French chief executives representing some €2.4 trillion of assets under management discuss how the eurozone crisis is shaping the funds industry in France. Chaired by Nick Fitzpatrick. (part 2)
The Qatar Financial Centre (QFC) Authority is proud to present the latest Executive Panel in the series of discussions organised in partnership with Funds Europe and Funds Global. Each panel looks at the core issues affecting the industry and includes some of the leading chief executive officers, chief operating officers and chief investment officers from companies driving the industry forward and shaping change. Many topics discussed are core to the QFC Authority’s beliefs: efficiency, transparency and integrity. It is the QFC Authority’s goal to build a world-class financial services marketplace where all participants, both domestic and international, will benefit from the considerable local market potential which they can use not only as a springboard into other countries in the Gulf Cooperation Council, but also as a powerful regional base from which to tap into the broader growth markets of the Middle East, north and sub-Saharan Africa and the Indian sub-continent. By supporting these initiatives, we hope to gain valuable insight into the future development of the global fund management sector and help us to realise our aspirations to become a regional hub for asset management in the Mena region.
Shashank Srivastava is acting chief executive officer at the QFC Authority
Naim Abou-Jaoudé, chief executive, Dexia Asset Management
Alain Dubois, chairman, Lyxor Asset Management
Philippe Marchessaux, chief executive, BNP Paribas Investment Partners
Yves Perrier, chief executive, Amundi Asset Management
Joseph Pinto, global head of markets and investment strategy, Axa Investment Managers
Pierre Servant, chief executive, Natixis Global Asset Management
Shashank Srivastava, acting chief executive, Qatar Financial Centre Authority
Funds Europe: How have the perceptions of institutional clients towards their asset managers changed in terms of brand, reputation and risk management in recent years? And has this affected their approach to the selection of investment providers?
Pinto: We recently ran a study focusing on how large distributors and multi-managers select their asset managers and how these criteria have evolved over time. It clearly shows the rising importance of brand as a business driver. Whereas during the market growth period until 2007, the main criteria for large distributors was all about quality of products and investment teams.
Clearly, the crisis increased the importance of brand. This will probably last as long as the climate of uncertainty we are living in remains.
Servant: What strikes me is that it’s more difficult today to be small and new. It’s better to be a significant size and have a long track record. There is a value in history, which was less the case before the crisis, when innovation and new products were in demand. People are looking for reputation, track record, stability of the management team, risk management and monitoring capacity.
Perrier: When we created Amundi, our size was an advantage. If clients choose a big asset manager, they feel they are limiting their risk. As an asset manager, you need to invest a lot in risk control tools, in people, and in risk managers who have the same level of expertise as your investment managers. You need a lot of money to be at a high level.
Abou-Jaoudé: One result of this is that clients are limiting the number of asset managers they want to work with, to allow them to do a deep due diligence of each one. On our side, we are responding by investing more in proximity, responsiveness, transparency. It’s a two-way change in the perceptions of both clients and asset managers.
Srivistava: On the other hand, I was with Association Française de la Gestion Financière, the French fund association, and their statistics showed there had been a proliferation of new managers, which is an interesting trend.
Servant: Yes, but a lot of those managers are quasi-family offices, which are managing their own money or some money for relatives or business partners. They are not fully in the competitive world, and the very small ones who are in the competitive world are facing a very tough time because the cost of doing business is higher.
Pinto: It depends on the client segment. You have a number of independent financial advisers in France but because of the fear of the UK’s Retail Distribution Review coming to France, they decided to create their own asset management company, and self-delegate to this company, to ensure that they can keep part of the fees.
Perrier: There may be about 600 asset managers in France, but around this table we alone represent 95% of the French industry by assets under management.
Funds Europe: Globalisation has seen emerging and frontier markets become increasingly important on a number of different levels. What has been the impact on asset managers in terms of the business strategy with regards to these markets?
Perrier: We have to go where the money is. In the French market the volumes have decreased by 20% in the last three years, but that is not the case in other markets in Europe or in Asia or the Middle East. We have to steer our sales force in this direction. We need to have people who are able to advise our clients on global issues; not only people who can sell a particular expertise, but also people who are able to have a discussion on a broad level.
Pinto: To be able to speak face-to-face with the chief investment officer of a large insurance company or a large pension fund, you need to have the right quality of people.
Abou-Jaoudé: Becoming a globalised business means having a diverse range of clients in different regions.
One of the drivers of this trend is to help cope with high volatility in markets.
What we noticed over the last five years is the strong de-correlation between net new cash in different zones. Whereas Europe was negative in 2008, the US and other zones such as Asia and Australia were positive. In 2009, it was the contrary – Europe was positive, the US was negative. If you are a globalised business, you can balance the volatility because you have clients in different zones.
The second impact of globalisation is that you have to be global while at the same time you have to act local because of the importance of trust and direct contact. I call it ‘glocalisation’ – being global while acting local. That means a lot of investments in our business are needed.
Funds Europe: Is that for both distribution and manufacturing?
