“Not all CS clients are a good fit for Pictet”
Having shown unwavering loyalty to the Pictet Group for 22 years, Marc Pictet will take over the reins from mid-2024. In an interview with the Swiss business newspaper Finanz und Wirtschaft (published on 23.12.2023), he shares his views on a turbulent year in the Swiss banking world. As the Managing Partner responsible for the Pictet Wealth Management division, he has experienced the ongoing shifts in the wealth management landscape firsthand. Nevertheless, he says, “For us, it is still business as usual”.
Mr Pictet, you were chosen to become head of the Pictet Board of Partners in October. Are you looking forward to your new role?
The handover is not for another six months, but yes, I am looking forward to it. As a Managing Partner at Pictet, you generally progress through various stages. I am currently responsible for Wealth Management together with my cousin François Pictet and previously worked in Asset Services, Operations, IT and other areas. The new role as Senior Partner is a natural progression as such.
What will you do differently to your predecessor Renaud de Planta?
Pictet stands, among other things, for continuity and this applies to both our partnership and strategy. However, as a team, we will certainly explore new ideas to ensure the firm’s future success.
Let’s talk about Credit Suisse: The bank’s collapse sent shock waves through the global financial community. What is your assessment of the situation?
The integration of CS into UBS appears to be going well. That is impressive given the sheer magnitude of the takeover and this is something we should all be pleased about. The response from international markets and clients has been positive.
How important is UBS’s success for the Swiss financial marketplace?
UBS’s success is immensely important for the whole country, not just for the financial marketplace. Our economy needs a big bank, and people need these jobs.
On the one hand, UBS needs to be successful, on the other, it’s one of Pictet’s competitors. Does this put you in a difficult position?
We are a little different to some competitors. We manage some CHF 640 bn, half of which is in asset management for institutional clients, another portion is in asset services and alternative investments. UBS is therefore an important client for us. We are also currently still a fund provider for CS. As such, we have a keen interest in a successful outcome.
But UBS is a competitor in wealth management, isn’t it?
UBS is active in various wealth management segments. We engage exclusively with ultra-high net worth private clients and there is room for several banks in this segment.
Following the collapse of CS, the cards in wealth management have been reshuffled. What does Pictet stand to gain?
It is true that other wealth managers including Pictet have all gained clients from the demise of CS, some more and some to a lesser extent. But we should not be thinking about redistribution in Switzerland in the short term. We need to ensure Switzerland gets a bigger slice of the pie and that all banks reap the rewards. As a financial marketplace, it is important to remain attractive and be in a position to attract client assets from abroad in the long term.
Are you not interested in CS’s client assets?
That is not quite the way it works: not all CS clients are a good fit for Pictet.
Because they are too risky for you?
Because we do not have an offering that suits everyone. We do not engage in brokerage services or investment banking. We offer wealth management services in the upper segment and discretionary investment management solutions in all asset classes. We welcome all CS clients interested in such an offering.
Are you actively pursuing new clients?
We have not actively targeted CS clients. I know that some competitors are specifically targeting CS and UBS. We are not doing that.
According to your most recent figures, you reported a considerable inflow of CHF 15 bn in net new assets in the first half of 2023. A reflection of the CS effect?
Inflows of new assets have come from all over, including some from CS. We look at this market by market. For example, we had a very good year in Germany and Italy, while other markets were more challenging.
Private banks generally aim for 5% growth in net new assets. You are currently hitting the mark.
Indeed, the result was in line with expectations.
Many US banks are significantly expanding their presence in Switzerland. Lombard Odier, Julius Baer, LGT and EFG are also hiring aggressively. Pictet does not seem to be following this trend.
For us, it is still business as usual. We hired around 30 bankers this year. That is normal for us. We look for candidates that are a good fit for our culture; where they join from is not really important. This is a completely different approach to our competitors. What matters to us is the cultural fit of a relationship manager.
We constantly hear that UBS pays huge sums to keep the best relationship managers. Does this undermine the integrity of prices in the industry?
That is not what I have heard, but if it were the case, it would not be a sustainable strategy. Not all relationship managers are interested in maximising their earnings in the short term, long-term prospects are also an important factor.
Do you now also have to pay new relationship managers a higher salary?
Our new employees often have a different motivation. They are drawn to our distinctive corporate culture as well as our practices, which may differ somewhat from the norm in private banking. We measure success over the years.
Private banking used to be considered a safe business. Julius Baer’s loan of some CHF 600 m to the now insolvent Signa tells a different story. Should Julius Baer have acted more prudently?
I will not comment on that. We do not comment on our competitors.
Such a high exposure to alternative assets is far too large though for an asset manager.
Private banking is practised very differently. There are certainly some firms that attract clients by offering loans at favourable terms at the outset of a business relationship in the hope of a subsequent asset management mandate. For us, it is the other way round.
What lending solutions do you provide?
Lending is not one of our main services. We usually only extend loans to existing clients as part of a secondary offer and then only Lombard loans with fairly conservative lending limits.
Did René Benko also approach you?
I cannot give any information on individual cases, but clients seeking a high lending limit will go to other providers.
So what happened to Julius Baer could not happen to Pictet?
As I said, our business model is different. We aim to be crisis-proof and grow at a controlled pace. We do not play with our balance sheet. Stability is a priority for us. We are one of the best capitalised financial institutions in the world. This proves its worth in times of uncertainty and has enabled us to steer a course through numerous crises.
FINMA knew about Julius Baer’s cluster risk at Signa. It was also unable to prevent the collapse of CS. Does it need more power?
