Fund - Pictet Alternative Investments


In terms of the longevity usually associated with Geneva-based FoHFs, Pictet Alternative Investments is a relatively new entity, having been established in March 2008. However, as part of Pictet & Cie, established in 1805, it shares the brand name of one of Geneva’s oldest private banks. From the time of its initial foray into hedge fund investments in 1991, Pictet’s wealth management operation was responsible for its clients’ alternative investments. The creation of Pictet Alternative Investments, however, reflects the increasing role that hedge funds have come to play in the bank’s portfolios.

Advisory and discretionary mandates have historically contributed significantly to Pictet’s business and account for roughly 50% of total assets of $9.96 billion, with the remainder invested in Pictet’s FoHF products. Assets have almost fully recovered from the punishing client redemptions that took place during the financial crisis, enabling Pictet to advance from 29th position at the end of 2007 to the 20th slot in the recent InvestHedge Billion Dollar Club listings.

“Over the course of 2008 to 2009, our assets under management dropped by around 40% from the peak to the bottom, partly because of performance,” says Nicolas Campiche, chief executive officer of Pictet Alternative Investments. “As we didn’t impose any gates or side pockets, redemptions accounted for 25% of the loss, which proved to be a better result than many of our peers experienced. We’ve also seen that investors do remember when you behave correctly and, as markets settled down, many came back to us. Today, our assets under management are less than 10% below the peak of 2007.”

Prior to 2008, private bank clients comprised 85% of the investor base in the group’s FoHFs. Since then, Pictet has embarked on an active marketing campaign to attract more institutional clients and diversify beyond its traditional European market. As a measure of its success, the institutional component currently accounts for 27% of the firm’s total hedge fund assets, including a 35% proportion in the FoHFs, including Mosaic, the flagship and oldest vehicle, which manages $1.24 billion of assets. With an annualised return since inception in 1994 of xxxx%*, Mosaic was nominated in 2010 in the InvestHedge awards for the best Global Multi-strategy Fund with over $1 billion over a five-year period.

Unlike many of its large competitors, who maintain offices around the globe, the entire team of 50 staff
covering alternatives is centralised in Geneva. As Campiche points out: “We believe that we gain more synergies this way than having people decentralised. We want to be one team with one culture.”

Pictet offers a very competitive fee structure by only charging a management fee ranging from 1.15% for institutional share classes up to 1.5% for private clients. Despite the absence of a performance fee, Pictet has devised a unique formula to incentivise the portfolio managers. Around 30% of a manager’s total remuneration is directly linked to his own performance. If he outperforms, a multiplier calculation comes into play but, if he under-performs, the bonus can potentially drop to nothing.

“Our approach derives from the fact that we only used to service internal private clients and, therefore, we were just charging to cover our costs – not to make money for the bank,” explains Campiche. “The message we have always wanted to send to the market is that the main added value offered by funds of funds derives from the research side. And, since research is a fixed cost, the best way to cover it is through a management fee.”

Pictet’s very conservative investment philosophy guides the entire investment process, thereby ensuring that the FoHFs were never exposed to toxic names such as Madoff or Amaranth. Similarly, it shuns over-leveraged and structured credit products.

“We consider ourselves to be a bottom-up research shop because we know that most of our performance is generated from the bottom up, which explains why we invest so heavily in our analysts,” says Campiche. “Nevertheless, we also employ a solid top-down process to define our strategy and tactical allocations which we adjust on a quarterly basis. It’s based on a disciplined model that helps us decide whether to overweight or underweight a strategy.”

Maintaining highly liquid portfolios, in which the liquidity of the funds always matches that of Pictet’s underlying managers, proved to be a major advantage in the financial crisis. “If you look at the top-down approach, we became even more liquid after 2008 when our tactical allocation shifted more towards long/short, global macro and CTA managers,” says Campiche. “However, it’s been a bit detrimental to our performance as the more illiquid types of strategies have performed best over the past two years.”

More recently, Pictet has increased its allocation to event-driven and long/short managers while reducing its typically high, global macro allocation to a still substantial 18%. Overall, the six main FoHFs invest in approximately 110 managers around the world, but with a traditional emphasis on larger players. Portfolios tend to be concentrated, with the top 10 funds sometimes accounting for 50% to 70% of the portfolio. On average, a portfolio will hold 25 to 30 names. However, the global multi-strategy Pleaid fund, with $1.7 billion assets, stands out as the most diversified product with 80 underlying funds.

In their hunt for new sources of alpha, Pictet’s managers have begun to look more closely at niche and emerging managers and have started to add these to the portfolio. Whereas Pictet has tended to be more cautious with emerging market funds in the past, it has recently reinforced its research in this area.

In February 2011, Pictet introduced its first UCITS FoHF, the multi-strategy Pictet Select – Callisto, with a highly concentrated portfolio in which the top five positions account for almost half of the assets. And, looking further ahead, the firm is nurturing ambitions for the launch of a series of new funds.

“We are planning to create more thematic or opportunistic types of products,” reveals Campiche. “The world is changing and investors are becoming more educated about hedge funds. Although certain clients are still interested in the classic vanilla multi-strategy FoHFs, many are increasingly looking for tailor-made solutions or focused thematic products which they can integrate into an overall portfolio.”

*For performance and contact details, contact Shaun Rajiah +44 20 7779 8367

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