Pictet may have started out as
a small Geneva-based private bank, but its role in providing global
custody services to institutional and private clients since the
mid-1980s has challenged this perception. Its head of global
custody Richard Humes explains its mix of asset management and
custody.
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Pictet & Cie has all the hallmarks of a classic
Swiss private bank. Operating since 1805, it currently has seven
partners all with unlimited liability. Its strategy is based on a
long-term view that aims to retain wealth using a customer-driven
approach that shies away from the product pushing of its larger
rivals.
But unlike many private banks it
has built a substantial global custody business, giving it a
special differentiation explains Pictet’s head of global custody
Richard Humes.
“A big custody platform is like the
icing on the cake, because it means clients know their assets are
taken care of and there is good reporting,” he says.
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By GlobalDataEarly
beginnings
The custody business grew out of
the fact that it has been managing assets for institutional and
private clients internationally for many years, says Humes.
Custody started in the mid-1980s
when Pictet found it had the infrastructure to provide global
custody to large institutions, which it had been doing for smaller
private clients, before the term global custody had been coined.
Around the time, it had an emerging US custody trade too dealing
with US institutions through a relationship with Mellon Bank.
In 1985 it became the first Swiss
bank to offer global custody to institutional clients, initially to
Nestle, as pension funds sought to diversify their investments.
“A demand sprung up in the market
when some of these big institutions found out we had a global
custody platform which allowed them to consolidate their accounts
with one organisation and get consolidated reporting and
analytics,” says Humes.
Over the past 25 years, that
banking administrative infrastructure has become a useful tool for
investors for pension funds as well as family offices and has
become a business in its own right.
Pictet’s custody business has
historically grown between 10% to 15% year-on-year, with its
private bank growing between 5% to 10%.
Pictet’s model
mix
Humes says
Pictet prides itself on asset management for both private and
institutional clients, as well as family offices, as he explains
the bank’s model in more detail.
Assets in custody at Pictet total
CHF370bn ($347.8bn), of which CHF230bn are managed and CHF140bn are
in global custody – emphasising the strong asset management tilt to
Pictet’s business.
Within its managed assets business,
CHF100bn comes from private clients and CHF130bn from its
institutional side.
In its asset management business,
private and institutional clients have a 50:50 mix. Pictet has a
very large institutional asset management activity, managing direct
mandates, as well as a large mutual funds business.
Private client asset management is
handled by Pictet Wealth Management, which offers classic private
banking management to advisory mandates.
The global custody business
typically administers the assets that Pictet’s wealth managers do
not manage. Again, there is a 50:50 private client/institutional
split for its custody services, with very wealth private investors,
typically families organised as family offices, on the private
client side. The bank’s institutional side is a classic
pension-fund custody business.
Although servicing institutional
clients was where the global custody platform started, it is the
private client business, particularly serving wealth families, that
has seen the most growth.
“We were in the fortunate position
that we were seen as an international global custodian but being an
asset management-driven private bank,” says Humes.
“When the wealthy families started
looking for a global custodian they saw that we were there and they
could deal with people who understood private clients rather than
going to a major commercial bank that largely did institutional
global custody.”
Custody
competitors
Pictet is far from alone in the
global custody trade, and its assets in custody are dwarfed by
heavy-hitters such as BNY Mellon, which had $22.3trn under custody
or administration to the end of 2009.
Global custody on its own is not a
lucrative business – Pictet’s asset management and global custody
are off-balance-sheet, with money coming from charging commission
fees to hold or manage assets.
Humes acknowledges that anyone can
hold on to assets, but adds that providing the legal experts,
estate planners, financial engineers and investment products to
clients is where the differentiation comes.
“You end up with a relationship where the custody platform is a
core requirement,” he says. “In fact the relationship is much more
complex. There are many more asset management services we can get
involved in. That’s really what we aim to do,” he concludes.