FINMA has a complex and important task. In order to fulfil its mandate effectively, a supervisory authority always needs to have a sufficient number of qualified employees and an adequate range of sanctions at its disposal. It could be that this is not the case at present. Policymakers would have to give FINMA the means to do this.
At the beginning of December, Pictet announced that it had settled the tax dispute with the US. A big relief?
We are certainly pleased to have it behind us. For 15 years, we had to deal with the uncertainty of what lay ahead for us. It is also good news for the Swiss financial marketplace. Now we can all look to the future.
Is the chapter now definitely closed?
We entered into a deferred prosecution agreement, meaning we agreed to three years’ probation. This is standard for all Category 1 banks.
Why did it take so long to reach this agreement?
We do not have the answer to that. There is also no priority based on the amount of the fine or any order based on Category 1 or 2 banks. If you look at the settlements as a whole, you will see there is no clear pattern.
Pictet must now pay almost USD 123 m to the US. A good deal?
I do not want to say that it is a good deal but all in all this outcome was to be expected. Compared to some other Swiss banks, it is indeed a better deal. We responded and cooperated very early on, that helped in the negotiations with the US Department of Justice.
Asset management has changed fundamentally during this time. What has this meant for Pictet?
We adapted early on. For example, we founded Pictet North America Advisors, PNAA, in 2007 and launched it in 2008. PNAA is an entity
segregated from our bank and regulated by the SEC. It operates in full compliance with US law. At the time, all US clients had to decide whether to leave our bank or switch to PNAA. Following an initial transition phase, we have now been serving US clients solely from this entity for quite some time. We have also expanded our Legal, Risk and Compliance team over the years.
The clientele is also changing. The future client base will increasingly consist of women. How do you want to reach them in a more targeted way?
We have had intensive discussions with our female and male clients and have come to the conclusion that when it comes to investments,
their needs are pretty much the same. Our offering is the same for both genders. However, we regularly organise networking events for our female clients. Because when it comes to family dynamics, transferring wealth to the next generation or succession planning for a company, women and men often think differently.
Do investors still think the same as three years ago?
We are currently witnessing the renaissance of bonds. This engine had been idle for 10 years. This meant we had to work more with shares and alternative investments. And that always means more volatility in the portfolio. Now we have plenty of new opportunities and can offer a more balanced portfolio for at least the same return. We are heavily focussed on the shift from liquid assets to investments with longer terms. Bonds will certainly be one of the main topics for us next year. This shift is primarily towards investment-grade bonds and emerging markets. We find, for example, local currency bonds in Asia highly attractive for next year.
In China too?
Some investors are indeed asking the question: “Is China currently investable?” Nobody doubted it before COVID. But today, some are no longer so sure. We are optimistic. We believe that the Chinese government will do everything in its power to achieve its growth target of 5%. The geopolitical tensions between the US and China are not over. But a dialogue has been restored along with the will to work together. I hope that all concerned soon recognise that globalisation has far more advantages than disadvantages.
What other trends do you see?
Distressed debt also currently offers good opportunities and will remain interesting for at least the next two to three years. High interest rates are putting enormous pressure on the balance sheets of companies that have borrowed too aggressively and are now struggling as a result. We are looking for debt securities trading at a larger discount than is justified, given the potential for a turnaround. Due to their regulation and risk-bearing capacity, certain banks are less active in the lending business, which is why private credit in the private market investment segment is also interesting.
Where do you stand in terms of digital assets?
Our clients do not need us to buy Bitcoin and other currencies. Other platforms are better suited for this. We are more interested in blockchain. This technology will significantly transform the banking industry in the next five to 10 years.
Who does more for sustainability: Pictet or your competitor Lombard Odier?
Others should be the judge of that, not me. The more competition there is between providers, the better. We all need to actively engage in creating a more sustainable economy. Financial institutions have a role to play in finding solutions to the climate crisis. We have the capital and ideas to make the transition possible.
Greenwashing poses a great danger.
Greenwashing must be recognised as such and prevented. Investors should be able to see how their assets can make a difference. It is up to us providers to be as transparent as possible. Enforcing binding rules and imposing penalties against greenwashing is certainly the right approach. However, it is important to ensure that such measures do not hinder the effortsof those genuinely striving to make a positive impact. This is a relatively new field and we all have to learn together. This also applies to regulators.
According to recent industry studies, the upper mid-market segment has great growth potential. Are affluent clients also welcome at your bank?
In asset management of course. We fully understand the attractiveness of some of our funds, particularly in the thematic area and for private investments. In wealth management, our investment focus requires a certain amount of invested capital. That is why we focus on clients with substantial wealth and assets.
How much wealth do you need to become a Pictet client? It is reported to be at least CHF 2 m.
We do not have a specific minimum amount. Our focus is on “good” clients. We strive to attract entrepreneurial clients that can identify with our philosophy and understand how we work for them.
In Switzerland, as in other countries, the affluent segment is a very large group. And more and more wealth management companies are tailoring their offerings to this clientele. Is Pictet missing out on a trend?
It is indeed a highly interesting segment. The needs of this clientele can be readily catered to with standardised digital solutions or hybrid instruments. This can generate additional income. However, it does not fit in with our strategy and our tailored approach.
The wealth management industry is continuing to consolidate globally to achieve economies of scale. What is your perspective on the increasing competitive pressure?
Consolidation creates opportunities. Over the years, we have only grown organically when there has been consolidation elsewhere. Today, we are no longer just a Geneva-based private bank. Zurich has now become our second home and a pivotal hub for the Pictet Group.