Jean-François Boulier, CIO,
Aviva Investors France
Is the crisis unfolding worse or better than expected?
Firstly from an investment perspective, the deep recession we are passing through is not the depression that was feared by many.
First signs of bottoming out in the developed economies and encouraging news about China show that it is the end of the ‘end the world’ stories. Improvements in the capital markets for interbank dealing and corporate debt are now so clear that the Lehman shock seems to be absorbed, with credit spreads of August levels. Equity markets were the first to rebound briskly and volatility has shrunk. As I expressed it last autumn, we have had an extremely good opportunity to buy high quality assets at bargain prices.
Meanwhile, we still see high inflows to money market funds which will not be reversed soon. Appetite for risk remains very low. This means that new asset collection will be concentrated on safe and less profitable vehicles. The stress in the fund management industry is clearly not over.
How has the reputation of fund managers been affected?
Our efforts during the crisis has been to stand up before our customers and explain them not to panic and to start buying where they can and according to their risk profile. Isn’t it the nature ot an insurance company to be close to client in case of trouble ?
Are product development and pricing reflecting changes in the financial and economic environment?
We took this crisis opportunity to launch a recovery fund in France named Aviva Rebond, investing in high quality bonds and stocks trading at discounted value, the marketing of which starts in May.
We also decided to expand the range of our SRI funds, including an index fund launched in May and a cash fund project. No doubt that additional pressure will be made on fees and for service quality. We are beginning to see proposals in the hedge fund industry to provide lower front-end charges and fees when the lock up period is expanded.
How do you view regulatory developments so far and how would you like to see regulations change?
Common regulation and controls for funds and other vehicles is a long awaited request of the asset management industry. Hedge funds cannot be withdrawn from the list of vehicles even if specialised professionals are in charge of investing in these products.
How do you perceive risk management to be changing?
For all who have experienced many crises, it is no surprise that risk management during financial turmoil cannot be compared with business-as-usual risk measurement and controls. Too sophisticated tools prove useless and many assumptions for parameters should distinguish between crises and normal times. It was already known that correlation tends to go to extremes – see studies by B. Solnik in 2000.
The importance of careful liquidity risk management is certainly the major lesson of this one! Quick withdrawals is another and is more specific to our industry.
The Turner Review in the UK wishes to see risk officers occupying a more visible place at the forefront of investment firms. Will the CRO be a main board appointment in future?
Other bodies like the International Institute of Actuaries also promote this idea of making the CRO a key role in the firm. But there are other management issues, like making sure that all persons involved in controls have the expertise and the right status to make sound decisions before the crisis in order to withstand pressure to go with the crowd.
Has remuneration of senior fund management executives been affected by the bonus controversy within the banks?
Asset managers cannot operate in isolated islands. On the other hand they were not the at centre of excesses. Let us see what it means after the crisis is over.
Is there more scope for M&A? How will clients’ interests be balanced with shareholders’ interests?
We already see a lot of M&A directly on asset management arms like SGAM and CAAM or indirectly with the merger of parents like BNP Paribas and Fortis. It will continue, especially in the hedge fund industry.
In the current M&A activity how will clients’ interests be balanced with shareholders’ interests?
We feel that unsatisfied clients turn a business into trouble anyway. Creating value for customers is at the heart of what Aviva Investors wants to do. In one of our life businesses, new clients brought in by existing clients reached 2/3 in the last quarter of last year. Merger projects simply cannot disregard customers’ interests.
Do you anticipate any changes to distribution structures? Will banks still want to sell funds and will distributors support mutual fund products?
In France, the market share of traditional life versus UCITS has jumped. Hopefully this will not last and Aviva Investors France has made efforts to convince customers not to crystalise their losses and instead, when possible, to invest in riskier assets through mutual funds. But funds cannot simply be traded like stocks. That is why we train our distribution network and face their clients frequently.
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