Pictet Says Funds of Hedge Funds `Aren't Dead' After Net Inflows This Year

Date: Thursday, October 21, 2010
Author: Warren Giles, Bloomberg

Pictet & Cie., Switzerland’s biggest closely held private bank, said net inflows of $340 million into its funds of hedge funds business this year show the asset class still appeals to investors.

“Funds of funds aren’t dead at Pictet,” Nicolas Campiche, head of the bank’s alternative investments unit, said in an interview in London. “We live and die by performance and risk so the interests of the manager and client are aligned.”

Pictet’s funds of hedge funds business managed $8.2 billion on behalf of clients at the end of September, said Campiche, making it the fourth biggest by assets in Switzerland, after UBS AG, Union Bancaire Privée and Credit Suisse Group AG.

Assets in funds of funds in Geneva, which helped pioneer the industry in the 1960s, slumped 71 percent between the end of 2007 and May this year as local money managers struggled to restore investor confidence after losses of about $7 billion to Bernard Madoff’s Ponzi scheme. Pictet, the biggest private bank in Geneva, wasn’t affected by Madoff’s fraud.

Funds of funds, which earn fees by picking a portfolio of hedge funds for clients, recorded $250 million in new money globally in the three months through September, said Chicago- based Hedge Fund Research Inc. That was only the second time in nine quarters that clients added assets. Single-manager funds attracted a net $19 billion of new capital in the third quarter, the most since the end of 2007, Hedge Fund Research said.

Fund Performance

Funds of funds lost an average of 21 percent in 2008 before returning about 11 percent last year, according to Hedge Fund Research. They rose 2.1 percent in the year through September.

Pictet’s Mosaic fund, which has more than $1 billion in assets, gained 1.6 percent in the first nine months of this year, after posting an 11.2 percent return in 2009 and a 15.2 percent decline in 2008. The fund also posted negative returns in 1998.

“We’ve had absolute performance almost every year,” said Campiche. “We’re not proud of 2008 but we made all our redemptions without gates or side pockets, which makes a hell of a difference today in attracting new money.”

Pictet, founded in the wake of the French Revolution in 1805, had total client assets of 252.9 billion Swiss francs ($262 billion) at the end of June. That included 120 billion francs at the bank’s asset management business.

At least eight Geneva-based institutions, including UBP, Banco Santander SA’s Optimal Investment Services, Genevalor Benbassat & Cie., Hyposwiss private bank, Banque Benedict Hentsch & Cie., and Notz, Stucki & Cie., reported Madoff-related losses.

To contact the reporter on this story: Warren Giles in Geneva at wgiles@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net