Finest, not largest

At 3.30pm sharp, the buzz signalling the resumption of trading sounded, and the entire trading floor of Swiss bank Pictet erupted in applause. Within seconds, some 180 traders already seated in long rows stopped swivelling on their chairs and began to look intently at their screens, as they dived straight into the job of helping clients move an average of US$8 billion ($10.2 billion) per day in practically any tradable assets — and making a profit for the bank as well.

Bonds, equities and forex are the major asset classes traded today, but the 220-year-old Pictet is well on its way into the crypto age. On July 10, Pictet demonstrated its willingness to keep pace with the latest developments in the financial industry. In a joint announcement with SIX, the Swiss stock exchange, they successfully concluded a joint pilot project to tokenise corporate debt instruments and allocate fractional quantities of these assets to portfolios managed by Pictet.

Since the Geneva-based bank was founded in 1805, Pictet has many ways to help clients make money. In the early years, it was a money changer and gold merchant; it traded securities, lent money, underwrote insurance, helped fund shipping and railways, and even invested in tontines and lotteries.

Today, the bank is known not just for its wealth management but also for its asset management unit. The bank’s assets total CHF730 billion ($1.1 trillion), which makes it the second largest financial institution in Switzerland, behind UBS, and the largest privately owned European financial institution.

Interestingly, Pictet managed to reach this size largely by steady organic growth over the longer term and not coming under pressure to acquire to grow, as many bigger listed competitors tend to. Clients, says François Pictet, one of the seven managing partners of the privately held bank, aren’t seeking the bank for a short-term transaction but for long-term growth. “You don’t have tension between what the bank is focused on vs what the client is focused on. So clients come to us hopefully, if things go well, to have a relationship over generations with us,” he says.

Many of Pictet’s bigger competitors in the wealth management space have corporate banking arms or vast armies of investment bankers. Wealth management, adds François, is at the core of what Pictet does. The bank makes it a point to focus on what the clients need rather than which products to sell them. “When clients come and we have figured out their strategic asset allocation, their profile, their risk appetite, their liquidity needs, we then populate that chart with the right investment solution,” he says.

In a way, François, as a ninth-generation Pictet at the helm of the bank, carries a bigger responsibility to take this family name than most. When his father first joined the bank, there were fewer than 300 people. Pictet today has grown to more than 5,500 people. François did not join the bank right away. He candidly says that joining Pictet, the bank, is a “burden”, but it is also an opportunity that others won’t have, simply because it is not their name on the front door. “I don’t want to wake up when I’m 60, saying, oh, I should have tried that business looks actually quite nice,” he says.

Partners, not an almighty CEO

The bank is remarkable for its partnership system, especially in contrast to publicly listed entities. The seven managing partners today, led by a senior partner, form an extremely closely knitted group where they have collective responsibility over the entire bank, but each takes care of the different aspects of the bank’s operations. Each managing partner serves an average of 20 years before retirement, and new partners are appointed. “The (model) enabled us to go through world wars, economic crisis, financial crisis, turmoil, whatever has been thrown at us over the past 220 years,” says François.

Over the years, the number of partners has ranged between six and nine — anything more and discussions will not be as free-flowing when they meet; anything below and there will not be enough management bandwidth to run the growing business properly. The partnership system encourages a more entrepreneurial spirit, as the partners feel that being part of the group, they can change things and drive their part of the organisation a little bit in the way they want. This system is also a contrast to the top-down “almighty CEO”, where “there was no flow going in the other direction of how things could be done,” says François.

Pictet’s first office outside Europe was opened in Montreal in 1974, in case Soviet tanks rolled across Germany. Tokyo was the first Asian outpost in 1981, followed by Hong Kong in 1986 and Singapore in 1995. The bank’s premises have moved seven times, from the original modest three-storey building facing the Cathédrale Saint-Pierre in Geneva’s old town, which is still inhabited today, to a modern six-storey structure on Route des Acacias, a former industrial area. A spanking new structure adjoining and reaching 26 storeys, will be ready in a few months, giving a lot more space for operations to be conducted, clients to be hosted, and its collection of more than 1,000 art pieces by Swiss artists to be displayed.

Pictet and Pictets

Pictet may have entered the crypto age, but it maintains a keen respect for its history. In a compact fourth-floor apartment in Geneva’s Place du Grand-Mézel, the Pictet family archives sit. Walls are lined with shelves full of leather-bound tomes and also dotted with portraits of numerous notable Pictets over the centuries.

Not all Pictets were bankers, as described by Laurent Christeller, the bank’s corporate archivist. Pictets over the years were astronomers, avid sportsmen, industrialists and diplomats, including most notably, Charles Pictet de Rochemont, who drafted the declaration of Switzerland’s permanent neutrality, which was then ratified at the Congress of Vienna in 1815.

