CAAM ponders best route for euro invasion

CAAM, the ?500bn asset management division of France’s leading bank, Crédit Agricole, has been building up a reputation as one of Europe’s largest fund houses. But outside its French home market, where CAAM holds pole position, this has been no easy task, says the group’s long-standing head of international client development, Jean-François Pinçon. He has been slowly but surely shaping the type of business model which is applicable to the changing European market. This means reviewing which products are made available for which clients, deciding which markets to concentrate on, creating the organisational structure to prioritise certain distribution channels and addressing one of the key questions facing fund manufacturers in Europe: ‘How can we boost our brand recognition?” Crédit Agricole has always been primarily a fixed income house, with bonds accounting for 44 per cent of assets. When CAAM’s travelling salesmen visit large distributors across Europe, the first products to come out of the suitcase are normally European fixed income and credit, plus global fixed income funds. Absolute return products are also increasingly making an appearance. But it has been Mr Pinçon’s job over the last five years to diversify the range his agents can offer clients. He has been helped on this front by several internal organisational developments: fixed income innovation, the establishment of a hedge funds division and a much-needed shake-up of practices in equity management. The most remarkable story in the CAAM empire has been the rise of Bruno Crastres, a strong-willed quantitative fixed income specialist, who pioneered the Value at Risk (VaR) concept – the persuit of absolute return through dynamic risk allocation in different asset classes – developing his own semi-autonomous operation in London. Turning clients away “With VaR, we are now even having to refuse clients,” reveals Mr Pinçon. “We are already managing ?72bn in those products, and of that piece, absolute return represents ?38bn. What is very interesting is that here we have something which five years ago was an obscure, niche product. Now it has become a core product.” This is exactly the same route being taken with CAAM’s fund of hedge funds business, under Jean-Claude Kaltenbach. This fund of alternatives products with a focus on credit and high yield investments – currently being pitched to distributors and private banks – is already nudging ?15bn having been created just 14 months ago. The creation of specialist products, which can eventually break out of their niche, is a topic close to the heart of Pascal Blanqué, CAAM’s latest chief investment officer, who replaced Pascal Voisin two years ago. “We are always striving to create new products,” says Mr Pinçon. “The motto of our CIO is rather than creating new sources of alpha, let’s find some new beta, in particular anything to do with volatility.” During 2006, the main innovation has been a product called CAAM Volatilité Action, an actively managed pure volatility product sold only into the French market. “Now we want to develop this concept in the rest of Europe, as it is a product of interest to private bankers,” believes Mr Pinçon. “In fact anything which is a way to create absolute return is interesting for private bankers.” That does not mean to say that CAAM is neglecting equity business in favour of bond-based innovation. “In terms of equities, our best products are global emerging markets, Latin America and funds specialising in India or greater China,” says Mr Pinçon. “The rest of our equity business is more average,” he adds candidly. “But we are now in the process of a very big review of our equity business, led by our CIO. We are overhauling our equity management everywhere, and this is starting to bear fruit. Over the last quarter, all of our equity funds have gained in quartile equity performance.” A multi-management service developed initially for mass market distribution has also been re-positioned for a more niche audience. “Originally, that product was developed for the retail market, but that has not proved to be the right idea,” admits Mr Pinçon. “Multi-management is more of a product for private banking clients, or mid-sized and smaller institutions, but not a product for the retail market.” These externally managed funds are also no longer sold to CAAM’s private banking client base. “The kind of private banks we are talking to are generally in the same kind of business, and have their own teams in Europe, doing their fund selection. We can only sell it to those institutions who don’t have funds of funds, while it is too complicated to explain for most retail investors.” The multi-manager product is, however, successfully sold within Crédit Agricole’s own private banking division. As well as looking at whether his sales force is pushing the right products, Mr Pinçon has reviewed the markets into which they are selling. Five years ago, he was trying to diversify into those geographical areas, such as the Scandinavian countries, where he saw potential developments. Today, he prefers to concentrate resources on markets and clients where he knows results will come from the correct approach. “For fund distribution, our number one market is Switzerland. The global distributors like Credit Suisse and UBS are all there,” says Mr Pinçon. “We like any countries in private banking land – Switzerland and Luxembourg in particular in Europe. But Germany is also very interesting. Banks are increasingly embarking into guided open architecture in Germany. That’s the good news, that open architecture has reached a closed market like Germany, which was not the case three years ago. “It is also in existence in Italy and Spain, but has not reached France yet, or the Nordics either. The level of open architecture in the Nordics is very minimal.” However, the correct approach can be very different, depending on the market in question. “Deutsche Bank and Commerzbank have taken a view that is different to Swiss banks,” says Mr Pinçon, “In Switzerland, you have open architecture in private banking, but the German banks have introduced a choice of products and providers in the retail banking segment. Open architecture in Germany represents different factors apart from pure performance.” CAAM is currently in the process of incorporating a branch of the organisation in Frankfurt. The key element to success in Germany and other markets where funds can be sold through retail banks is brand strength, believes Mr Pinçon, who says it is important to look at the history of why some banks chose this route. Getting out there `“But these products were not sold due to performance numbers or professional fund selection; they were sold through heavy advertising to the retail market on TV and in the newspapers.” Huge spending on advertising is a pre-requisite of the new, retail-friendly approach, believes Mr Pinçon. He compares banks with a supermarket selling peas – they may be the best quality, but if the public has not heard of the manufacturer, they will not buy the peas. “A new brand may come in with very poor quality and artificial colouring, but they have invested millions in marketing, so the public buys them. The public buys a brand in retail distribution, it buys advertising expenses.” But Mr Pinçon admits that there is still much work to be done before CAAM funds have a “must-buy” image in key European markets, although he is happy with penetration of the Swiss market. “We need to develop a European brand. As far as CAAM is concerned, we are not there yet, not quite. Crédit Agricole is known as a brand worldwide, as it is sixth in the world by its tier one capital, but as CAAM, we are far less known in Europe. We are known to professionals, but not yet known to the general public outside France.” Mr Pinçon has identified 100 key cross-border European distributors, known as ‘platinum’ clients of CAAM. “The platinum project insures that the bests clients get the best service, whether they are distributors or institutions,” says Mr Pinçon. Much of the focus is on the information needs of these clients, so that they are constantly updated on risk profiles and fund management changes. “This is a very good way to emphasise client service across the whole company,” says Mr Pinçon. “What you are selling to the client is your ability to provide an alpha attentive service and operational safety.” CAAM has combined its institutional and third-party distributor marketing under Mr Pinçon, who believes there is now little difference between the two. “I am always convinced that talking to third-party distributors and institutions is increasingly becoming the same sort of business,” he says. “Five years ago, the importance of distribution in our business was between 15 to 20 per cent. Now the third-party part is bigger than institutional. We are talking to institutions, and they are predominantly selecting funds. Whether they are doing this for private banking or for pension schemes, they are basically doing the same job, although the service we provide for these clients is different.”

The main change, driven by open architecture, has been in the type of distributor, which CAAM is required to service. “To sell their funds six or seven years ago, manufacturers were mostly talking to independent financial advisers (IFAs), so our work was all about roadshows and supporting sales in the field,” remembers Mr Pinçon. “But now IFAs and independent fund managers have lost competitive advantage to private banks. You used to get the best service by going to a small fund manager. But Swiss banks have championed open architecture. They are the first ones to recognise that the real added value comes from developing the relationship with the client.”

Pinçon: Switzerland is our number one goal for fund distribution