"Be careful when making something illiquid liquid"
Laurent Ramsey, Managing Partner of Pictet Group, tells Citywire about his views on the increasingly popular evergreen funds space, while sharing views on Asia and the ESG space.
Liquid alternatives have drawbacks that investors need to understand, and this can clash with the fundamentals of long-term investing, a cornerstone of Pictet’s philosophy, the firm’s managing partner Laurent Ramsey tells Citywire Asia.
Ramsey, who is one of seven managing partners at Pictet and the chairman of the board of Pictet Asset Management SA, is seeing a rise in demand for private market investments, particularly as interest rates and the cost of leverage both come down.
Pictet currently has $45bn in assets under management in alternative investments, out of the group’s total AUM of $821bn.
But he is clear that even with the ‘retailisation’ of private assets that the industry is shifting towards about 90% of demand still comes from institutional clients, family offices and ultra-high net worth individuals.
‘On liquid alternative assets, we believe you need to be careful when making something illiquid liquid,’ he said. ‘You need to ask yourself if you want to hold the reserve assets to enable your investment to be long-term focused while still enabling liquidity.’
Many asset managers have been launching semi-liquid funds, as they become an increasingly popular way to open private markets to a wider range of investors. They can act as a stepping stone into alternative investments for clients who have been reticent to commit to investments with long lock-in periods. Semi-liquid or evergreen funds also allow investors access to strategies with a lower ticket size, while offering a degree of liquidity.
However, semi-liquids need to be explained well, Ramsey said.
‘More often than not, semi-liquid products have a cap of 3-5% redemption per quarter, so if there is a real crisis, what people think is liquid may well be gated,’ he said.
This was seen through 2022 to early 2024 on the high profile $60bn Blackstone Real Estate Income Trust (Breit), which restricted redemptions for 16 months as investors stampeded for the exit.
Rather, Pictet prefers to stick to its focus of managing long-term savings by taking a long-term investment-led approach. This is evident from its revenue split, which is 90% from fees, rather than transactional-driven, Ramsey said.
Overall, roughly 40% of Pictet’s AM business comes from institutional and 10% from private wealth, with the rest split between wholesale and retail.
‘We like the retail space as it is sticky and we do think the wholesale segment is more challenging as people change their allocation quicker,’ Ramsey noted.
Asia focus
In Asia, where the split between its institutional and private wealth business is roughly the same, he is seeing an opening up of large financial institutions to third-party strategies, rather than just pushing in-house products. Having said that, the Pictet funds that are doing well among its private clients include thematic equities, money market funds and direct holdings and institutional style mandate solutions.
Globally, Ramsey said its asset management and wealth management businesses are roughly the same size in terms of top line and bottom line, with wealth management representing less than 10% of its AM revenues.
‘This is extremely important as it means that wealth management doesn’t have incentives to sell proprietary strategies and ensures objectivity in their advice,’ he said, adding that being close to the wealth management business does give it a ‘direct pulse’ on the demand of end-clients.
This independence underlies the Pictet model, which Ramsey said ‘works in the sense that we are fully financially independent, owned by executives with seven managing partners - each an average tenure of 21 years - and 46 equity partners.’
‘We don’t have external shareholders, don’t have debt, and we aren’t listed, so and we all have skin in the game,’ he added.
Investment focus
From an investment point of view, Pictet is regaining appetite to exposure in Asia markets, particularly China.
‘China valuations remain attractive. It is cheap, even after the latest announcements. Asean and India are good places in terms of government stability and infrastructure spending,’ he said.
While fixed income investors experienced trauma in 2022, after investment grade bonds lost over 20%, Ramsey is now seeing a trend towards fixed maturity strategies, where investors receive their coupon and capital back over the ‘more sophisticated crossover products’.
Private banking clients in Asia have turned to the crossover space between high yield and investment grade bonds to juice up returns, as they look to take on more risk and lock in yield.
Strategies often dip into top-rated high yield and lower-rated investment grade bonds, while retaining an overall investment grade profile across the portfolio.
ESG makes a comeback
The firm is starting to see more interest in environmental, social and governance (ESG) focused investments, despite a marked slowdown in investor interest after performance struggled in recent years..
‘Within the sustainability space, it is true that demand has slowed recently,’ Ramsey said. ‘We currently see more interest in climate-related strategies from our institutional clients.’
In 2023, the underwhelming performance of many ESG funds, when benchmarked against market returns and instances of greenwashing created investor scepticism regarding the space.