Consolidation is a trend that has been seen for quite a while in the Luxembourg marketplace. Edmond de Rothschild (Europe), for example, in December 2023 announced the to Apex Group; Caceis completed its in July 2023; Universal Investment Group closed its in November 2022.

“We’ve seen [consolidation] already for years, for example, in the third-party manco sector, with private equity firms acquiring and consolidating the sector a lot,” said Philippe Mossier, market head, continental Europe for Pictet. The Pictet Group has four business lines: asset services, wealth management, asset management and alternative advisors. “We are one of the rare, remaining independent ones, and we’re also one of the rare ones providing a one-stop shop offering for asset servicing.”

For mancos and alternative investment fund managers (AIFMs), the trend of consolidation has been a “well-known” trend for years, while the same phenomenon has also been seen in the asset services sector. “We do believe that in this environment, there will be an even more important place for an actor like us, with a focus on delivering added-value, quality service to the client,” said Mossier.

“Need to have a foot on the ground”

For Mossier, a strategic question that every fund promoter likely asks themselves is: should I keep my own manco, should I set up my own manco--or not? “I think that the level of AUM  [assets under management] where this question is relevant has risen a lot compared to the past, due to this regulatory pressure and pressure also on fees,” he said.

Given these pressures, “we do believe that the positioning that we have in bringing additional value is also something that would make the difference at the higher level of AUM than it used to be in the past.”

Another segment where consolidation is seen is in the external asset management sector, said Mossier, such as with independent wealth managers. One reason is access to the market. “With Brexit, notably, but not only, you need to have a foot on the ground in different areas and different regions.” So they would need to either acquire an entity that already exists in Europe, or create an entity, to ensure access to these markets.

“But a client that is international will need an access in the UK, they will need an access in Switzerland, etc., in Asia, where the wealth is moving. And to do so, they also need to equip themselves with additional tools” that would allow them to manage complexity and volumes.

With all these aspects to consider, “we do believe that a platform like ours--that is reliable, that is stable, that has a very close relationship to the clients--this has value in this environment,” said Mossier.

“Disruptors” transforming the sector

Pressures due to fees and regulation have been known for quite a long time, noted Mossier. But there other factors--”disruptors”--to “observe very closely.” These are not a danger, but they’re something that can “transform the sector.” Technology is an important aspect, but so is the change in the behaviour of clients.

“The way new generations behave towards their own wealth, or the way they invest their money, is totally different from what we’ve observed in the past,” he said. “Now, there are more and more people who want to have control over their wealth, a direct influence on the decisions that are made. Plus, they have access to information, much more than in the past.”

Firms now need to “find different ways to bring value to clients.” These can be, for example, having a “broader approach to family concerns, maybe having an impact on asset allocation more than pure asset management, or wealth planning activities.” Providing additional activities will be “necessary” to survive in this sector.

“Sustainability has to be a given”

But “our value as an asset servicer is not to be substitutes for those actors,” added Mossier. “It’s more to create the environment where they can just focus on that.” Pictet, for instance, has a “unique platform to cover any booking centre and any kind of product that an asset manager would run,” thus boosting efficiency.

Mossier also mentioned the “strong commitment of the group towards sustainability.” When a firm has an asset management mandate, they’re the ones who analyse and pick--or reject--different stocks, based on their convictions. “But when you’re an asset servicer, you don’t have this influence. The only thing that you can do is give all the tools in the hands of the asset managers willing to be responsible in that matter,” he said. “For this, we have developed a lot--we’re benefiting from the group knowhow, and we’re producing added-value reports to the clients that are interested in the matter. And we do believe it will be more and more.”

Asked whether this is part of the “generational change,” Mossier replied, “Absolutely. The global awareness on the matter is nothing compared to 10 years ago.” Is it reflected in the priorities given by end clients to asset managers? Not yet. “But the new generations--for sure. It’s even something they don’t think about anymore--it’s a given. Sustainability has to be a given.”

“I believe, for asset managers that are not looking at it or the asset servicers that are not looking at it--they will be penalised at some point.”

The “differentiating factor”

Because Pictet’s asset servicing arm has traditionally been a “small and discreet” actor, “we’re not seen a lot, we’re not known a lot.” “We like to be discreet, but we’d also like to be seen as a credible actor. I think now we have the mass, and we have the knowhow, and we have the sophisticated clients,” said Mossier. Pictet Asset Services has around 200 employees (not counting the staff of their technology and operating division) and €597bn of assets in custody as of 30 September 2023.

“The challenge is this fierce competition on the prices,” he added. “There’s consolidation, but there’s also not that many creations of new structures or new entrants on the market.”

It’s really about building long-lasting partnerships and bringing value to the client in the long run

Philippe Mossier, market head, continental Europe, Pictet

“So it’s how you position yourself as an asset servicer towards this existing ecosystem, when the competition is coming to the table with very, very low level of fees. This is the challenge,” said Mossier. But “we do believe that what we bring to the table is a differentiating factor--the partnerships that we’re building with clients are strong.”

Mossier mentioned that though the firm wants to keep its “leading position” in private custody, it is not looking for “growth for growth” at any price. “It’s really about building long-lasting partnerships and bringing value to the client in the long run.”

An “obsession” with quality

Pictet also has “this private banking DNA that is deployed in the institutional asset servicing division,” said Mossier. The “leitmotif” of “every single collaborator,” he said, “is to make sure that we bring the best quality possible to the client. And this is something that we think about day in, day out. It’s an obsession. And this, you can see it in every single aspect of what we deliver as an asset servicer,” whether it be at the execution, custodian or central administration level.

But all of this cannot be delivered “if you don’t invest a lot in your people,” argued Mossier. “It’s the quality of the people, the investment you make in your staff. The low turnover rate, the commitment they have towards clients--but also to the company--that will make a huge difference.”

“It’s essential to have this commitment if you want to build long-lasting, deep relationships with clients. That, in my opinion, is really key. And it’s even more critical when you look at the workforce market in Luxembourg. It’s super important to be an employer of choice, to make sure that you retain the talent.”

This article was published for the Delano Finance newsletter, the weekly source for financial news in Luxembourg. .