Consolidation has had a significant impact on France's asset management industry. Angele Spiteri Paris catches up with fund manager CEOs in Paris to get full disclosure.
The French asset management landscape has changed dramatically over the past year, when mega firms like Amundi were still looming on the horizon and smaller firms like Carmignac Gestion were first making a noise. It’s been over a year since our last French report and although the French industry is still rife with rumours of more mega-deals, players are still getting comfortable with the new reality and the challenges it is creating.
Talking to asset managers in France is not really about France itself – it’s more about how the French players are expanding across Europe and the rest of the world and how the smaller French investment houses are winning business on a broader international scale.
But French asset managers have been in the limelight for the past year. When the Société Générale Asset Management (SGAM)/Crédit Agricole Asset Management (Caam) deal that birthed Amundi was announced, speaking off the record, some industry observers claimed it was Sgam’s saving grace, after the firm lost a significant amount of money. But others aren’t so quick to pass judgement.
Dominique Carrel-Billiard, CEO of Axa Investment Managers, says: “SGAM had an issue in its alternative investments business. I’m not sure the business would have collapsed because of that – it just had a hole it needed to fill. The merger with Caam is not about being saved; it’s more complex than that.”
Pierre Servant, CEO of Natixis Global Asset Management, says: “Amundi’s creation is an evident example of consolidation moving forward, but the Société Générale situation was a very particular one and Crédit Agricole came along at the right time.”
The Amundi deal was, without a doubt, the grandest-scale example of consolidation in the French asset management industry, but more likely than not, M&A will continue to shape the landscape.
The next potentially transforming deal on the French horizon would be the sale of Pioneer Investments by Italian bank Unicredit. Although the sale has not yet been officially announced, both Amundi and Natixis Global Asset Management have proclaimed their interest. A decision on the fate of Pioneer could be made at the end of this year.
Eric Helderlé, the sole managing director of Carmignac Gestion, says: “It makes sense for Pioneer to be up for sale and the logic for cost cutting is the major driving force for groups like Amundi to buy it. Natixis, however, runs a multi-boutique structure so I’m not sure how Pioneer would fit in to that business model.”
But Servant, of Natixis, says: “Scale is always an issue and although we’ve done several smaller acquisitions, sometimes you’ll just be looking for that transforming type of deal that will make a big difference in terms of scale.”
And the purchase of Pioneer would undoubtedly fall into the “transforming” category.
Servant says: “We will consider it [buying Pioneer] if the new management decide to pursue this project. But it doesn’t mean that we will be able do it, one because many people are interested and second, because it’s by nature a complex deal. The finances need to make sense for us as usual. But it would also signify a cross-border synergy deal which is always more difficult to execute. And most of all, if you want to be successful, you need to find a long-term agreement with the captive networks because they still hold the bulk of the assets.”
Questioned about the potential Pioneer deal, Amundi CEO Yves Perrier says: “My current focus is to finish the integration of Caam and SGAM but we’ll consider Pioneer if it’s put on the table. We need to consider the risk of execution. If it’s not too high and the acquisition would add value then it would be a viable option.” (For the full interview with Yves Perrier, see pp18-19.)
A logical step
The deal that created Amundi was one of the most headline-grabbing seen in the French market and one cannot help but discuss the reasons behind it.
Carrel-Billiard, of Axa IM, says: “There are two reasons to exit a business; you either think you don’t have what it takes to compete, or that the business has reached its peak in value terms. I cannot say which was the driver behind the Caam/SGAM deal, but it’s difficult to believe they [SG] weren’t making money. I would be more likely to think they exited because they believed their business would drop in value.”
Helderlé, of Carmignac Gestion, says: “Certain banks have not made asset management a priority and therefore it makes sense for them to sell this part of their business. Société Générale was the first bank to make the choice to not have its own asset management company and this was the first step towards achieving true open architecture in France.”
