Discretionary portfolio management growth rates reported across the industry may seem impressive, but they are coming from a low base, Mak said.
“[Clients] are more dynamic in the sense that they want to control their own investments, rather than fully dedicate the decisions to a wealth manager.”
Mak estimates that high net worth individuals in Asia leave a “mid-to high-single-digit” percentage of their assets completely in the hands of a wealth manager. This compares to 20%-30% elsewhere in the world.
“Making all these investment decisions by themselves will be more challenging, given the uncertainty, economically and politically, in the market,” Mak said.
Asia credit demand
Mak, who joined the firm in 2011, previously held a similar role at BNP Paribas Private Bank.
In recent years, Pictet’s focus has been on building the global advisory platform and expanding the team to cover different geographies and asset classes, he said.
“Pictet is not trying to replicate any other private banks, [but] there are certain areas where we have been making adjustments,” Mak said.
One such example is meeting clients’ demand for credit. Clients are either looking to leverage their investments or they need liquidity because they have committed to long-term investments elsewhere.
“The demand for credit is strong,” Mak said. “That is one area where we have adjusted our business model. We are not becoming like a commercial bank lending money but, certainly, having credit in one of the product offerings is important in Asia.”
In Asia, Pictet focuses on ultra-high-net-worth individuals but does not have a specific target in terms of geography. Some of its clients inherited wealth, but most of them are entrepreneurs with newly created wealth, he added.
DM over EM
Mak said that the tendency toward home bias investing in Asia has been waning in recent years and clients are seeking diversification.
The firm is advising developed market equity exposure over emerging markets.
“Developed-market equities are likely to offer superior returns and less volatility than emerging-market equivalents in 2017: strategically we still prefer to play EM through DM. However, EM assets may offer attractive opportunities on a tactical basis,” Pictet Wealth Management wrote in its February report.
“The reporting season is well under way, and corporate results have generally been positive, especially among financials (which we like globally at present),” the report said. “This validates our scenario of double-digit earnings per share growth for DM equities in 2017 as nominal GDP picks up.”
However, volatility “could be sharply higher than in 2016” and the firm is maintaining well-diversified portfolios and downside protection.
Bond Caution
In fixed income allocation, high yield corporate bonds are preferred over investment grade bonds, Mak said.
Bonds have been a dominant factor in clients’ portfolios over the past couple of years, but he said this was starting to change.
“We have been advising clients to become more cautious on bonds, particularly government bonds,” Mak said, adding that yields on government bonds issued by the US, Europe and Japan were too low.
“The long bull market in bonds is coming close to an end.”
