Pictet Trims Hedge Fund Allocation for Cheaper Quant Strategies

(Bloomberg) -- Pictet Wealth Management, the Geneva-based firm that oversees $189 billion, has started to pull some money from hedge funds in favor of cheaper factor-investing strategies as it seeks to cut costs for clients.

The money manager is looking to shift money into so-called alternative risk premia products that replicate hedge fund-style strategies across asset classes at a lower price, Chief Investment Officer Cesar Perez Ruiz said. The unit is also trimming allocations to some fixed-income strategies to help fund the shift in strategy, he said.

“The average hedge fund’s track record has been a disappointment which is why we are looking at it a bit more,” said Perez Ruiz in a telephone interview. “One of the biggest concerns of our times is that we live in a world of lower expected returns, so we need to save wherever we can.”

Demand for factor investing, which tries to use quantitative models to deliver market-beating returns, is climbing across the asset management industry after years of under-performance by hedge funds. Institutional investors, including sovereign wealth funds, plan to increase their allocations to the strategies to 18 percent of their assets by 2022 from 12 percent now, according to an Invesco Ltd. survey.

Perez Ruiz said that he is steering clear of smart beta funds, saying very few of them are outperforming. He has instead awarded an alternative risk premia mandate to one external manager and is looking to hire a second firm soon. Allocations are still tentative as the firm monitors transaction costs, the CIO said. He declined to name the managers.

Despite the higher fees, Pictet is keeping money with hedge funds whose strategies can’t easily be replicated by competitors. The best firms in that industry will still outperform factor investing strategies, Perez Ruiz said, without naming firms.

The wealth manager’s parent firm The Pictet Group is based in Geneva and oversees about $500 billion in assets.

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