Magazine Issues » November 2018

FRENCH ASSET MANAGEMENT: A piece of the action

Cheese_boardFunds Europe’s annual report on the French industry looks at business over the past year, as firms respond to ever-greater pressure on fees and increased competition in an already competitive domestic market.

With about 600 firms vying for business at home, France has one of the most competitive domestic markets for asset managers in the world. Yet despite a decade of ultra-low interest rates and increasing competition, many of those surveyed by Funds Europe reported steady business in 2018.

France is home to Europe’s largest listed asset manager, Amundi, and its chief executive Yves Perrier says that despite the market turbulence of the first quarter of 2018, he is optimistic about business in the year ahead.

“For the last two years, the wind was behind us, but now it is facing us,” he says. “Nevertheless, we have confidence in our capacity to continue to grow, albeit at a slower rate. In each country we operate, we have identified areas of growth and the way to deliver this.”

Amundi’s integration with Pioneer Investments – following a €3.5 billion all-cash acquisition of Italian bank UniCredit’s fund management business in July 2017 – is ahead of schedule and largely completed, he says, although there remain a small number of “technical actions” to complete.

The firm enjoyed net first-half inflows this year of €42.2 billion, up from €26.3 billion in the first half of 2017.

The inflows helped Amundi to a new record, as of the end of June, of €1.466 trillion of assets under management.

A target of implementing annual operational savings of €150 million within the first three years of the Pioneer merger is ahead of schedule, says Perrier, with half of that target already achieved and the remainder expected to be implemented by the end of next year.

The firm’s ambition to reduce staff numbers globally by 10%, from 5,000, is expected to be 80% complete by the end of this year, when 400 posts will have been cut. “The remaining part of the integration will be done when we have finished the migration of Pioneer’s computer systems with Amundi’s and this should be completed by the end of the first half of 2019,” Perrier says.

“The acquisition of Pioneer has been the fourth merger that I have been involved with and I consider it is the merger that has been implemented most successfully.”

He contrasts the “defensive” mergers recently of Janus Capital Group with the Henderson Group, and of Aberdeen Asset Management with Standard Life – both of which prompted investor outflows from the merged entities – with the Amundi-Pioneer tie-up, which was followed by inflows of investor cash.

He denies that Italy’s political turmoil has led to outflows, saying the firm saw inflows of €7 billion from Italian investors in the first half of the year.

The main driver of a decline in inflows this year, he says, followed February’s market correction, which led investors to rebalance their portfolios in favour of dollar-denominated assets and away from European markets.

Amundi’s share price wobbled over the summer, falling to €58 from a high of €74 in January. The fall was “in line with competitors in the asset management industry”, Perrier insists, and was not connected with political unrest in Italy.

Since the summer, shares have recovered in price to a respectable €63: 40% up on 30 months ago.

Meanwhile, Amundi’s US business, a low-margin area of Pioneer’s legacy business, has raised its operating profit margin from 20% at the time of the takeover to 35%.

Amundi’s business in Asia is growing solidly, Perrier says, with AuM now standing at $200 billion (€175 billion). Of this, $140 billion is from its joint ventures in China, India and Korea.

“My objective in Asia is to be at $300 billion in the next three to five years,” he says.

The impact of Brexit, he says, on the European cross-border asset management industry in general and on Amundi in particular, is unclear. “My bet is that Brexit won’t be a catastrophe for the simple reason that it is in no one’s interest to have a catastrophe: neither the British side nor the Europeans.

“I don’t think there will be major change to the asset management industry, but it is difficult to have a clear view on the impact of Brexit because there is so much uncertainty.”

Perrier denies being on the hunt for further acquisitions, saying that organic growth “has always been in the DNA” of Amundi. “If we had the opportunity of making a small acquisition, for example to increase our distribution capacity, we would do that, but it would depend on the opportunity. If a big opportunity arose, we would look at it. We are a natural consolidator in Europe but you need a seller to make a deal and to the best of my knowledge, there are not so many sellers on the market.

“I consider that a merger or acquisition cannot be a substitute for a lack of organic growth or efficiency. It is something that should be done to accelerate growth. Scale is never an objective in itself: scale is a consequence of the efficiency and the quality of your products.”

On the contentious issue of high fees and whether fund managers are profiteering at the expense of investors, he says he expects to see further downward pressure on fees.

“We review our fees constantly,” he adds. “When you look at Amundi’s costs as a proportion of AuM, we have the lowest costs in the world and so we have a competitive advantage in terms of cost.

“Our policy is to permanently have the best prices in the market. That is reflected in the ‘Smarter-Cheaper’ brand of our exchange-traded funds.”

The ETF element
Fannie Wurtz, managing director of ETF, indexing and smart beta at Amundi, says the division has so far experienced “very strong growth” in 2018 following a record 2017, when organic AuM growth amounted to 50%.

The ETF wing of Amundi, launched 11 years ago, manages more than €43 billion, up 13% since December 2017. While that is a relatively small proportion of Amundi’s total AuM of €1.46 trillion, it still makes Amundi ETF the fifth-largest ETF provider in Europe.

