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Magazine Issues » November 2014

FRENCH ASSET MANAGEMENT: A pleasant aftertaste

ChefsAfter struggling with the implementation of alternative investment laws, France's three asset servicing giants are at least winning new business, reports George Mitton. 

European financial services regulation is an alphabet soup – EMIR, AIFMD, T2S, to cite three – and asset servicing firms are like the tireless cooks working to make it palatable for fund houses and end-investors.

It can be a thankless task at times. Most asset managers, for example, accept their regulatory requirements reluctantly. And it is not clear that the asset servicing firms can expect much credit or recognition for the substantial sums they have had to spend on administration and compliance.

However, there is at least one benefit to asset servicers of the recent regulatory wave: a chance to differentiate themselves from their competitors, and an opportunity to win new clients, if they can demonstrate expertise.

Caceis, the asset servicing firm owned by Crédit Agricole, believes it has done well out of the Alternative Investment Fund Managers Directive (AIFMD), which requires managers of alternative funds such as private equity or real estate vehicles to meet registration and reporting requirements for the first time.

“We have the lion’s share of private equity and real estate wins in our markets – Germany, Luxembourg, France, the big ones. We added hundreds of funds,” says Joseph Saliba, deputy chief executive. (Both Societe Generale Securities Services and BNP Paribas Securities Services stressed they have also won many clients in these markets and BNP Paribas SS said it is difficult to know which firm has won the most because of a lack of data.) 

Saliba says his firm has won clients because it prepared for the directive early and kept costs low. The firm also likes to talk about how it is, apparently, the best capitalised asset servicing firm in Europe, which may have swayed some clients concerned about depositary liability.

It would be putting it too strongly to say the AIFMD has been a boon for Caceis and the others, though. The industry has still had to spend large sums on compliance with the directive. François Marion, Caceis chief executive, told Funds Europe in previous interviews how he is deeply sceptical that anyone but the final player in the value chain – in this case, the asset servicer – can be made to pick up the tab of regulatory compliance.

However, Saliba sees recent client wins as an introduction that may lead to more profitable business later on, as it seeks to sell more services. 

“Once we have a relationship with the client, we can help them with a lot of other admin challenges. It’s a great opportunity for us. Now we have the market share.”

The other French players have won deals under the AIFMD too. The interesting thing about the directive is that it brings to asset servicers clients who have not needed their services before. Societe Generale Securities Services (SGSS) has gained new clients – for instance Ciloger, a French real estate fund manager, and AEW Capital Management. 

The company was pleased to gain the latter because AEW is owned by Natixis, which is a shareholder in Caceis. SGSS would not be considered the usual provider for this client.

“The AIFMD is an opportunity for SGSS to make the directive more simple for asset managers,” says Jean-François Marchand, head of sales for France. “I’m thinking of the regulatory reporting. Between the asset manager and depositary and the administrator and the transfer agent you have lots of contributors, collecting all the data is a pain.”

Indeed the directive has thrown up a number of questions that asset servicers are still in the process of answering. According to the depositary liability written into the directive, a firm such as SGSS must oversee the underlying securities of the fund and replace them if they are lost.

This is fairly straightforward if the underlying securities are public equities, but what if they are an exotic asset, such as forest land or a portfolio of vintage wines? Luckily there is a solution.

“If you’re not comfortable with the investment, you explain to your asset manager you don’t want strict liability for the assets,” says Etienne Deniau, head of business development – asset managers and asset owners, at SGSS. “You ask the fund to put liability in its name.”

It is fortunate that there is some flexibility in the directive, because questions can arise over even comparatively straightforward assets such as property. In Corsica, for instance, there has never been a definitive central land registry, nor in Greece. If a fund invests in property in these countries, the depositary may have difficulty verifying that the fund owns what the fund manager thinks it owns.

At BNP Paribas Securities Services, which completes the trio of French asset servicing giants, there has also been a push to capitalise on the AIFMD as a chance to onboard new clients. Florence Fontan, head of the asset manager segment, says alternative fund managers have woken up to the directive at different times, depending on whether they can continue to distribute in Europe under national private placement regimes. To complicate matters, some countries have delayed implementation of the directive, which allows alternative fund managers to postpone their own arrangements. In addition, member states can transpose the directive into national law in subtly different ways, which asset servicers must understand.

“From an operational point of view, it’s straightforward,” she says. “We serve clients as a full depositary, performing all cash reconciliation and cash monitoring. What is complex is the legal part: dealing with multiple jurisdictions and taking into account the countries where the funds are distributed. You have to match the local approach with the European approach depending on the country of distribution. For example, Germany went beyond the strict AIFMD requirements by aligning its national private placements regime to the AIFMD. Not all countries have done that.”

Like the other French players, BNP Paribas SS has gained clients thanks to the AIFMD. The firm opened up depositary bank operations in the UK and the Netherlands to serve new clients and is interested in the private equity sector. Jean Devambez, head of asset and fund solutions at the firm, says he believes there will be a second wave of client sign-ups, now the implementation of the directive is under way. This will be largely non-EU alternative managers who need to adapt if they want to sell in Europe. 

It seems directives will create business for the asset servicers even as they create compliance headaches. The key is to make the most of the opportunities and minimise costs.

©2014 funds europe