Private equity offerings
As part of its broader wealth management offerings, Pictet, as a bank, has been involved in private equity (PE) deals for around three decades. Over this time, it has developed a very strong network of general partners which received early backing from the bank and have thus grown even closer to the bank.
Besides funding, the bank offers related services, ranging from trading to custody services, legal and compliance advice. “Basically you have the best of both worlds,” says Pictet, referring to how the Pictet Investment Office (PIO) is organised, with the agility of a small team.
He expects the bank to undertake more PE activities here in Asia. Pictet believes that Singapore has everything it needs to become a bigger hub for PE and venture funds. There is proximity to the huge emerging markets such as India while Southeast Asia, a growing economic centre in its own right, is in the neighbourhood.
Furthermore, technology has become a big theme in this region, and many countries have developed strong competencies in related fields. The venture capitalists operating out of Singapore enjoy clear rules of engagement in tax and other governance-related matters. “This is maybe even more now, during the pandemic, because Singapore is reopening, whereas Hong Kong, its main competitor, is not really doing so,” reasons Pictet.
Now, all the fuss about PE doesn’t mean Pictet is telling its clients to stay away from public markets. Valuations are relatively high, given the current buoyant state of the markets. However, this gauge has to be weighed against the time horizon of the investors.
Thus, if one has a view stretching up to 25 years, for example, a company that is perceived as trading at a high valuation now might not be so if earnings can be seen to keep growing. And therefore, the entry point of such an investment does not really matter if the difference in the price paid is around 20% or so.
“It is one of our roles: to educate our clients and our RMs (relationship managers) that when we invest, depending on the solutions we are proposing, and typically for PIO, it’s very much for the long term,” says Pictet. “For long-term investors, it’s about picking the right companies, it’s not about guessing the right timing.”
“We want our relationship managers to understand that the way Pictet advises its clients is really based on investment-led advice.”
Personal and family reputation
While the bank clearly wants to capture a bigger piece of the pie, Pictet is, in some ways, taking a more conservative approach than some of the competitors. The bank refrains from going on binge-hiring to poach RMs from other banks and have them bring their clients along.
Rather, Pictet wants to make sure it can hire RMs who share the firm’s approach to doing business. For one, the bank will not keep urging clients to trade actively so that it can generate more transaction fees.
It also eschews a profitable practice of extending credit to clients so that they can trade more — it does lend, but only as a secondary service when clients ask. “We want our RMs to understand that the way Pictet advises its clients is really based on investment-led advice,” says Pictet.
For the bank, this conservative approach, which differs from many of the competitors, is due to its long-term approach to doing business. Pictet, as a bank, has always been privately held. It is therefore insulated from the external public shareholder pressure felt by other banks to constantly deliver returns from one quarter to another.
Its partners — who are each obliged to acquire a stake in the bank when they take on this role, and then sell them to incoming partners when they retire — see themselves as stewards of the institution. “We have a much longer time horizon when we do things,” says Pictet.
For example, after the bank chose to enter the Japanese market, it was not making money for years. It held its conviction and stayed put, steadily building its brand along the way. It kept learning as well: understand the local markets and the clients; as well as educate its RMs and potential clients.
“We stayed the course, and then it really took off,”, he says. “So, it takes maybe a little bit more time. But, the good thing about Pictet is that we have time. And we believe that when it comes to managing the wealth of our clients, they should take a long-term approach as well,” says Pictet, referring to how it wants to inculcate investing habits in its clients and that a long-term approach tends to reap better rewards than pure trading.
For example, there was a client of Pictet’s who grew an initial US$100 million into more than US$4 billion over 24 years — or at a 15% compounded annual growth rate. Of course, not every year will be a good one, and that’s why there is a need to take a long-term view. “It takes time; it means you have to have the right structure, and you have to be patient. And I think the world of finance is a bit too impatient, and probably even more so in Asia,” says Pictet.
Within this region, many of the clients for private banks are self-made entrepreneurs. They made their money by being nimble and by moving quickly; and this long-term approach might not necessarily be something they have the patience to adopt.
Pictet recognises this as a challenge. However, he notes that successful entrepreneurs tend to think they are also great investors. “Unfortunately, it is not always the case, and that’s where we want to have a discussion with them and try to make our point. And since we have been doing this for a very long time, we can point to the spectacular results for our clients over the long term,” he reasons.
Even with these clients on board, there is certain investment advice Pictet would not give. For example, in recent years, many people have been generating outsized returns punting on cryptocurrencies.
The bank knows there is a growing appetite for such investments, but Pictet is not touching cryptos nor advising clients how to trade cryptos. It runs the risk of having clients cut away a portion of their AUM to rival banks that do, but Pictet is staying put. “We are here to serve our clients. And if we don’t feel we can give them proper advice, we’d rather let them know. And hopefully, they consider us for our expertise elsewhere,” says Pictet.
Such frankness and honesty, according to Pictet, is again part of the long-term approach the bank takes in doing business. This is especially so for Pictet, who carries the family name, and therefore the reputation of both Pictet the person and the bank, will rise or fall in tandem.
For Pictet, that’s also an extension of where his key priorities are: building a strong partnership with his clients; and with that, profitability will follow. “Our success should be the consequence of the success of our clients. I’m not working for the bank — I’m working for the clients. The benefit for the bank is a consequence. It’s about getting this priority in the right order,” says Pictet.
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