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Magazine Issues » November 2014


Plane takeoffFrench asset management chief executives have little choice but to be stoic in the face of perhaps one of the toughest domestic markets in the world. The US and Asia are sources of relief, finds George Mitton.

For years now, Funds Europe has been accustomed to a healthy pessimism when it visits the offices of the major French asset managers. A drive from the banks, traditionally the major fund distributors, to get more assets on their balance sheets has seen funds lose out in favour of deposits. Competition from the life insurance industry, from property investment and from government savings products, such as the Livre A scheme, have caused outflows. 

On top of that, interest rates have been low and GDP growth in France since the financial crisis has been negligible.

The last point hasn’t changed much since last year. In August, the French finance minister, Michel Sapin, declared that “growth has broken down in Europe and France”. Many are worried the second-largest economy in the eurozone will stagnate – they talk about weak productivity and much-needed reforms. It seems a depressing picture, non?

FAM boxAnd yet despite the bad auguries, our trip to Paris in September yielded some relatively positive comments from top executives. Some had good news to report about their businesses outside of France. Others were starting to see the benefits of rationalising their fund ranges and simplifying their branding. Perhaps the most reassuring trend was that, for some managers at least, the outflows from the French retail market have finally ended.

One firm that was pleased to see an improvement in the French retail market was Amundi. Yves Perrier, who has been chief executive since it was created out of a merger in 2009, says that for the first time, Amundi’s net inflow from its French distribution network in the first six months of the year was level, not negative nor positive. “Before, we suffered strong outflows,” he says.

One reason retail flows stabilised was increased investor confidence, says Perrier, thanks to the actions of the European Central Bank. 

Another helpful factor was the decline of the Livre A interest rate to 1%, which has caused outflows from the scheme, to the benefit of the life insurance industry and, to a lesser extent, to fund providers such as Amundi. Inflows from Amundi’s institutional clients were positive in the first six months, as was growth of its overseas business in Europe and Asia. 

The non-French portion of the business is in fact so important that Perrier says it accounts for two-thirds of the company’s growth, while the stabilising of the French market accounts for the remaining third.

The upshot is that the firm brought in a net €12.5 billion in new assets across all its business lines in the first half of the year, compared with a net €15 billion in the whole of 2013.

FAM box2Does it follow that Perrier is optimistic about the future? Yes and no. When Funds Europe met him at Amundi’s headquarters in Montparnasse, he was pleased to report Amundi’s latest results, but became pessimistic when he talked about the French financial sector in general.

“Times for the financial industry will become tougher and tougher,” he says. “I don’t see why the revenues of financial services should grow more than GDP, yet until 2007 they increased more due to the buoyant growth of debt. Growth in Europe will be weak for the next five to ten years, and interest rates will remain low.”

That said, Amundi has some ambitions. Crédit Agricole set Amundi a target to reach €1 trillion of assets under management by 2017, with a remit to achieve one third of the increase by organic growth and two-thirds by acquisitions. The firm had €821 billion at the end of June. However, Perrier will not be jumping at the first buying opportunity that comes his way.

“In my life I’ve made about ten acquisitions, but I looked at more than 100,” he says. “When you make acquisitions you have to be careful. The advantage of organic growth is that it enables some mistakes that are less costly to mitigate than those made in external growth.”

Another asset manager that has struggled in the French domestic market in the last few years is BNP Paribas Investment Partners. However, when we visited chief executive Philippe Marchessaux at one of the company’s ornate meeting rooms at its headquarters on the Rue Bergère, he was upbeat.

“Since 2009, France was the worst market for us because of this switch of off-balance to on-balance-sheet assets,” he says. “But since the beginning of the year we are slightly positive – a few millions. I can’t drink champagne yet. I would prefer to have €10 billion coming in. But I’m happy that the outflows stopped.”

In a bid to turn around the business, Marchessaux embarked on a restructuring project which he showed to shareholders in spring of last year and began implementing last summer. The idea was to reorganise the business into three divisions: an emerging market division, led by Ligia Torres, who previously led wealth management in the UK; an institutional division, led by David Kiddie, who joined after four years at AMP Capital Investors in Australia; and a retail, private banks and international distributors business led by Christian Dargnat, who is also president of the European Fund and Asset Management Association (Efama).

The BNP Paribas group has set the firm a target of increasing its assets under management, which were €497 billion at the end of June, by €40 billion between 2013 and 2016. Marchessaux has split the challenge between the divisions: emerging markets and institutional are tasked with bringing in a net €15 billion each and the retail segment has to bring €10 billion.

