INTERVIEW: Turning a profit

The chief executive of asset servicing firm Caceis talks about regulation, New York courts and why he cut down on business class travel. With George Mitton.

François marion is upbeat. It might not look that way, for Marion is not an effusive man; a sort of quiet resignation mixed with realism is more his style. But, right now, the memory of a big deal has him rather animated.

“That was the deal of the year,” he says. “The largest deal in Luxembourg for years, €30 billion. It was very competitive. Everybody wanted it. We had to fight to get there.”

It is clearly a source of pride that Caceis, the asset servicing company co-owned by Credit Agricole and Natixis, beat the competition on this occasion. The deal to provide bookkeeping, custody, transfer agency and accounting for the Luxembourg subsidiary of Edmond de Rothschild, the Swiss-based asset manager and private bank, was high profile and significant.

Perhaps this win goes some way to offset any lingering disappointment at Caceis losing its historic relationship with Caisse des Dépôts et Consignations, a French public finance institution, which in

2012 decided to take more than €300 billion of custody assets away from Caceis to its rival French firm BNP Paribas Securities Services.

However, Marion is not happy because of only one deal. He says Caceis made significant progress towards its goal of European expansion in 2013. The firm attained depositary licences in Belgium and the Netherlands and hopes to do the same in Italy and Switzerland in the coming months. It is also making tentative steps to build a business in the UK.

“We don’t go to London to take the big domestic mutual fund market, which is all in the hands of American banks in the UK,” he says, in an interview at his Paris office. “However, London is more and more a place central for asset managers, particularly alternative fund managers. Most of our clients ask us to be there to help them in some part of their post-trade activity.”

Marion believes the Alternative Investment Fund Managers Directive (AIFMD) may aid the firm’s UK expansion. London is home to many small alternative fund managers that have not yet registered their products under the directive, he says. Caceis would like to assist these companies with their reporting.The AIFMD could bring in business in other parts of Europe too. Last year, Caceis signed two deals to provide custody to a range of real estate funds, and hopes to sign more. Meanwhile, Caceis has strengthened its private equity team to grab a larger share of this market. Although private equity shops tend to manage fairly small asset bases, the margins on these clients are high, says Marion.

However, Marion is less confident about the other major product type covered by the AIFMD, hedge funds – because he foresees a conflict between the directive and American law.

“If you have a prime broker that is US-based, and most of the time they are US-based, the contract you sign is in New York law. In case of problem with a prime broker I fear the depositary will be weak in front of AIFMD obligation of restitution on one side, and the New York court on the other side. I’m not sure the AIFMD would protect us more than a New York court.”

These successes should not suggest Marion is getting carried away. Although the AIFMD may bring in some new clients, it will also saddle Caceis and the rest of the asset servicing industry with high implementation costs.

“It will not be the asset managers that pay for the regulation, it will be the depositary,” he says. “That’s life.”

Indeed, Marion is pessimistic about asset servicing revenues in general. Massive deleveraging in the global economy has resulted in fewer assets to safe-keep, which means less income for asset servicers. He expects fees to continue to decline on average, which is why he remains cautious.

This careful attitude has several implications. Unlike some of his peers, who see Asia as a land of opportunity, Marion sees only potential costs. Beyond its Hong Kong hub, Caceis does not plan to expand across a vast continent where it would have to spend a lot of money before earning any. “It’s impossible for us to compete with the big banks that are already in Asia, some for over a century,” he says.

This scepticism of Asia is not borne of a lack of knowledge. Marion spent five years in Hong Kong in the 1990s as chief operating officer for the region for Banque Indosuez. He moved to Paris in 1997 after Credit Agricole acquired the bank.

At home, Marion’s cautious attitude means he is determined to reduce overheads at Caceis. The company has saved money by outsourcing all its data centres, has renegotiated the leases on all its premises, bargained for fee reductions with suppliers and cut travel costs. “No more business class,” says Marion.

Does this apply to the chief e xecutive, too? I ask.

“Yes,” he says, “except when I go to Asia or the US.”

Marion says he is also cautious about salary expansion – disappointing news for Caceis employees, but probably good news for shareholders.

With these caveats, Marion is fairly optimistic about his business. Asset servicers have more potential clients than before, now that investment banks and brokers need help with their back offices and private banks face new regulation such as the Foreign Account Tax Compliance Act.

Marion says Caceis is well positioned to answer these new clients’ needs. Its largest shareholder, Credit Agricole, says it is the best capitalised bank in Europe, and, according to Marion’s figures, Caceis is the best capitalised custodian.

“If you compare with the size of the assets we safe-keep, we are the best capitalised. We are stronger than others.”

This result is achieved partly because Caceis has fewer assets under custody (€2.3 trillion as of December) than some of its peers, which means its ratio of assets to capital is higher. In contrast, BNP Paribas Securities Services had €5.6 trillion under custody as of December and BNY Mellon had about €20 trillion.

Yet Marion is not too concerned about his firm trailing behind others on the assets under custody measurement. Figures for assets under custody are not audited, and some firms use double or triple-counting, he says, to inflate their figures. Secondly, these figures are misleading because they do not correspond to profits.

“I prefer a small amount of assets that yield a lot of money to a lot of assets that don’t bring anything in,” he says.

This logic could provide a clue as to why Caceis let the Caisse des Dépôts relationship end. Around the time of the deal, rumours in the market were that Caisse des Dépôts was insisting on such low fees that the deal was barely worthwhile. BNP Paribas Securities Services has said, however, that its deal was profitable.

But perhaps what the experience could show, if anything at all, is that Marion is worried less about having the most high-profile clients and more about turning a profit at the end of each year.

©2014 funds europe



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