“Europe offers plenty of opportunities”
Interview: Jeffrey Vögeli
Published in Finanz und Wirtschaft,
Saturday 5 November 2022.
Even for a private banker of his calibre, Marc Pictet is travelling a great deal at the moment. As a Partner of the Pictet Group, he needs to work with his staff in the Wealth Management division to forge closer relationships with clients once again, after having been restricted to virtual contact during the pandemic.
There is an acute need for advice: China's growth has slowed, the next generation is taking the helm in Europe and few people were expecting an energy crisis.
How are you, Mr Pictet? Are you very busy?
Yes, quite busy. But it’s gratifying when past efforts bear fruit. Especially in these turbulent times. Pictet is well thought of by clients and on the employment market, which energises us.
So you're not suffering from the general shortage of skilled staff? Everyone says it’s particularly difficult for IT.
As I've said before and will no doubt say again: nothing is simple nowadays. Everything has grown more complicated. IT is of course an important topic for us. Eight years ago we decided to set up a development centre in Luxembourg. Over 150 people work there now. We are currently setting up a second one in Portugal. In total we have more than 500 employees working in IT. This department plays a vital role in implementing the best systems for our clients and ourselves. Furthermore, like all service providers, we need to keep our clients’ data and our own secure.
Have you noticed more hacking attempts since the outbreak of the Ukraine conflict in February?
This is a subject that has become even more relevant overall. We regularly have to deal with attacks – it goes with the business. However, we have not seen a significant increase so far.
In addition to cyber crime, we are living in an age characterised by disaster scenarios, ranging from the climate and the energy crisis right up to nuclear war. What are you advising clients to do?
If you have only just started thinking about these things, you’re already behind. The most important thing is always to be well prepared. We have been putting sustainability into practice for over 20 years, for example. Back then no one was talking about ESG, but we looked at how we as a trusted custodian of client assets could have a positive impact. These considerations resulted in our Water Fund, for instance. I must admit, though, that the energy shortage wasn’t listed as probable in our risk matrix. Geopolitical tensions are nothing new in themselves, but the risks are more closely interlinked these days. Climate, cyber crime, protectionism – everything’s happening at once. But it’s not all doom and gloom: there are also plenty of opportunities.
Where do you see the biggest opportunities at the moment?
The bond market has fluctuated strongly and now offers potential. For around ten years, good opportunities only came up patchily there. Now the bond market is attractive again.
Given the inflation rate, is it really possible to create real added value using bonds?
That is the question, but we think it will happen in the near future. Furthermore, some super blue-chip stocks that corrected strongly have now become attractive again in Switzerland.
We have talked about major risks – these include the pandemic. Is Covid still an important topic?
I have a meeting with our management team in Asia at least once a week. Covid is still very topical in Hong Kong. We can travel again, but Mainland China and Taiwan remain very difficult to access. So it’s not over yet. The Covid crisis has also had a big impact on society. It’s making clients ask different questions, too. The theme of resilience – in other words stability and security – is much higher on the agenda.
Asia is a major market for Pictet. China has become significantly less open in recent years. Have you changed your attitude to it?
Asia remains an important market for us. At present, Zurich is showing the strongest growth. Europe also offers plenty of opportunities, because a particularly big transfer of assets from one generation to the next is currently taking place. That is very interesting to us as a private bank. Many of our competitors are not saying much about Europe, yet the potential is enormous.
It sounds as though Asia might be receding into the background a bit.
Our focus on the region remains unchanged. In the short term, however, Europe offers very great potential for Pictet in terms of wealth management. In Asia the situation is more challenging than five years ago. But we’ve been present there for 40 years and that’s not going to change. The uncertainty and lack of visibility means that entrepreneurs in Asia need support. The market is still growing there. Perhaps more slowly and at a lower level, but uninterruptedly.
The optimistic spirit felt in Hong Kong and China in the first decade of this century and up to the start of President Xi Jinping’s term of office has dissipated. The technocrats in the party leadership have proved a disappointment through not acting with the foresight that might have been expected of them. That is now having negative repercussions on the economy as well. Does this also represent a risk for Pictet’s plans?
I don’t entirely share your opinion that the party leaders lacked foresight. China chose a different way of tackling Covid and the country is part of the global economy, which is slowing down. A consolidation is now taking place there, after very strong growth. Growth must be managed, and the Chinese government is doing exactly that. China will pick up again, but in this phase the structures will first need to adjust after the period of steep growth. Furthermore, China is not just China on its own, but also China in the world. And in this role the country reacts to geopolitical tensions, too. The trend comes as no surprise to me in that sense. Our colleagues in Hong Kong say that the city is coming to life again and they are looking ahead positively. Its people want to work and achieve success.
So Hong Kong will not decline in significance?
It's important to put the trends into context. I believe that China will open up again over the medium term. Not tomorrow, but sometime in the next few years. Then Hong Kong will also open up more, and get back on its growth path. There has been a shock, and the country needs to digest this shock – but Hong Kong is very important to us. The city will remain the gateway to Mainland China. It’s also a major capital market with an important stock market.
As China becomes more important its influence also grows. Is it a risk for banks that China, like the US, could demand transparency about customer relationships?
Europe is not always a leader. But in terms of transparency, I regard it as a role model. And European financial institutions are using this full transparency model in other countries too. Whether their money is in Mainland China, Singapore, Hong Kong or Zurich, in the end the state will want full transparency. In addition, investor protection will be strengthened in China as well. If you want to have wealthy entrepreneurs in China as your clients, you need to be registered there. So far, Pictet has taken this step for asset management only. The cross-border business will probably develop in much the same way as in Europe.
How are things generally as regards regulation? For a time it looked as though the pendulum was swinging back slightly. Is that still the case?
I would say that Covid caused regulatory activity to slow down slightly. But regulation is and continues to be a challenging topic – most recently, for example, in connection with greenwashing. There is now a regular exchange of views between the banks and the regulator on this topic, including on the question of whether there is a need for more regulation or more self-regulation. Dealing with regulation on an international basis is very complex. That’s why focusing on a small number of business areas is so important, because you must always be able to understand and implement all the rules. Especially if you want to retain a good reputation that has been built up over many years.
Despite these challenges, you are optimistic about the future of the business in both Europe and Asia. At the moment, though, the mood is rather bleak. Have you changed the Bank's strategy in any way?
No. We plan for decades ahead. As a privately owned company we have time on our side. We can afford to do nothing or to allow an idea to mature, and also to hang on in there when others give up. Which doesn't mean that we stand still. In recent years we’ve recruited a large number of employees who now need to familiarise themselves with our culture. And our clients, too, are once again looking for more direct contact with us in the post-Covid period.
Was it this “Do nothing” option that made it hard for Boris Collardi, the former head of Julius Baer, to fit in with the Partners’ Committee at Pictet?
That’s your interpretation. It’s not as though we were lying around on the beach.
Of course not. But Pictet’s more gradual approach is very different from that of a listed bank, where being seen to be active can sometimes be highly rewarded. And by Pictet standards, the arrival and departure of a partner inside three years represents a very fast sequence of events.
It wasn't the first time this has happened in our 217-year history. Pictet is a dynamic private company, but we have been exclusively committed to organic growth with a clear, focused model. We regard this model as the right one for wealth management and asset management. Within our model it is sometimes good to do things a bit differently, such as by increasing the headcount faster. We have been able to appoint excellent teams. But the structure must be capable of integrating all these talented people and that's what we are concentrating on now. In any case, our relations with Boris remain very good. I had a meal with him only last week.