Lucien Pictet, nearly a century later, formed a joint venture with Paul Piccard to build the Pic-Pic car, dubbed the Rolls-Royce of Switzerland. The car company folded in 1920, but two of these handcrafted century-old machines are kept in running condition up till today, drawing thumbs up from local folks and tourists alike when one of the beloved Pic-Pics was driven about the streets of Geneva one recent summer day.

The work of another Pictet is more recent and has a much wider global impact: Jean Pictet, as director of the International Red Cross, in 1949, drafted the Geneva Conventions, playing up to the hilt the cherished principles of Swiss neutrality while playing a key role in international affairs. Another family member, Anna, was reportedly the most charming and graceful host at balls and social events, thereby helping the bank convert visiting royals and other well-heeled European nobility into loyal customers, says Christeller. Today, the willingness to entrust CHF5 million in assets to the bank to manage will get onboarding conversations going.

Moulding Birkenstock

Because of its own privately held shareholding structure, Pictet’s investment approach can afford a longer-term view than most others. Private equity is a key segment. Thanks to Pictet’s private equity (PE) AUM of some US$27 billion, Pictet can choose to be co-investors of practically all the managers who matter, thereby tapping their respective networks and expertise. “This is the asset class where the spread is the biggest between the good and the bad managers,” says David Maréchal, deputy head of private equity and co-head of Europe.

One recent PE deal led by L Catterton, a Pictet PE partner, speaks to this point. For nearly 250 years, the Birkenstock family has been making its iconic range of shoes with contoured cork and latex footbed, which is designed to mould to the shape of the foot, providing support and cushioning.

In April 2021, L Catterton, known for its expertise in premium and luxury consumer industries through its partial formation by LVMH, led a group of investors in acquiring a majority stake from brothers Christian and Alexander Birkenstock. “We got very excited, because for the first time in 33 years we’ve been doing co-investments, we managed to find a co-investment opportunity in a company that’s older than Pictet,” says Maréchal.

Under the first non-family CEO, Oliver Reichert, Birkenstock deployed savvier marketing and updated its distribution model to one that is more profitable. For example, direct-to-consumer sales went up from 30% in 2020 to around 40%. New product lines were developed as well. Closed-toe shoes used to contribute just 5% of Birkenstock’s sales, but with new designs after L Catterton came on board, the proportion increased to 20% even as overall revenue grew. From April 2021 till now, sales went up by 2.1 times; ebitda margins increased by 5% to 32% in the period, driving ebitda up by 2.5 times.

With the growth trend firmly moulded, Birkenstock was listed on the New York Stock Exchange on Oct 11, 2023, amid a relatively dry spell of initial public offerings. Since then, the equity value of L Catterton and its co-investors increased by 3.3 times from the time of investment to around US$2 billion. “Value creation did not come from heavy leverage or from buying low, selling high. It really came from a lot of strategic initiatives, operational improvements, access to talent and reinforcing the management team of the company,” says Maréchal.

Besides Birkenstock, Pictet’s PE funds had helped fund the growth of US drug company Moderna, famous for its Covid-19 vaccine; Meituan, a leading delivery platform in China; as well as luxury yacht builder, Italy’s Ferretti Group.

Since 1989, Pictet’s PE platform has been generating an IRR of 18.5%. The focus is mainly in the US and Europe, and Maréchal agrees that more investment opportunities can be found in other markets, such as emerging Asia. However, for now, Europe is familiar ground. The so-called Mittelstand, the SMEs that form the backbone of Germany’s huge economy, share numerous characteristics with Birkenstock and are a ripe environment to source for more potential investments, especially with more success cases like Birkenstock helping to dispel the old description of asset-stripping locusts that PE investors had been perceived to be.

Besides investing in companies, Maréchal sees interesting opportunities shaping up in the so-called secondaries markets. With “exits” specifically via IPOs at a relatively low level, many other managers are compelled to sell their investments to other investors, so that they can recycle their capital into other new investments. However, by doing so, they forego potentially better returns down the road.

Pictet, meanwhile, is both patient and able to come in and buy up these “secondaries” and wait for the rightful value to be realised. From the bank’s perspective, there are more and more “secondaries” transacting at meaningful discounts to NAV, and that transaction volume has surged. “At this stage, we are buyers on the secondary market,” says Maréchal.

Meanwhile, Pictet’s PE investments are riding nicely on a growing momentum. Since 2002, it has realised 63 transactions, with an average holding period of just 4.3 years. Throughout this period, it has achieved a multiple on invested capital of 2.97 times and 32.9% in IRR.

Water vs Nasdaq

Thanks to Pictet’s considerable presence in asset management, it is able to devote attention to various themes that can be both in-depth and broad-ranging. One way Pictet approaches thematic investments is to look at megatrends which pan out over 15 years or more.

