Pictet’s long-term strategy, client needs and the threat of financial market instability
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.
Interview published in Finanz und Wirtschaft, 31 March 2021
In an interview with Finanz und Wirtschaft, he talks about Pictet’s long-term strategy, financial market instability and the related risks.
Mr de Planta, how do you assess the mood of your clients at present?
Overall, our clients are very happy at the moment, because performance is exceptionally good compared with what’s happening in the economy as a whole. What is rather frustrating for us and our clients is that in most cases we are unable to meet in person. A year ago, we were still feeling surprised at how well things were functioning, but over the longer term the quality of the relationship cannot be compared.
Is this client satisfaction due solely to performance?
Not solely, although it has become increasingly important. About half our clients are private clients and the rest are institutionals. Especially for the latter, performance is paramount.
To what extent do your private and institutional clients differ?
They have differing requirements, but there’s no longer such a big gulf between them as there used to be. We are seeing a certain degree of convergence. Thirty years ago, private clients were more oriented towards capital preservation: they looked for security, among other aspects. Nowadays, the emphasis is on performance and the breadth of our offering.
So does the division between asset management and private banking still make sense
Yes, definitely, and we have made this distinction for many years now – legally, operationally, technologically and in terms of research, as well as in portfolio management and client service. Despite the convergence of requirements, the two areas have a fundamentally different attitude to the balance between risk and return. Institutionals attach greater weight to performance against a benchmark, while private clients expect absolute returns. Professionals also attach greater importance to the investment philosophy – the process. This has to be taken into account in client care. Banks that fail to make this distinction rarely succeed.
How do you ensure that Pictet’s own products are not favoured internally?
Our Wealth Management division’s fund research team has been working with a completely open architecture for many years now. Internal Wealth Management clients account for less than 10% of the asset management transaction volume. In fact both parts of the business could exist on their own. And that's the way it should be.
How do you seek out the rich of tomorrow? Is one option to look after clients from the fast-growing ‘affluent’ segment as well?
We concentrate on clients from the top end of the high-net-worth segment and above. The services we offer are not suitable for those with a portfolio below a certain size. Attempting to look after too many segments would present challenges. We can't be all things to all people, and in any case we are a small institution globally speaking.
Digitalisation is growing in importance for the upper client segments too. What impact is it having?
Our clients tend to be less bothered about traditional e-banking services. They take a closer interest in reporting, and they expect top notch access to online recommendations. We are investing in this area and also in data science, where we are undertaking more laboratory experiments. This has paid off during the pandemic, because it’s at times like these that you need high frequency data in order to judge how the economy is developing.
One effect of the pandemic has been lower interest rates worldwide. How are you dealing with that?
We are devoting a great deal of attention to it. Strategic asset allocations are having to be reviewed on behalf of clients. The classic portfolio with 40 to 60% in fixed-income securities is no longer working. It needs to be redefined, which may lead to drastic reallocations. People have to accept the need to incur more risk in order to achieve the same return expectations. That’s what happens in times of financial repression.
What sort of long-term effects are you expecting?
We are concerned about the market situation: inflationary monetary policy and the associated risk of financial market instability, as well as the increasing likelihood of higher taxes for companies and individuals.
Will there be a crash in the foreseeable future?
It’s all a question of how fast monetary policy changes. It is to be hoped that this will happen in stages and with due warning. However, if inflation picks up, different political pressures will come to bear. Ideally, the central banks would start flagging up possible interest rate increases now. It would be better if all the central banks raised rates by half a percentage point simultaneously. That wouldn’t harm the economy and would lessen the risk of bubbles. Structurally, though, we are seeing a devaluation race. Nobody wants to be the first to act.
To what extent are negative interest rates affecting Pictet?
We are labouring under a disadvantage, because the negative interest rate environment in Switzerland penalises conservatively run banks such as Pictet. We have plenty of liquidity and a high equity ratio, for which we are being penalised. It’s having a big impact on us, is unpleasant, and we hope it will soon come to an end.
That’s one of the drawbacks of being a Swiss private bank. Is that model still functioning on the whole?
Certainly. It’s all a question of defining and implementing the right strategy. The days when every bank could cover every segment are past. The rules on transparency and taxation are forcing them to focus. ‘Swissness’ has triumphed in recent months. Financial markets are experiencing considerably more instability in the euro zone, the UK and the US. Governments in those countries have borrowed more and their financial systems are less healthy.
Clients aren't stupid. They are perfectly well aware of what’s round the corner. On balance, Switzerland has put less of a brake on the economy and acted more liberally. This has also strengthened the image of Swiss banking and asset management. Indeed, we are hearing this from clients in Asia as well as Europe.
Geopolitics is surely an important factor, especially in Asia. How is the dispute between the USA and China affecting you?
There is increasing interest in doing business with a Swiss bank. After all the crises the banking sector has suffered since 2008, including the instability affecting big banks and the end of banking secrecy, we are now entering a phase where Swiss finance is regaining its historically strong reputation.
Even though the residual problems have not been completely eliminated yet?
Pictet is the only remaining Swiss bank still to settle the tax issue with the USA. We are in contact with the US authorities. Unfortunately, I am unable to tell you any more about that.
How would you define long-term success for Pictet?
When our clients see us as the best. This goes beyond performance, and includes being a good employer as well. We also want to enhance our social responsibility in general. If we can do all that, we will have beaten the competition.