Carrel-Billiard says: “I think Société Générale selling its captive business was logical and the way they did it with Amundi was a good way to do it. The deal enabled them to monetise their business without giving up too much value.”
Another acquisition that changed the face of the French industry was the BNP Paribas purchase of Fortis Investments. The sale was completed in May 2009.
William De Vijlder, is now a member of the executive committee of BNP Paribas Investment Partners and CIO, partners and alternative investments, had been managing director and global CIO at Fortis Investments since 2000, until the firm’s acquisition by the French behemoth.
He says: “Having gone through this merger I have seen that it is possible to combine two companies successfully; to put them together quickly and bring a strong message to the clients that one plus one equals more than two. Doing a big deal is like dancing at a party – both people have to want to dance.
“The challenge is not just about doing the deal itself but it’s also about who is in charge of what after the deal goes through. You need to look at each part of the separate companies in terms of distribution and manufacturing and figure out where there are overlaps and which parts of the businesses complement each other.”
From the perspective of an independent asset manager, Helderlé, of Carmignac disputes this stance: “I don’t believe big weddings provide any value-add, from an investor point of view especially. They just cut the cost, but asset management is not just about cost. Mergers should result in some products being better adapted to the needs of the investors.”
De Vijlder says in the BNP and Fortis deal there were complementary offerings: “Fortis had no commercial strategy in terms of passive management while now, under the BNP brand, clients who want passive mandates can be serviced.”
Another positive element to the deal is that linking up to BNP introduced a pathway for Fortis institutional clients interested in liability-driven investment. “It allowed for a link to be made between the Fortis capabilities at creating a liability-hedged portfolio and the financial techniques of BNP,” says De Vijlder. “Also, the fiduciary management offering is more complete now than each of the company’s pre-merger.”
But for all the good things that can come as a result of mergers, there are the obvious difficulties.
De Vijlder says: “Maintaining clients is definitely a challenge. You have to keep them in the loop as changes happen. The difficulty is that you have legal constraints on what you can say at certain points in time, but finally it’s about giving clients the comfort around what the future situation is going to look like, in terms of offerings.”
Carrel-Billiard, of Axa, says: “As a result of mergers you definitely see cannibalisation as clients make reallocations because they find they have too many assets now sitting with a single provider. It’s mostly institutional clients who make these kinds of moves and it also depends on the overlap of the two merging firms.”
De Vijlder, who had to face these difficulties head on, says: “We’re pretty happy with what we’ve achieved in terms of holding on to the assets.” However when asked directly whether clients left because of the merger he says: “You have to appreciate that this [the acquisition] was happening against a background of a very unstable environment, with clients becoming more risk averse and making asset allocation changes during Q4 08 and all of 09.” The firm would not reveal the specific number of assets lost.
In Amundi’s case the situation is different, at least according to its CEO. Perrier says: “The amount of assets lost on account of the merger between Caam and SGAM was negligible on the institutional investor side. The retail side just keeps going; what’s lost is replaced by new assets.”
This didn’t go unnoticed in the rest of the industry.
Carrel-Billiard, at Axa, says: “Amundi managed to keep its net new money in positive territory, so clearly there does not seem to have been much cannibalisation yet in this case.”
Servant, whose firm Natixis has made several smaller-scale acquisitions over the last few years, says: “We’ve never had big losses of clients as a result
of any of our acquisitions; we made great efforts to be close to the network and the management.”
But he anticipates difficulties when considering a different kind of acquisition. He says: “When acquiring captive networks, the risk lies in the increased layers of bureaucracy in client service. If the integration is not done well, then you have a problem.”
Another challenge firms have to deal with when coming through big mergers is the cost synergy.
Servant, of Natixis, says: “Cost synergies, particularly cross-border, are a problem when making deals.”
In Amundi’s case, Perrier is doing his utmost to make sure this is kept low. But BNP’s cost income ratio has increased. The BNP group’s cost income ratio according to the firm’s Q2 2010 results was at 57.2%, compared to 56.1% in March 2009.
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