What characteristics are you looking for in a fund manager?
Anyone can change products and processes regularly, without this being a problem in a company. On the contrary, it is often the sign of an ability to question oneself and of a desire to constantly improve what one does. At the same time, a company in the financial sector that succeeds in retaining its employees has a greater chance of being able to retain its customers. A very low staff turnover makes it possible to create solid long-term links with its customers, which reinforces the quality of the partnership.
The main role of a fund management company is to always act in the interests of investors (unitholders)
For what advantages, in concrete terms?
We have all already been faced with regular changes in contact persons in our working relationships or in a private capacity. Information is not always relayed, the history can be lost, each time you have to recreate a link, get used to each other’s methods, re-explain every detail. These are all sources of frustration and waste of time. Consequently, it is a real advantage for the client to keep the same interlocutors for years, even decades. It is also a guarantee of efficiency in complex situations where time matters. The very low staff turnover within Gérifonds is clearly a strength of this fund management. This allows it to create solid long-term relationships with its clients and reinforces the quality of the partnership.
What were you able to do that was unusual for your client as an auditor?
Gérifonds became our client at the beginning of 2008. We were therefore in our first audit exercise with a new client in the discovery phase when Mr. Christian Carron made a particularly complex request to us. While the fall of Lehman Brothers had considerably limited access to liquidity for financial intermediaries, a fund of hedge funds of the BCV group, under the management of Gérifonds, was to be repatriated from the BVI / Cayman to Switzerland.
Why was this request so complex?
Not only had liquidity evaporated in financial markets, but many valuations were missing. Without net asset values (NAVs), it is impossible to know precisely the value of the fund and its underlying assets, and it is also impossible to attempt to sell these on the market. We were faced with an extraordinary job. The fund in question was subject to redemption suspensions (Gates) from several of the underlying constituents. Therefore, redemptions were suspended and no investor could exit this fund of funds. Christian Carron came up with the following requests: first, could we create side pockets? And, first, how could we succeed in valuing the underlying funds that make up this fund of hedge fund? At that time, no one in Switzerland had experienced this. Even the Finma did not have a manual. We had to create solutions that did not exist.
How did you do it?
First, we had to find how to establish the best valuation, the fairest too. To then work on the creation of side pockets. To do this, we acted very pragmatically and ultimately we succeeded in giving valuations to the securities held. It was then that I grasped what Christian Carron kept reminding me of: “The main role of a fund management company is to always act in the interest of investors, the unitholders.” We had acted and found the best solutions despite this exceptional situation.
Has the fund suffered any losses?
Finally, after six months, we honored the redemptions, then we liquidated the side pockets and of course the fund could be repatriated. We did not lose anything and the fund continued its existence normally, but under Swiss jurisdiction. This is a real success which also made it possible to implement existing clauses in the prospectus, in an extreme situation, and which worked. It is quite rare. This was made possible thanks to the combination of a pragmatic auditor, who offers his support and is not only reprimanded, and a future CEO of a fund management who knew how to make the link between the administration, legal aspects and the manager, on behalf of investors. It is also on this occasion that the sentence that Christian Carron constantly recalls took on its full meaning. The main role of a fund management company is to always act in the interests of investors (unitholders).
Christian Carron is distinguished by his career. A former fund manager, he not only has an economic and financial understanding, but also the competence of the front office. He has already found himself in the position of the fund manager who faces clients. He has already had to report to his fund management, committees and boards of directors.
How do you think Gérifonds handled the massive withdrawal from Swisscanto?
The year he became CEO of Gérifonds, Christian Carron had to take responsibility for BCV’s decision to withdraw from the network of cantonal banks. It therefore lost a major partner – Swisscanto (ZKB) – and historical one, since Swisscanto had been a client since the creation of Gérifonds in 1970. Not only were their funds deposited with BCV, but the fund management function was carried out by Gérifonds . This relationship represented 50% of the assets under administration of Gérifonds, which resulted in a loss of almost 8 billion in a single financial year. Few companies manage to recover from such a loss, even if you are part of a group.
The very low staff turnover within Gérifonds is clearly a strength of this fund management. This allows it to create strong long-term relationships with its clients and reinforces the quality of the partnership.
What decisions were made at that time?
Christian Carron approached this challenge in the following way at the time: “We have a decision that causes these losses. We did not provoke them. It’s up to us to quickly rebuild ourselves and prove to them what we are capable of. “
Possessing, in addition, a great commercial sense allowed the development of new mandates, with the absolute support of a chairman of the board of directors who is also an expert in asset management, Stefan Bichsel, and it is this combination that made all the difference.
According to your practice, what peculiarities must the CEO of a fund management company have?
Being technically sharp allows us to truly offer tailor-made solutions, thanks to the mastery of all the elements making up the value chain. This is possible if the boss also knows his clients’ business perfectly, which gives him immediate confidence on the part of the fund managers he meets. He knows where the fund manager is from. He understands the strategies, he knows what the manager wants to do and how he plans to achieve his goal. Thus, the CEO of a fund management company is able to translate the clients’ situation into understandable language for his team of lawyers. These, in turn, will be able to constitute the right financial vehicle and ensure that effective control is in place. The boss must therefore intervene at each step, and, therefore, the offer is consistent. I have noticed that within Gérifonds, lawyers face someone who understands them, while also fully understanding the manager and his constraints. Christian Carron acts as the conductor and brings together all these singularities in addition to wanting his clients to be satisfied, he wants to work with them, that makes all the difference. As a reviewer, this is where you can see the quality of your interlocutor.
What does an asset manager ultimately look for?
In such a configuration, the asset manager benefits from great comfort and is safe. He does not feel cornered and harassed but, on the contrary, supported throughout the social life of his fund. Having a precise understanding of a product and the manager’s needs across the entire value chain is the recipe for success. Stability combined with expertise, having an internal legal department with diversified profiles and account managers with specific knowledge according to the types of financial products as well as strong risk monitoring, united in a collegial spirit : this is what a manager is looking for. This is what I observed at Gérifonds.
Do you see a consolidation of fund managers in Switzerland?
Currently, there are around 45 fund managers in Switzerland and only around ten are open-architecture, so it is an already compact market for a substantial pool of assets for a country of our size. The costs are very high and the margins very limited, whereas this profession requires particularly specialized skills. If the pressure on margins and fees continues, a consolidation may be launched by the European players in this business. If a fund manager is part of a large group, its systems and infrastructure costs are absorbed by the group. This translates into an economy of scale that small independent houses cannot afford. Consequently, these players linked to large European groups could destroy the Swiss fund management market in the medium term. Another risk: if real estate suffers a sharp decline in activity, many fund managers may be less profitable. Indeed, it is common for a fund manager to benefit from the transactions of its real estate funds, which are much more profitable than the sole profession of fund administration.
Jean-Sébastien Lassonde is a partner at PwC, responsible for the Asset Management & Wealth Management branch in Switzerland. He holds CFA, CPA, ACA and CAIA certifications and previously worked in Montreal and Boston for PwC.