In total, the European ETF sector had €672 billion of AuM at the end of August, up from €580 billion 12 months previously. In the first nine months of 2018, the division saw inflows of €5.14 billion, down from €7.6 billion in the first nine months of 2017 (calendar year 2017 inflows were €10.2 billion).

However, with a market share of 6.2%, the €5.14 billion of inflows so far this year represent around 14% of net new assets into the European ETF sector, Wurtz says, up from 10% in the first nine months of 2017. “It seems that we are more than doubling our natural market share in terms of inflows and this proves our model.”

Wurtz points out that the division is now the second-largest net new asset gatherer in Europe, following three years in which it was the fastest-growing industry actor among the top ten Ucits providers.

A particular theme of 2018 has been in-depth discussions with distributors about developing packaged solutions like funds of funds, or discretionary funds. Another has been a renewed focus on developing “cost-efficient solutions” to navigate through the market turmoil that characterised the first half of 2018.

In terms of innovation, Amundi ETF continues to drive the market. “We have successfully launched a range of floating rate products: one on the US market and the other for the European market, which immunise clients from interest rate rises and enable them to capture the premium of the short-term credit market,” says Wurtz. Both have been very successful and appeal to institutional clients searching for yield, she adds.

An artificial intelligence ETF launched in September has been a particular hit, she says, with strong demand from distributors and wealth management clients. In its first three weeks, the fund attracted €100 million.

A multi-factor market-neutral ETF has also proved popular since its launch last November. So far, its assets have risen to €600 million. It “goes long on the multi-factor side and goes short on the market, enabling investors to capture alpha out of market movements”, says Wurtz. “There is a large appetite for this kind of product where the asset class has in the past mostly been dominated by the hedge fund market.”

This year, Amundi ETF also launched its first ethical investment fixed income ETF based on US corporate bonds, tracking the Bloomberg Barclays MSCI Corporate SRI index.

The past couple of years have seen strong interest from investors in Latin America and Asia, attracted by the “stability and security” of Ucits ETFs. To make the most of this trend and accompany investors locally, Amundi ETF has recently listed some Ucits ETFs on the Mexican market.

A difficult year
In contrast with Amundi, Carmignac, one of France’s largest and best-known boutique asset management houses, has had a more challenging 2018, following a long period of underperformance of some of its key funds.

Founder and chief investment officer Edouard Carmignac is to step aside from running the €3.93 billion Carmignac Investissement, which, it was announced in September, will be run by David Older, Carmignac’s head of equities.

Edouard Carmignac, who is 71, has also stopped managing the equities part of Carmignac Patrimoine, the firm’s largest fund. This has €18 billion of AuM across bonds, currencies and equities.

The Patrimoine fund, which for years produced stellar returns, is struggling to retain investors after a lengthy period of underperformance that has seen it lag its benchmark over one month, three months, one year, three years, five years and 10 years. In the nine months to September, it was down 4.8%, compared with a 3.5% rise in its benchmark.

Meanwhile, group-wide, assets under management fell 10% in the third quarter of this year to €50 billion: down from €60 billion at the end of September 2017.

Carmignac managing director Didier Saint-Georges admits that this year has been particularly demanding. However, he says the firm’s troubles should be seen in the context of a difficult investment market, which is “challenging for many active fund managers and concerning for savers who wonder where all this is going to lead to”.

Saint-Georges views Latin America and Asia offshore as potential growth opportunities for the company. Within Europe, he says that with strong market share already in Italy, France and Belgium, Germany is the “one country where we have room to grow and where there is a lot of market share to be gained”. With that aim in mind, Carmignac hired Nils Hemmer in April as new head of distribution for Germany and Austria.

According to Saint-Georges, Edouard Carmignac began a “succession planning” discussion about five years ago on how to position the firm for his eventual retirement. “He started about four years ago trying to put together a rejuvenated European equity team and he did not find the right set-up immediately: there was a degree of trial and error and it is only over the last two years that I think we can say we have checked that box and that the European equity team has the capacity to manage risk and take strong convictions.”

Saint-Georges says Patrimoine’s slump from the firm’s best-performing and largest fund to its worst-performing fund has, in part, been down to focusing too much on the succession issue. “I am happy that this transition is behind us now,” he adds. “Edouard will remain co-manager of Patrimoine but more focused on his CIO function.”

New engines
At Axa Investment Managers, Francisco Arcilla, the firm’s global head of sales, tells Funds Europe that business has been good in 2018 “despite a complex environment due to markets, regulations and geopolitics”.

Arcilla says Axa has continued to see high demand for new engines for performance with lower liquidity and/or higher risk. “We have seen a strong dynamic in alternatives in general as well as in thematic equities,” he adds.

“There is also appetite from retail clients for turnkey solutions with ‘gestion pilotée’ and multi-asset solutions that enable them to diversify their investments in order to better monitor the risk.”

Arcilla notes that recent legislative initiatives in France should increase the demand for long-term saving plans for retirement and open new opportunities.

“With the concentration of asset managers in France, we see more and more opportunities for partnerships with private banks and insurance companies. Responsible investment is also increasingly getting traction and is becoming a must-have for more and more clients.”

As of the end of June, Axa IM had €442 billion of ESG-integrated AuM (of which €16.8 billion are considered “sustainable investing”), representing roughly 60% of the firm’s total AuM.

©2018 funds europe