Cranking up the risk level

CDC Ixis AM plans to launch ‘more daring’ hedge funds this year. Roxane McMeeken reports. CDC Ixis Asset Management (CDC Ixis AM), one of Europe’s biggest fund players, is rolling out several new riskier hedge fund products this year. Isabelle Reux-Brown, head of alternative and structured asset management, CDC Ixis AM, explains how high net worth investors are getting to grips with hedge funds. “Clients are now accepting leverage applied to funds,” says Ms Reux-Brown. “So we are bringing out funds with a maximum leverage of five times.” Rather than hedge fund novices, CDC Ixis AM is aiming for investors who already have some exposure to alternatives. Along with other fast-moving wealth managers, CDC Ixis accepts that tying the fortunes of rich investors to the index is no longer a viable strategy. Increased exposure The Paris-based firm also knows that those investors already dipping their toes in the water are now willing to increase exposure to hedge funds. “However, investors are not asking for very aggressive products with targets of 15 to 18 per cent, and 50 per cent volatility,” reveals Ms Reux-Brown. Her company’s new suite of funds, covering a variety of investment approaches, will therefore target more modest returns. One hedge fund product, to be sold directly to the top end of the retail market will have lower target returns of 300 to 400 basis points. It will comprise internal funds covering global macro, convertible arbitrage, managed futures, long-short European equities and event-driven strategies. The product will be distributed at first in France through the bank Caisse d’Épargne, which owns 49.9 per cent of CDC’s parent, French holding company Eulia. The rest is owned by Caisses des Dépôts, the major French public financial institution. “This is a tentative step,” explains Ms Reux-Brown, “as we are only just starting to build the legal environment for these funds. Until the legal aspect is there, we won’t be aggressive in the direct retail market.” CDC Ixis will run the fund according to the same philosophy it applies to all alternative products. Ms Reux-Brown says the focus is on setting moderate performance targets and controlling volatility. This should result in lower, but steady returns. But the new launches represent a marked acceleration in product development activities, nevertheless. From 1995, CDC Ixis AM offered European clients access to hedge fund strategies only through capital guaranteed products and money market funds that employed certain hedge fund strategies, known as “enhanced money market funds”. From 2001 CDC Ixis began to offer “pure” alternative investment funds in line with investors’ growing appetite for risk. The alternatives arm manages E5bn of the investment house’s E297bn in assets. Three separate operations are included: CDC Ixis AM Paris and two American affiliates, Caspian Capital Management in New York and Harris Associates in Chicago. Funds from all three internal branches will be used in the new products. Multi strategy CDC Ixis AM Paris runs E1.8bn and concentrates on developing macro and multi strategy fund of funds products. The products are comprised of CDC Ixis AM’s own funds, and funds managed or selected by Caspian and Harris. CDC’s in-house competencies are global macro, convertible arbitrage, managed futures, long-short European equities and event-driven strategies. Caspian has E1.2bn under management and is a fixed income arbitrage specialist. Caspian offers a variety of products based on high grade US fixed income arbitrage and default neutral global fixed income arbitrage. They are all managed in-house. Harris is the largest of the three, with E2bn on the books. Experts in funds of hedge funds, the firm offers diversified multi-manager vehicles, whose objective is an absolute return with low volatility and little correlation to US indices. CDC Ixis AM’s new funds planned for this year will tap into all these capacities. The funds of hedge funds will be sold to CDC’s usual clients – high net worth individuals, distribution networks and institutions throughout Europe. But the difference is that until recently the firm has limited its offering for European clients to very low risk vehicles. “The new funds will be more daring,” says Ms Reux-Brown. The maximum targeted return will be between 10 and 12 per cent, without any capital guarantee.