Magazine Extracts – Interview with Mussie Kidane

This new section of our web is going to be dedicated to showcase some of the Magazine's articles in order to gain visibility for our collaborator's work. We believe that the Magazine has some excellent, innovative and informative content, hence we choose to start to share them on our website as well. In this edition you can read a section of our interview with Mussie Kidane.

Mr. Mussie Kidane is the Head of Fund and Manager Research at Banque Pictet & Cie SA. The ten-member team is responsible for selecting best-in-breed fund managers across all asset classes for Pictet Wealth Management globally. Mr. Kidane and his team play an active role in the portfolio construction of the bank’s fund-based discretionary portfolio management. Mr. Kidane is also the portfolio manager of a US$1.0 billion total return funds run for Pictet Wealth Management clients since the product’s inception in 2007. He joined Banque Pictet & Cie S.A. in 2006 as senior analyst and portfolio manager and was promoted to head the team in 2008. Previously Mr. Kidane was analyst & portfolio manager within the fund selection and multi management team at LODH & Cie. He joined the firm in 2001 as a quantitative analyst reporting to the Investment Review Board. Mr. Kidane graduated from the University of Geneva with double Master’s degrees in Econometrics and in Finance. He is also a CFA charter holder.

What is the greatest challenge as a fund selector?

Fund selectors need to prove the relevance and the value added of the analytical work that they routinely conduct. Over the last decade, active managers’ alpha generation capabilities have been challenged. As a result, we have seen a tremendous push into passive management as investors continue to vote with their wallets.

What aspects do you consider most important when selecting a fund for a portfolio?

For us, knowing what we buy and why remains a focal point. The research we carry out covers the specifics of the investment strategy, the people running it, the prevailing market conditions, the appropriate investment horizon, and, of course, rational expectations in terms of relative performance.

Spending 13 years at Pictet Group, what are the advantages of staying at one firm for a longer period of time in your opinion?

First and foremost, it helps me appreciate and internalize the firm’s core values. This in turn shapes the way I and my team structure the research process and ensuing product selection. Last but certainly not least, it means I have an ‘institutional memory’ that’s valuable in discussions with both colleagues and clients.

We are currently experiencing a situation of certain economic uncertainty, caused by the current healthcare crisis. What perspectives do you have in this regard?

The world economy came to a sudden, sweeping standstill in a matter of a few weeks. We are not yet in a position to fully appreciate the human, economic and social costs of the pandemic and its potential consequences. Beyond financial markets’ knee-jerk reaction, The Great Virus Crisis ( or GVC) is likely to accelerate the trends that were already immerging, thereby re-defining the potential winners from losers.

From the qualitative analysis, what kind of information do you find most interesting when it comes to Fund Selection?

By definition, quantitative analysis is mostly backward-looking. Thus, our view of prospects, while taking into account the past, is largely driven by our qualitative appraisal. The experience of the investment team, the robustness of the investment process, and the quality of its execution are some key considerations when it comes to fund selection

Which assets do you think will perform better (survive) in 2020 considering the current market situations? Which assets are performing well under stress scenarios?

At Pictet Wealth Management, we believe that quality businesses with sound balance sheets that generate ample free cash flow and deploy it astutely (thereby creating shareholder value) have performed and will continue to perform well—particularly during periods when growth is scarce. Such companies are masters of their own destinies and can take advantage of turbulence to consolidate their competitive advantage and grow their market share.

What kind of adjustments did you make in the portfolios that you manage, in terms of hedging or risk management? How does the adequate asset allocation look right now?

The key to long-term performance is to have a well-constructed strategic asset allocation (SAA), which is adjusted through tactical asset allocation (TAA) decisions at important inflection points. When we have economic and market shocks like the ones we’ve just had, it’s judicious to lean towards the baseline or the SAA. This is often easier said than done as it may require buying assets that have underperformed or selling assets that have outperformed. Fortunately, we didn’t need to do much during this period as we were positioned close to where we should be.

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