Character, conviction and flexibility prevail at Pictet & Cie
Mussie Kidane of Pictet Wealth Management says the evolving nature of selection means there must be scope to consider funds of different size and age.
For Mussie Kidane (pictured), head of fund selection, wealth management at private bank Pictet & Cie, fund selection is an evolving process, rather than a fixed solution. “We amend marginally what we do from one year to another, but it basically remains the same process,” he explains.
Pictet & Cie, founded in Geneva in 1805, pioneered institutional asset management in the 1960s, and now has with some €373bn assets under management and custody.
The bank is clear about its core business, focusing solely on managing the wealth of private and institutional investors. It does not engage in any form of investment banking, nor issue any commercial, mortgage or unsecured loans.
Presiding over a unit that supervises some CHF7bn invested in third party funds, Kidane, who grew up in Lausanne and studied at the University of Geneva, is passionate about the process and the business.
“We are distinguished by how we approach fund selection. Firstly, and most importantly, we are not in the business of trading funds, so the less turnover in our list, the better, he says.
“We accept that the managers that we select will have their ups and downs. But they should be able to create significant value over time, although not necessarily on a monthly or quarterly basis. Our investment horizons are probably longer than is usually the case.”
The selected funds are mainly used in discretionary portfolios, following the asset allocation decisions of the Investment Committee and according to clients’ risk profiles. To insure the right fit, Kidane’s six-people strong team spends a lot of time trying to understand the underlying strategies and getting as much detail about them as possible.
“When we finally reach the conviction level to hire a manager, we tend to hold the fund, as long as it continues to deliver on the expectation that we set,” he says.
The average holding period is about three years, but Kidane has had some funds on his selection list for more than a decade. “The oldest fund in our list has been around for 12 years and counting.”
From the start, Kidane says his team “builds in reasonable expectations”. He adds: “We keep managers if they stay within acceptable bounds, even if they are temporarily underperforming. The aim is to have upright relationships with fund managers, one that implies a completely different dialogue. They understand that we are not there to make a quick buck, so they tend to be forthcoming and address our concerns, if any.”
At the moment, Kidane is recommending just 55 funds, picked from the tens of thousands available globally, originating from over 40 asset management firms. “That means that we have significant exposure to a few funds, so we’d better be sure and confident in those picks,” he says.
What catches his interest? “Our asset allocation committee develops a strong view, say for example on emerging market corporate debt, and if we don’t have such a specialist fund in our list we start the search. We hear from and contact many different managers identified through our quantitative screening, and eventually come up with a list of names. Our selection is demand-driven, rather than us pushing funds.”
Is he interested in the idea of selecting managers at an early stage in the business?
“Yes indeed. A sensible approach would be to seed emergent fund managers. One way of doing this would be in fund-of-funds format. Such a set up would allow working with new managers as they surface. Most fund managers post their brightest results in early years, when real drive, conviction and the ambition to succeed is at its zenith.”
Kidane says Pictet has thoroughly examined such an opportunity. “That project is still on the agenda. The question is how best to approach and structure it – we are still working on the details and the timing of it.”
Many experienced managers leave big asset management firms to set up on their own, and they are highly motivated to succeed. But as outperformance attracts strong inflows, they spend more time and energy managing the business, rather than focusing on managing a portfolio, so the performance may suffer.