Abou-Jaoudé: No, in my view we have to be completely centralised in terms of manufacturing in order to be efficient, and completely decentralised in terms of sales and distribution. You need to have the flavour of each country. For instance, in the superannuation market in Australia, where we have a presence, it is different than other countries. We have to follow the local trends and that means acting local.
Pinto: We chose a slightly different path, allowing us a bit more flexibility. To speak to the right clients in the right places, you need a sales office with experienced people in these markets. We have also, especially in Asia, created a number of manufacturing capabilities wherever it was needed. In some instances we did it through joint ventures because we found some players out there which had complementary competencies. For example, we have joint ventures in India, Korea and China. In other instances, we did it on our own.
Servant: We mostly manufacture centrally – if you can use that term for a multi-boutique operation – in the US and France. But we are starting to move research into emerging countries. It’s not easy to manufacture locally because it raises questions like control and making sure that the investment process is in line with what you do. But if we want to be global players we will have to also be global and then local manufacturers. It’s very difficult to have good research capabilities in Asian bonds if you are not based in Asia.
Marchessaux: It’s not enough merely to sell global products manufactured elsewhere. Our business is more about people than products – it is paramount that you build a true relationship with the people on the ground, trust them and educate them – that’s how you really grow the business. We’ve developed many local centres of expertise in the emerging markets, what I call the local-to-local markets. This can then lead to local-to-global. For example, we are able to export our Brazilian equity products to Japan,or our South Korean equity funds to Europe. All of this can stimulate cross-selling between these regions.
Funds Europe: Of the plethora of regulatory demands from Europe and globally, which regulations would you keep and which would you lose?
Dubois: I would keep everything relating to Ucits, especially with the regulations by the European Securities and Markets Authority that will be published soon concerning exchange-traded funds and other Ucits structures. These regulations are positive because they consolidate the Ucits framework, making it safer in terms of counterparty risk, and are likely to reassure investors that the Ucits framework is well controlled.
There are also some positive things in the Aifm framework in spite of all the specific issues. It goes in the right direction, which is to create some basic regulation that is not overly prescriptive about what firms can do, while giving some regulatory comfort to investors.
The other regulations that will have the most impact are all the prudential regulations. The regulation of banks and, of course, Solvency II. These are probably the regulations that will have the most important impact on the market in general and also in asset management indirectly.
Marchessaux: If there is one battle that asset managers should lead the fight for, it is the level playing field. The question is, does every player abide by the same rules, or not? I do not believe that they do, which is not acceptable. With Packaged Retail Investment Products, the Kiid is applied, which is good. But there is not the same validation process for every product.
Servant: It’s going to be tough because the banks and the insurers have more capacity to influence decisions on regulators than investment managers.
Perrier: But it is important that asset managers also emphasise this issue in order that the regulations apply in the same way to all sellers of investment products.
Servant: But again, on the topic of the level playing field, there are issues like cross-border regulation. The Foreign Account Tax Compliance Act will be very difficult to implement, even for US asset managers. We are operating globally, it’s becoming very complicated, so the question of a level playing field should also be seen in cross-national relations.
On the regulation side, the problem is the amount. Two or three years ago I used to say, ‘Oh, we don’t care, it’s going to cost a bit more but we can cope with it.’ But now we have a new set of regulations for our business – the Alternative Investment Fund Managers Directive, Ucits and so on; we are also impacted by regulations for the banks and insurance companies, and many other topics like market abuse; compensation of derivatives; limitation on short selling; the new French transaction tax, and so on.
If you don’t comply with regulations, your reputation can be damaged. Yet becoming compliant with all those new regulations, which are not all stabilised, is a difficult task.
Funds Europe: What state will the French asset management industry be in in five years time?
Perrier: As Keynes said, in the long term we are all dead! Joking aside, asset management has a future, but it will depend on the evolution of the eurozone. What was said about being able to compete on a level playing field is a key issue. I am quite optimistic, though. I consider that the French asset management industry is solid and has good expertise, so we have the capacity to compensate for the decline in the French market with growth outside France.
Dubois: The French industry has strengths when it comes to risk-based, risk management and managed account products – areas that require strong quantitative skills. In terms of predictions, the ETF market will grow and there will be growth of indexing in general.
Servant: I predict fewer players, and the ones that will remain will have to boost their international business because the French market will stay tough for a long time.
Abou-Jaoudé: France will remain an innovative market with a lot of newcomers and more than 600 big and small asset managers. The skills are here, diversification of clients is huge. It’s still the biggest market in Europe, with a high savings rate.
Marchessaux: French asset managers will become more international, particularly in the emerging markets, and they will offer some appealing differentiating factors, such as the ability to innovate and manage risk in fulfilling individual clients’ needs.
Pinto: We’ve seen a number of large French asset managers being able to play in the global field and compete well. If these players make the right bets in the coming years, they should remain well positioned in the global field. We’ve also seen the emergence of a number of successful mid-sized players, often focused on one or two investment expertises, exporting money outside their home market. As far as the smallest players are concerned, their future will be very much linked to the evolution of the domestic demand.
©2012 funds europe