Natixis will not let the financial crisis distract it from a growth plan put in place in 2006. Angele Spiteri Paris talks to Pierre Servant, CEO (pictured) about adjusting to the new environment...
Fund management chief executives have little choice these days but to try and stay optimistic through the recession. This is particularly true of Pierre Servant, CEO of France’s Natixis Global Asset Management, which formed in 2006 following a banking merger that created an asset management firm with €500bn of assets under management. Natixis Global AM then rolled out an aggressive expansion plan that included acquisitions and may see more investment to build a manufacturing business in Asia.
Natixis Global AM acquisitions were numerous. It was named the third fastest growing asset manager globally in February 2008, based on data from Watson Wyatt. Natixis Global AM was also the fastest growing fund management firm in 2007, according to the Financial Research Corporation.
So doesn’t a crisis like this take the wind out the sails? The financial turmoil may inevitably slow the pace of growth, but Servant says it will not halt the firm’s overall plans. It’s just a matter of altering spending habits.
“We set out a strategy in 2006 and we’re not changing it, in spite of the crisis,” says Servant. “We will, however, move at a slower pace because our revenues have been affected. We have not had any outflows – touch wood! But we have experienced a very negative market effect."
“Just because of market falls since the beginning of 2008 we lost close to €47bn, which means that revenues are automatically dropping down and there’s nothing you can do about it,” he says.
A Citi broker report showed that Natixis asset management profits before tax were down 31% year-on-year and revenues fell by 13%. These results, however, were in line with analyst estimates.
Servant continues: “Due to the pressures on revenues, we will have to do something about expenditure, which, to be honest, we didn’t do much about in recent years. Asset managers are very bad cost cutters so we have to be careful.”
The same broker report suggests Servant might have had some success here, because results were boosted by lower-than-expected costs, which were down 21% year-on-year.
Natixis Global AM runs a multi-boutique structure and in its two years of life the firm has built a total of 20 affiliates or asset management companies. Each of these has a very different corporate profile and gives Natixis Global AM a diverse skill set.
“We have no centralised investment process. Each runs their own investment management business and their own very different expertise,” says Servant.
Despite slowing economies, Servant is still keen to grow the firm’s expertise in Asia. He says: “We are very small in Asia and it’s clear we have to do more. It’s not easy because Asia is not like one country. Like in Europe, where if you do something in Spain it doesn’t mean you’re going to succeed in France or anywhere else in the region, Asia is exactly the same. We’re doing something in Taiwan, but this does not mean it will bleed over to other parts of Asia.”
The project in Taiwan, pending regulatory approval, is a partnership with Taipei Fubon Bank. Also in the region, Natixis has a partnerhip with Industrial Bank of China.
These deals centre on distribution, but Servant also says Natixis Global AM would at some stage question whether it needed a stronger manufacturing base in Asia. “This is something we will have to tackle – alone or with a partner – in the coming years.”
The argument for a stronger local manufacturing base stems from investors who prefer to buy products close to home. “In the US people still buy mainly US products. In Europe it’s the same and we tend to believe it is going to be the same in Asia.
“Therefore if you want to be at the heart of the market you have to produce locally. Currently, we have an equity manager there but we don’t have a fixed income manager and fixed income is the bulk of the business. So we’ll have to tackle this issue one way or another.”
Along with many other asset management CEOs Servant is struggling with a troubled banking group. Natixis Global AM is the holding company for the asset management businesses of Natixis, the French bank formed by Caisse d’Epargne and Natexis Banque Populaire in the 2006 merger. Ixis Asset Management also became part of the business, bringing €400bn in assets under management to add to the €100bn that Natexis – since rebranded as Natixis – already had.
Natixis is the fourth largest listed bank in France and has been plagued by losses and bad press. It was declared the worst performing French bank stock in 2008 by Bloomberg. Its share price slumped to an all-time low in February last year. The bank also had the ratings of several products downgraded by Standard & Poor’s, Moody’s and Fitch Ratings.
Asked whether the bad news emanating from the parent company affect the asset management activities at all, Servant remains calm and collected.
“Do I like it? No, I could do without it. But we are not dependent on Natixis for our business. We have €200bn of equity, we have everything we need to develop the business. We have direct access to clients – we’re not waiting on business coming from Natixis.”
This independent spirit informs the whole of the Natixis Global AM’s structure as each affiliate functions in its own bubble. However, Servant says an important focus is to broaden the asset manager’s global distribution network – the one thing that brings different facets of the firm together.
Bringing distribution and fund management closer together has been a challenge, as Servant candidly admits. Servant says the organisation of a US distribution affiliate, Global Associates, was not simple. He explains this because “investment management people are difficult”.
“A lot of investment people have very big egos. They have an image of salespeople that is not always correct,” he says.
He adds: “We had to explain to our investment people that the sales team is an integral part of the business.”
In the first half of 2008, 70% of inflows for US affiliates came from the distribution platform. Servant says this showed that distribution worked and it helped make relations a bit easier.
Servant says the ease of these relationships is one of the keys to a successful investment management business. “The sales force cannot sell just anything; you need to develop products that investors want.
“On the other hand, the sales force can also bring information to the investment managers that can be useful for modifying the risk profile of products. The good combination of this is really the key to success.”
©2009 Funds Europe