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EXECUTIVE INTERVIEW: Why being in the middle is a sweet spot

Naim-Abou-Jaoude_largeNaïm Abou-Jaoudé is steering Dexia AM as it tries to gain €30 billion of assets by 2014. At the same time, it wants to increase its external clientele to acquire more international customers. Angele Spiteri Paris reports.

Within the perennial debate about what is the superior asset management model and what is the correct size of assets under management (AuM) that a firm needs to function most effectively, the mid-size investment managers are rarely heard to opine. Industry observers will say the medium players are the ones most disadvantaged because they lack the economies of scale of the large asset gatherers, and lack the punchiness of the small specialists.

But Naïm Abou-Jaoudé, chief executive officer at Dexia Asset Management, believes the firm’s medium size is a key weapon in its arsenal. He took up this position in 2007 with the task of increasing AuM, and increasing the portion of Dexia’s revenues from external and international clients.

“I think we’re at a sweet spot as a firm in terms of size and scale,” he says. “Being mid-sized allows us a lot of opportunity. We are agile enough to adapt to market developments but are also large enough to have the necessary economies of scale to be diversified in terms of product and client base. “Mid-sized doesn’t mean you’re diluted, it just means you have to make sure you keep your expertise sharp.”

As of end-June 2011, Dexia AM had €84.6 billion in assets under management. This included assets managed for internal clients as well as third-party funds.

According to Abou-Jaoudé, the right size for an asset management firm is somewhere between €50 billion and €300 billion. “This is a good size to manage capacity and diversification while coping with the cyclicality of the market,” he says.

So how does Dexia keep its expertise sharp? The CEO is keen to explain that the company has continued to foster an environment of innovation. “We are pioneers in the alternatives space, we are pioneers in sustainable and responsible investment, where we continue innovating,” he says, giving the addition of a macro level of analysis to Dexia’s sustainable and responsible investment process as an example.

Old lessons
Abou-Jaoudé joined Dexia in 1999 and became a member of the alternatives and structured products executive committee in 2002. He had joined the company when Dexia acquired UBS Asset Management France, where he had been a management board member and head of the investment management and derivatives department. Since 2007, he has been chairman of the executive committee.

In the three years since the financial crisis, the firm has made strides to be more transparent, partly in response to regain client confidence, which is an issue for the whole industry.

The crisis refreshed people’s memories about the importance of diversification, he says. “The fact that it’s good to be diversified is an old lesson, but it’s one that is still relevant.”

“We’re still in the process of restoring confidence. So many things happened that came as a complete surprise, and we have to make sure we keep close to our clients.”

A recent study carried out by Dexia AM of its clients’ needs confirmed that asset manager clients no longer just look for performance, but rather they have begun to show greater appreciation for the service end of an asset manager’s offering. “Offering alpha to our clients is not just about performance. It’s about adding alpha across the whole of the value chain,” says Abou-Jaoudé.

He outlines the firm’s priorities in this regard. “To improve our service we need to increase transparency and disclosure, improve our proximity to the client and increase our responsiveness as a firm.”

To put this into action, Dexia AM now discloses its ten largest fund portfolios in their entirety. The firm also has merged the sales and marketing team with client relations, saying this gives a more consistent message going out to its investors.

Furthermore, Abou-Jaoudé, says that last year Dexia AM made the decision to introduce a single portfolio management system company-wide. “We have put a lot of resource and investment into our reporting and performance attribution. Our reporting timescales have significantly improved, moving from D+7 to D+3.”

Dexia currently carries out these functions in-house, but Abou-Jaoudé says the firm may consider outsourcing. “Maybe one day [outsourcing] will be a good thing for us to do, as long as it adds value to the client,” he says.

The firm has also included a “get in touch” button on its website, to promote open and easy communication with clients. According to Abou-Jaoudé, post-crisis, communication with clients has become almost more important than fees and performance. Keeping the line of communication open helped Dexia AM navigate its way through the crisis. “Clients appreciated it a lot,” he says.

Rough times
The firm went through a significant rough patch over the last few years. Its parent company, Dexia Group, a Belgian-based banking business, had to be bailed out in 2008, receiving a reported €6.4 billion capital injection from European governments.

The past few years have not been easy for Dexia Group and in turn for Dexia AM. But things are looking up.

In the group’s 2010 annual report, Jean-Luc Dehaene, chairman of the board of directors, and group CEO, Pierre Mariani, noted that the contribution of asset management and services to group results doubled over the year, with the “excellent performance of our insurance activity, while the recovery of the financial markets was beneficial to our asset management and investor services activities”.

Dexia AM saw around €3 billion of outflows from money market funds, but Abou-Jaoudé says this was compensated for by net new cash in mandates and other funds, resulting in an overall positive net new cash result.

Also, the first six months of 2011 have yielded positive results. “We increased the number of mandates we run by 10%. In the last six months we were appointed to manage more than ten new asset allocation mandates,” he says.

Over the years, and particularly since the parent company hit the brakes during the crisis, there have been rumours that Dexia AM would be sold off. But at group level, the firm has made it clear that its goals and targets for the asset management portion of the business are concrete, refuting the likelihood of the sale.

The annual report outlines that by 2014, asset management and services activities should contribute about 21% of group income.

Targets set out for Dexia AM in the most recent group report aim for the firm to have AuM of around €130 billion – €30 billion of net positive collection over 2011 to 2014. Of this, it wants 70% to be from non-captive customers and one-third internationally. The asset management business aims to have an operating margin of 48%, which should be reflected by a pre-tax income of €140 million in 2014.

Abou-Jaoudé says that the vision is to develop the business through organic growth and that the move to have the majority of assets under management be non-captive is probably one of the main goals. “We want to have more non-captive business than captive and would like to see it increase to at least 60%,” he says. Currently, around 46% of the firm’s assets are non-captive.

Key to this growth is also increasing diversity in client types. And this also involves looking beyond the European borders.

“Asia has a lot of potential and China offers plenty of opportunity. We are looking at how we can grow our business in Asia,” says Abou-Jaoudé. He says another next step would be to build on the firm’s distribution partnership in Chile.

©2011 funds europe