For example, since 2000, Pictet Asset Management has a water strategy team as part of its thematic investing activities, which looks at equities that can ride on a US$1.4 trillion global market that is growing at between 3 to 5% per year - not those overnight multi-baggers but the right kind of bet on a long term secular growth trend. “There are very interesting returns, but it’s not what a Nasdaq investor would consider,” says Hans Peter Portner, head of thematic equities at Pictet Asset Management.

From the perspective of Cédric Lecamp, senior investment manager and team head, there are numerous megatrends underpinning water as an investment theme that can help provide steady returns over the long term.

Firstly, some 2.2 billion people still lack access to safe drinking water and run risks of diseases such as cholera and dysentery. At the same time, 1.5 million people worldwide are moving into cities each week as part of the global urbanisation trend. Rising levels of industrialisation, meanwhile, also require a more reliable clean water supply. As a result, a growing proportion of the world population is served by private water companies as private capital helps fund the necessary investments. For example, revenue and capex of US water utilities grew at a CAGR of 5% and 8% respectively, between 2008 and 2024.

The water investment ecosystem, says Lecamp, is more than just utility companies providing clean water, and is literally both upstream and downstream. Such entities are known to be stable cash flow generating investments. There are investment opportunities too in companies that provide monitoring capabilities, and also filtration. Pictet also looks at companies in engineering and consulting, and waste management. Companies that are able to make efficient water fixtures and sanitary equipment, such as Geberit of Switzerland, favoured by plumbers for ease of installation, are in Pictet’s radar as well, says Lecamp.

From Miami to Madrid

Other investment professionals within Pictet focus on other areas, such as real estate. Within Pictet’s portfolio, real estate investment is the smallest but fastest-growing asset class. “I think it’s a misnomer to call it alternatives. It’s no longer an alternative, really. It’s very mainstream,” says Zsolt Kohalmi, global head of real estate and co-CEO of Pictet Alternative Advisors, referring to the overall growth of the various assets managed by his team.

The common refrain might be that European real estate is boring and dowdy, with scant capital appreciation opportunities, where planning permissions take so long that redevelopments are at best a multi-year quicksand of balance sheets. Yet according to Kohalmi, there are interesting opportunities that are popping up, driven by trends of overall growth in affluence, where buying or renting multiple properties in different cities across different time zones is common. “That headwind is now a tailwind,” he says.

For example, Miami is no longer the top destination for big Latin American families. Madrid, for historical and cultural reasons, has become a hot property market as a result, firmly putting behind a property and construction slump this city was known for around the Euro-crisis more than a decade ago, he says.

Finest, not largest

For all of Pictet’s Geneva roots, some shifts are starting to take place, in line with how markets are changing. For more than two centuries, Pictet’s managing partners have all been white men. The first woman managing partner, Elif Aktug, a Turkish national, was appointed in Sept 2021.

Traditionally, when the managing partners meet, they speak French, but most recently, they are speaking English more. In January 2024, Raymond Sagayam, who was running the bank’s fixed income investments, was named the newest managing partner. Sagayam, son of a Malaysian diplomat, joined the bank in 2010.

If Sagayam can have his way, Pictet will grow not just more of its AUM for both wealth and assets from Asia, but also the allocation of investments too. Much of investors’ attention in the past decade has been dominated by the mighty US markets, especially the tech sector.

Emerging markets, once red hot, fell out of favour. According to Sagayam, Pictet has not neglected this sector. It has maintained teams to keep a close eye on. “And guess what? Now, in a world of US exceptionalism, which is maybe looking a bit fragile, suddenly emerging markets may come back to the fore. It hasn’t yet, but I believe it will.”

Sagayam says it is a “myth” that the Magnificent Seven have a monopoly on innovation because they don’t. Within the Asia tech universe, there are many investment opportunities that are big in innovation, hold oligopolistic positions, and trading at much more attractive valuations.

Right now, just 3% of Pictet’s active equities are allocated to emerging equities. However, current shifts in the financial markets, as shown by emerging market bonds, are suggesting that investors are warming up and have worked up an appetite for more allocations in emerging markets that is “materially starting”. Sagayam warns that the growing interest in emerging markets will not be an overnight phenomenon but a multi-year one. “And I do think that percentage, when we need to get whatever that is, is likely to go up significantly,” he says.

There’s another strong tailwind. Pictet, having enjoyed strong growth in Asia in recent years, is now a “huge focus” for the bank. For Pictet Asset Management, for example, it enjoyed a 40% increase in AUM in Asia in the past five years, as the bank helps Asia-based clients invest in other markets. Conversely, Pictet is in a position to help investors outside Asia suss out opportunities here as well. “Asia will probably be one of our highest, if not the highest, growth regions for the Pictet business,” he says.

Yet, one can be sure that Pictet, even as it aims for such growth opportunities, will hold on to certain values and traditions. “Our goal is not to be the largest,” says Sagayam. “Our goal is to be the finest."