A good choice for Pictet’s long-term thinking

Interview published in the China Securities Journal, Monday 15 March 2021

Only when Pictet Asset Management set up its WFOE in Shanghai in November 2020 did people notice this century-old European group. Pictet Group had already invested in China before through different channels. For example, Pictet Asset Management issued several funds to invest in China. According to Morningstar data, Pictet’s star fund Mandarin has achieved positive returns over the past seven years, even in 2018 when 80% of global assets turned negative. In addition, Pictet also launched the first offshore fund investing into onshore Chinese debt.

As of December 31, 2020, Pictet Group had CHF 609 billion assets under management. In the early 19th century, a start-up boomed in Geneva and a new generation of financial partners - Pictet - was founded on July 23, 1805. The private partnership is like a gene which allows Pictet to develop in the long run. Pictet’s products also reflect its philosophy of long-term development. For example, Pictet runs the world’s largest robotics fund, which was established in 2015. Since its launch, the fund has been able to keep up during bull markets, and to mine alpha in the sector, while also controlling drawdown effectively in a bear environment. Pictet also leads in thematic investments linked to environment protection. Nowadays, “carbon neutrality” has become a global consensus. Pictet’s Water fund also enjoys a strong reputation worldwide.

More European clients want to allocate assets in China

Renaud de Planta sees that more European clients want to allocate assets in China. He explained to the reporter that there are three factors that make entering China’s market without delay enticing for clients. First, for a long time, China has been one of the very few markets that has been able to sustain highspeed growth. Second, China has been restrained in its monetary policies when facing the economic impact of the COVID-19 pandemic - There is still a significant spread between China’s national debt and that of other major economies in the world, and this is especially attractive to foreign capital. Lastly, the inclusion of A-shares in FTSE Russell and MSCI indices will also be a catalyst for increased foreign capital flows into China.

“Of course, some of them are still hesitant. These clients are concerned about key issues, such as currency convertibility and Sino-US trade frictions. For these investors, quelling their doubts need time,” Renaud de Planta said.

However, a reporter from China Securities News noted that Pictet has included in its long-term development plans. The group listed out seven themes that will affect global financial industry in its Ambition 2025. The first theme is “The rise of Asia, led by China”. China is already a leading power that will push the global economy forward. By 2030, 40% of global wealth will come from Asia (including Japan) and Asia will further attract global capital.

“We are very keen on expanding business in China. As a private company, we can plan on a long-term basis. We are aware that many western and local asset managers have established mature businesses in China before us. For us, the first step is to build strong brand recognition which will help our investors get to know us. We are very confident that if investors know us, they will like us,” Renaud de Planta said.

“We will introduce our investment capabilities and experience to investors gradually,” Renaud de Planta said. Pictet is focused on excellence in investing and has achieved some strong results in technology, healthcare and environmental protection, and we will communicate with investors about these topics.”

Focus on megatrends

According to Renaud de Planta, Pictet has equity funds and mandates which invest in China, but also invest into China for their clients. In addition, Pictet also covers China through regional funds such as through their Asian equities offering. It is worth mentioning that Pictet launched the first offshore fund investing into onshore Chinese debt. Pictet has always believed that the Chinese debt market, which is the second largest in the world, would become very important for western investors. It anticipated that Chinese bonds would be further included into global bond market indexes and started with the layout of this strategy in advance.

“I think the beauty of being privately-owned is that we are not under short-term pressure from outside shareholders or analysts. We see a lot of competitors who are obliged to produce permanently short-term results and permanently short-term good news for their investors, and that has forced them to make very short-term decisions. But for us, whether we make a profit this year or next year, in three or five years, or even in 10 years, it doesn't make a difference because partners tend to stay with the company for most of their career. As the owners of the company, they are patient enough.”

Renaud de Planta stressed that the long-term approach is also for client relationships. “We’re not in a hurry to turn any relationships into clients right away, but we are investing here into the long term too. The reason is simple: if our clients are happy, they will be happy to pay the management fees in the end.”

Many people see thematic investment as a tool to capture short-term market opportunities, but for Pictet, it is an investing method to capture long-term trends. In an article published in the well-known financial magazine Barron’s China, Hans Peter Portner, Head of Thematic Equities at Pictet Asset Management wrote: The primary purpose of a thematic equity strategy is to invest in stocks whose returns are influenced by structural forces of change that evolve independently of the economic cycle. In other words, thematic investing focuses on identifying enduring sources of capital growth. “We undertake research to unearth megatrends, the most powerful trends transforming the investment landscape. We currently have a list of 14 such trends. Aging population, sustainability, or a growing global focus on health are all examples of such secular trends, they are not seasonal or cyclical, remain consistent over time and maintain a certain trajectory, regardless of current economic conditions. When we identify a group of stocks driven by common secular trends, a thematic universe is born.”

Finding its own way in China

For many global asset management institutions, how to adapt to China’s character is a problem. Some asset management institutions have been trying to find a balance between strict compliance and risk control procedures and the rapid promotion of their China businesses. Renaud de Planta believes that Pictet is confident about adapting to China’s speed. One example is the good performance of several Chinese funds launched by Pictet in overseas markets. Among which, a fund called Mandarin has 15 years’ worth of history. Morningstar data shows that Mandarin has achieved positive returns for seven consecutive years, even in 2018 when most of the world’s assets were losing money

He said that Pictet will not only focus on its institutional business in China, but will also look into consolidating its existing relationships and establishing new contacts with major banks, as well as establish more partnerships for QDII (Qualified Domestic Institutional Investor) products. In addition, China’s e-commerce channels are developing rapidly and the Group may also try to establish relationships with them in the future.

“We will take things gradually,” said de Planta, adding that starting with the QDLP (Qualified Domestic Limited Partnership) business will help to gradually accumulate clients. Pictet does not rule anything out, and at some point in the future, it may consider applying for a mutual fund license.

Talent remains the key factor

What kind of talent would Pictet need? According to Renaud de Planta, the first and most important attribute is high integrity. Product expertise and investment acumen are the second key aspects. Team spirit, positive energy, willingness to work in a team and success as a team instead of just as an individual follow. Language skills and some international experience in the asset management industry is a plus.

“Some multi-national firms are over emphasizing language skills. Being in China, we naturally conduct our business in Chinese. Based on our experiences in Japan, sometimes the best people are not English speaking. As a global organization, if you want to interact with some fund managers in other cities such as Hong Kong, London and Geneva, you’d have to speak English. However, I can see a day when we become bigger in China, and not everybody will need to talk to the headquarters or international fund managers. At that point, English skills won’t be as important and our colleagues will be able to do their jobs without necessarily speaking English.”

For a lot of global asset managers, although they have set up WFOEs in China, the investment or research team mirror those at the headquarters. Renaud de Planta agreed and said that this is the reason why Pictet wants to go slowly but steadily with its development plans in China. Pictet has always had a preference for local people running local offices.

“I’ve witnessed China opening up ever since I was in Hong Kong in 1995. We are confident that China has embarked on a steady market liberalization plan,” said Renaud de Planta.