Pictet puts equity team in HK, builds in EM credit

Renaud de Planta, one of Pictet’s eight partners, discusses the firm's strategy for its Asia funds business, which includes a major regional expansion.
Pictet puts equity team in HK, builds in EM credit

Swiss funds house Pictet is expanding its investment and sales team in Asia, including putting equity portfolio managers and traders in Hong Kong and building an emerging-market corporate bond team.

This is first time the firm has had investment staff in Hong Kong, and they will comprise three equity managers and three equity traders. By the time they are all in place, the entire Greater China long-only equities portfolio will be run out of the territory, says Renaud de Planta, Geneva-based managing partner for Pictet Asset Management.

The Hong Kong team, which includes China A-shares expertise, will manage the portfolio for the firm’s qualified foreign institutional investor (QFII) quota, awarded in 2006.

The three managers are new to Pictet AM, with two already appointed and one in the process of being hired, and they will form part of a 20-strong global EM equities unit. Two of the traders are internal transfers and one is a new addition.

Heading the team is Pauline Dan, who came on board from Samsung Investment Trust Management last month as one of the three portfolio managers. She was head of Greater China equities at the Korean firm in Hong Kong, having joined in April 2008, before which she worked for Manulife Asset Management.

Pictet, which manages €105 billion ($138 billion) in assets globally and also has a private banking arm, did not reveal the names of other additions or relocations or their previous roles, but did say some expertise would be transferred from Europe.

Meanwhile, the new emerging-market corporate bond team will comprise seven or eight globally, around half of which will be based in Asia, largely in Singapore. There is already a six-strong EM debt team there, which manages $10 billion of the $22 billion global EM debt portfolio.

The firm had previously invested in EM corporate bonds as an off-benchmark strategy, but will now start managing dedicated EM corporate bond products.

“The EM corporate bond build-up will see us ahead of the pack; there are only a handful of firms globally doing this seriously,” says de Planta, one of Pictet's eight partners. In fact, the firm's former global head of corporate bond research moved from Geneva to Singapore a year ago to run EM credit research.

The build-up of the investment team comes alongside recent hires in other areas, including Koonnang Tse joining from Amundi as vice-president of business development in Hong Kong, and a new operations manager in Taiwan.

With regard to fixed-income investment, De Planta says weighting bond indices by market cap no longer makes sense, given debt crises in Europe, the US and Japan. “If you think about fundamental factors, there’s no way you should have a third of a government bond portfolio in Japan,” he told AsianInvestor while in Hong Kong last week.

For many investors, an EM bond allocation in a sovereign debt portfolio of even 3% still seems like a “leap of faith”, he notes, yet he advocates an exposure of more like 30-35%.

Hence flows into EM debt are only set to increase, suggests de Planta. However, the depth and liquidity of Asian bond markets need to improve, he concedes, and the current global macro problems are making things tougher in this regard.

Bond markets depend on the willingness of market-makers to quote prices, and all the regulatory pressure hitting banks now – particularly Western ones, which are typical market-makers in bonds and currencies – is having a big effect on liquidity, says de Planta.

Still, he adds, Asian corporates are gradually increasing their use of the bond market as banks pull back from providing loans, and a growing number of corporate issues are being rated by the big credit agencies.

There are various alternative (non-market-cap) benchmarks investors can use for bond investment, he notes, adding that GDP weighting is a common approach, but perhaps not the best one.

In managing global government bonds, Pictet uses a unique approach that goes beyond this to incorporate other factors such as human capital, land mass and size of fixed assets. This enables it to invest in countries with the most ability and willingness to repay their debt, thereby providing investors with a “forward-looking” opportunity set, says de Planta.

Asked his view on the trend for product distributors to be more choosy about the funds they sell through their platforms, and whether that has made it tougher for Pictet, de Planta says the firm tends to be fairly selective about the distributors it uses. This is so that it can properly support them in terms of sales service, especially in light of tightening regulatory requirements on sales.

He adds that to facilitate partnerships with the global distributors, “you’d better have offices where they have offices”. Also important are having relevant language skills for the markets one wants to be in, to be able to present products on a regular basis.

Hong Kong, for instance, is a major retail distribution market for Pictet in Asia. The firm has added two distribution partnerships in the past year: one with insurer AIA in June and another with Hang Seng Bank last year. In Asia, it already has relationships with many of the big global players, such as HSBC and UBS.

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