Even though he has the smallest target, Dargnat may have the most difficult challenge, says Marchessaux. He covers continental Europe, which includes markets such as Belgium, which, like France, have suffered retail outflows in recent years. In addition, BNP Paribas IP has a unique difficulty due to losing the former priority it had among clients of ABN Amro, which it acquired in 2009. As a result of ABN Amro moving to an open architecture model, BNP Paribas IP’s share of client assets fell from 80% to about 20%.

Despite the challenges ahead, Marchessaux insists he is confident.

FAM box3I’m more optimistic now than 12 months ago,” he says. “When you put in place a project, what is key is execution. Now it’s done, the organisation is there. We are now in a growth mode.”

Pierre Servant, chief executive of Natixis Global Asset Management, was also in good spirits when we visited him, though unlike the previous two chief executives, he didn’t have much good to say about the French market.

Instead, Natixis GAM gets the majority of its growth from America. The company has been present in the US since 2006. That was when Boston-based asset manager Nvest, which had been acquired by the French state-owned Caisse des Dépôts, became part of Natixis, which in turn became Natixis Global Asset Management.

Under Servant’s leadership, the firm has invested in a US distribution network, a choice that has not always been easy to justify to the firm’s board – Servant remembers having a hard job arguing the case for hiring US distribution staff back in 2009, when the financial world was still reeling from the financial crisis. However, it seems that investment has paid off. “In the US we have a phenomenal situation in which everything is working well,” he says.

The US now accounts for more than half of the firm’s assets under management and two-thirds of its profits. The firm has a diverse US product set but virtually no low-yielding money market funds, which means the level of fees it gets from US clients is higher on average than in France. All in all, the US has been a boon for Natixis GAM, justifying Servant’s decision to invest heavily in the US market.

Servant is far less rosy on the subject of the French retail market. He argues that in previous years, the French asset management industry was unnaturally big, and that its shrinking is in fact a normalisation to a more logical size. The French market seems to be adapting to a model more common elsewhere on the continent, where high-net-worth investors are sold funds by specialist advisers, and the mass retail segment buys fewer funds, their money being channelled into life insurance or bank deposits instead. “We used to sell a lot of funds to the mass retail side,” he says. 

“This is why the French funds market was so big. Now, it’s clearly moving to the higher-end client. Most of the market is coming from high-net-worths.”

The asset management division of the French insurance firm Axa is similar to Natixis GAM because it has a substantial US presence, where it owns boutique shops such as Axa Framlington and Axa Rosenberg. 

The firm also has links to AllianceBernstein which is majority-owned by the insurance company, though Joseph Pinto, chief operating officer of Axa Investment Managers, says the two asset managers view each other as competitors.

The US shops that are part of Axa IM, however, do contribute to the firm’s revenues, though to date, says Pinto, the US has been more of a manufacturing centre than a sales region. The firm’s US assets under management were €48 billion at the end of June compared with overall assets of €582 billion. 

This is something the firm would like to change. It has invested in sales teams focusing on the US market. Another area of interest is the UK, where it has increased its distribution teams, and in Asia and Latin America.

“From a strategic standpoint we are still a Europe-based player,” he says. “We would like to accelerate growth in the US and Asia.”

The firm is looking abroad for the same reasons as its competitors. The French market, where it already has a large market share, is challenging. However, Pinto says Axa IM is less affected by recent outflow trends because it does not have a large amount of money market fund assets, which were among the worst affected by outflows.

Being owned by an insurance company has another benefit on this score. Unlike bank-owned competitors, Axa IM does not have to worry about its parent company competing for on-balance-sheet assets. Instead, Axa the insurance firm provides a significant asset base, a source of aid in difficult times. “The Axa insurance assets give us stability and allow us to absorb a significant portion of our costs,” says Pinto.

Pinto says the firm’s aim is to simplify its marketing. 

“We want to have one brand. It’s easier to export one brand in Asia than seven. It’s less costly, more efficient.”

If there is one thing to learn from this year’s France report, it is that there isn’t a single strategy that will work for all players. It matters whether you are a bank-owned or insurance-owned player, where your non-French business is located, and whether you have a centralised or “multi-boutique” structure. 

As in previous years, the executives were more optimistic about their non-French operations than their domestic ones, but at least the outflows at home may finally be stopping.

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