FRENCH ASSET MANAGEMENT: The search for yield

Years of persistently low interest rates, combined with the new era of socially responsible investing, have forced French asset managers to be increasingly creative in the search for yield, finds Mark Latham.

The dominance of the six largest French asset managers counterposed with a massive number of small boutiques makes the highly competitive French asset management industry resemble an hourglass, with few mid-sized firms in the middle.

When it comes to the value of assets under management (AuM), 92% is accounted for by the six main first-tier players, such as Amundi, BNP Paribas and Societe Generale.

In the third division, there are around 600 small firms with AuM of up to €3 billion, leaving just 20 or so firms, such as Carmignac and DNCA, in the second division with AuM of roughly €10 to €60 billion.

That level of stratification has historically made it difficult, if not impossible, for firms to climb from one division to the next. This rigid hierachy, however, belies a dynamic and increasingly innovative industry as it continues to respond to years of low and sometimes even negative interest rates since the global financial crisis.

Florence Dard, head of client group, France, at Axa Investment Managers, says there has been a pronounced shift in demand in the French market in both the institutional and retail segments over the past ten years.

“The industry is really changing because of low interest rates and increased regulation on investors and providers. For me, that change can be a really good opportunity and I think there will be a lot more change to come,” she says.

“Clients have been thinking how to generate return in this new environment and, while it has been very challenging for us, it has also been a good opportunity.”

Dard notes how institutional clients in France started, around five years ago, to invest more in high-yield bonds, first in Europe and then in the US. 

At the same time illiquid alternative assets took off in France, with French insurers in particularly exhibiting a large appetite for all kinds of real estate debt products, infrastructure debt and corporate private debt.

The attraction of these assets was the fact that they commanded an illiquid premia, which gave a yield boost to their fixed income portfolios. 

This suited Axa IM, which has strong expertise in high-yield bonds and also operates the largest real estate debt platform in Europe.

“We were in a good position when this demand emerged and we also have a very strong platform of corporate loans,” says Dard.

The most recent trend among institutional clients, she observes, has been rising demand for total return products such as risk premia, which led Axa IM this year to launch a multi-premia strategy aimed at professional investors. “All of this shows that there are many new engines for performance when the traditional ones don’t deliver as much as before,” says Dard.

Gender balance
Another pronounced trend of the past few years is socially responsible investing. At €437 billion of assets (up from €20 billion ten years ago), more than half of Axa IM’s current €732 billion of total assets under management are in funds that incorporate ESG criteria.

“We are convinced that companies that favour a good gender balance will have better results at the end of the day,” says Dard.

“Likewise, we believe that when employees are happy, they will deliver better and the company will have improved performance.”

Jean Raby, who joined multi-affiliate Natixis Global Asset Management as chief executive earlier this year, also sees the move towards ESG investing as among the most significant trends of the past few years.

Natixis GAM employs 3,650 people in 22 countries, has more than 20 affiliate brands (including Chicago-based Harris Associates, the investment boutique DNCA , Mirova and H2O) and has more than $950 billion of assets under management.

“Today ESG is a label, but it will increasingly be part of the mainstream,” Raby says.

The election of Emmanuel Macron as French president in May and an uptick in the French economy over the autumn is also helping the industry, says Raby.

“Europe has not solved all of its issues, nor has France, which still has two trillion euros of debt – but compared with where we were six months ago, there has been drastic change.”

Over at Amundi Asset Management, chief executive Yves Perrier’s main focus for the next couple of years will be integrating the Milan-based asset manager Pioneer Investments, which Amundi bought for €3.5 billion from the Italian bank UniCredit this year.

The long sought-after merger cements Amundi’s position as Europe’s largest listed asset manager, with total assets under management of €1.4 trillion, and will give Amundi “a very strong presence in all countries of the eurozone”, Perrier says.

Outwith Europe, Perrier also expects growth in all the Asian countries where Amundi currently operates. “My strategy is very pragmatic and is to go where I think we have a good probability to take a leading position,” he says.

ETF enthusiasm
France’s market for passive investment products is also dynamic and buoyant, according to Fannie Wurtz, managing director of ETF, indexing and smart beta at Amundi.

The ETF wing of Amundi, which was launched ten years ago, manages €34 billion of AuM. While that is a relatively small proportion of Amundi’s total AuM of €1.4 trillion, it still makes Amundi ETF the fifth-largest ETF provider in Europe.

In total the European ETF  sector has €580 billion of assets under management.

So far, Amundi ETF has had a good 2017,Wurtz  says, with €7.7 billion of net inflows in the first nine months of the year going into a diversified range of more than 100 fixed income, equity and smart beta ETFs. That’s a healthy 10% of the total €70 billion of net inflows into European ETFs so far this year.

“Being part of Amundi is a big advantage for us, notably when it comes to distribution, because leveraging on Amundi’s network capabilities helps with packaged solutions with ETFs,” Wurtz says.

She also points to growing demand for fixed income ETFs, which have grown from 15% of the total AuM in the European ETF market to close to 30% over the past four years.

©2017 funds europe



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