rapid growth phase. Can you share your views and observations of the China market, especially the asset and wealth management industries？What has been the major changes?

I used to come regularly to mainland China in the 90s because I was based in Hong Kong with UBS, and I had under my remit also the offices in Beijing and Shanghai. In the last 30 years, I’ve seen the most spectacular change ever seen around the world in economic terms. The growth in size, quality, sophistication of the financial community in China has been tremendous. That opens up a lot of opportunities for Chinese investors to connect better with the outside world and for non-Chinese investment firms to explore investment opportunities in China.

Compared to other markets globally, the main difference is the size of the Chinese market, meaning that the successful players in China have huge economies of scale.

Pictet has been investing in China market on behalf of global investors from an investment and asset allocation perspective, what are international investors’ view of China market? What is the appeal on the one hand and what are their concerns on the other?

Our investors which are mostly European, American or Japanese see the attraction of the Chinese assets in several ways. 

Number one, your currency has been very stable and is one of the strongest currencies in the last 5, 10, 15 years.

That leads to the second positive, which is your interest rate. Because the PBoC has been one of the last reasonable central banks when it comes to money printing, with a very orthodox monetary policy compared to what is practiced in the West. You actually have positive interest rates. The difference in bond yields for instance with our home country here in Switzerland is about 3.5%. So for a currency which is as stable as the swiss franc, you get about three and a half more yield in Chinese bonds. 

When it comes to the Chinese equity markets, we think they are actually reasonably valued at the moment and certainly not as expensive as the US stock market or some other western equity markets. 

Some worries which our customers have relate mostly to the issues around geopolitics and regulatory actions which sometimes can come quite suddenly.  

So our job is to educate our investors, prepare them for some of these things, so that they do stick to the most interesting investment opportunities in China.

Steady build out in the China market

Pictet has established a WFOE in China and issued the first private fund product. So can you briefly introduce your China business setup and the newly issued fund as well as company’s plan for China in the future?

We have opened a small subsidiary in Shanghai . In good Pictet tradition. we start small and we build and we go from strength to strength.

We are starting with a small relationship management team who are building up relationship with first class financial institutions in China so that we can distribute our capability, some of our asset management products which have received a regulatory approval. 

In the second step, we are going to hire locally and send also some analysts from our offices in Hong Kong and possibly London, to put them on the ground closer to the action so that they have a better understanding of macro trends and corporate developments happening in China. And we'll build from there gradually but steadily, and when we have a bigger presence, if the authorities approve it, build a fund management company. 

The upside for us if we succeed in China is very significant. The one challenge is the language barrier which we need to overcome. Fortunately we have a lot of Chinese colleagues based in Hong Kong, Singapore and in London and even Geneva. We are planning to send a few of them over time to our Shanghai office. 

Pictet is among the first international asset managers to issue a UCITS fund to invest in onshore Chinese bonds, as well as equity funds that invest in China corporates. What are your views on the Chinese equity and bond markets development? What will Pictet be focusing on?

We will strengthen our expertise of Chinese assets, we have some very strongly performing China fixed income funds and equity funds. But it is a gigantic market, besides the large cap stocks and well-known corporate bond issuers, we would like to have a better understanding of companies which also have great potential.

In terms of issuance of asset management products, it will all be step by step. We're starting to target a few selected first-class financial institutions to distribute one of our funds under the QDLP license. That is the first step. Longer term, we'll hopefully be able to of a broader range of asset management products.

From a global and historical point of view, how do you see the role and relevance of the wealth and asset management industry in the entire financial market and economic value chain?

The key role of our industry is to channel the capital from our clients to the most productive investment opportunities which can have a huge impact for the future of any country or a region or the planet. We need to do it with a high level of integrity, thinking about the long term, trying to be innovative, trying to identify promising companies. 

And here I can give you maybe an example. With Covid, the issue of the vaccine has become very important. And the surprise in the western world has been that some unknown companies came up with the best vaccine, a German biotech company and a US biotech the company. And we happen to have invested for our clients in the US one, in Moderna when it was a start up of 20 people that nobody had heard of and we believed in the concept and that company has become now very successful with market cap of around a hundred billion dollars. And sometimes these companies may not have existed without people like us believing in them and channeling capital from our clients to them so that they could fund the research, they could pay for the employee while they had no product.

So I think our role is key. We need to think long term, to be innovative so that we understand these new startups, these new companies are part of the future, they are part of the solution.

The Chinese asset management market has successfully repositioned itself into a new path. Executives in the industry are thinking how to stand out in the highly competitive market. So as a leader in a global asset management firm with such a long legacy, what is your advice?

My advice would be simple.

First of all, focus on the quality of your investment team, the quality of your asset management product, and don't get distracted by too many projects, don't spread yourself thinly over too many things. 

Second, beware of product proliferation. There is always a temptation in an asset management firm to launch more products, but the quality gets diluted. So really focus is of the essence in this business. 

The third is to be aware of procyclicality. Don't buy high and sell low, don't launch products which are in sectors that are very highly valued which may be in a bubble, but try to do the opposite, try to be counter cyclical. Because it takes time to build a business and a track record. You don't want to start at the top and only give your clients a negative experience.