French players make cross-border sorties

French banks and insurance companies have been plotting for many years, but the time for action has come. Their blueprints are all slightly different, but they are also linked with a certain mutual familiarity. The reason for this is that there is fluid movement of top staff between the leading players. Many of the prime movers in the creation and distribution of asset management products started their careers at BNP Paribas, or one of its arms, prior to their merger in July 2000. Wherever they are working, there are three horses for the strategists to back. The choice they face is whether to put a big bet on one, or divide their resources effectively between the three. First, there are big, classic institutional mandates such as the E17.5bn shared out, among predominantly French houses, by the FRR, the French pension reserve scheme, in 2004. This is widely assumed to be a one-off. Second, there is French distribution. This can be conducted through the fund houses’ retail branch networks, private banking and insurance company affiliates and third-party distributors such as funds of funds.

Third, there is international distribution, with French banks well-placed geographically to capitalise on Europe’s potentially most lucrative markets of Italy, Germany, Switzerland and Spain. Unlike many Anglo-Saxon groups, French players such as BNP Paribas, Crédit Agricole, Axa and Société Générale have a mentality that easily crosses borders.

‘We’re thinking about a blend of structured and active strategies to provide a more absolute return orientated portfolio management’ Jerome de Dax Société Générale AM

Clearly, every French asset manager must be involved in the institutional market, as some market share will be delivered through brand loyalty and existing bank relationships with corporate customers. But when it comes down to measuring profits, it is the domestic and international distribution fields which can really boost balance sheets, despite smaller volumes of assets. “Our overriding concern is profit, and making sure that we develop our business in a profitable way,” says Kirk Hotte, recently appointed as head of global distribution at Axa Investment Managers. In 2005, he aims to complete a re-engineering of products and distribution platforms to compete with Europe,’s major players, especially in Italy and Spain. Institutional bias Of the E30bn in new assets garnered last year, just 16 per cent was from funds sold through distributors, with 84 per cent invested by institutions. Distributors are served through cross-border ranges established in Luxembourg and Dublin, sold in combination with domestic ranges domiciled locally in the target markets. Axa’s Tower B is based in the glass and concrete expanse of the outlying Parisian financial district of La Défense, close to the Total Tower, where Société Générale’s asset management division (SGAM) is headquartered. Yet both are at slightly different phases in the cycle of developing their distribution initiatives. SGAM has been successful in building extensive external distribution in Europe. Now the group wants to re-vitalise the rusty sales channels of its parent company’s retail bank branches, and then to boost sales through insurance companies. Axa, however, is aiming for more external distributors. “We are not going to spend our development efforts talking to insurance companies. This will be part of our second phase,” confirms Mr Hotte. “More of a priority for us is talking to the big retail and private banks.” SGAM’s priorities are to balance its business model, so that healthy inflows are coming from internal sales through SG’s banking network, external third-party distribution to retail clients and institutional sales. Clients of European third-party distributors invested a healthy E3bn in net inflows into the SGAM Luxembourg fund range during 2004. But the retail banking channel has been “on hold” for a long period. “SG had been ahead of the competition some years ago in pushing its clients from the retail network towards mutual funds,” says Jerome de Dax, managing director of global marketing at SGAM. “There has been a pause in collecting new money mainly due to the situation in the financial markets, which have not been providing significant trends.” During this pause, SGAM has worked with the retail network to manufacture a suite of products better suited to a low-yielding environment. “We are thinking about a mixture of structured and active strategies to provide a more absolute return orientated portfolio management,” says Mr de Dax, who is expected to create a separate new business unit, dealing specifically with distribution through insurance company clients. “Distribution is the best business on a profit basis,” says Gilles Glicenstein, Chief executive officer of BNP Paribas Asset Management, without any hesitation. “It is two or three times more profitable than institutional business, but much smaller in size. If we can have E10bn in distribution assets to replace E20bn of institutional assets, then why not?” Mirroring its competitors, Just E15bn of BNP PAM’s assets are from distribution, while E100bn are from institutions. Mr Glicenstein will concentrate on expanding distribution in a handful of European markets where BNP PAM can generate significant growth. “We are very small in the UK and don’t believe we can grow significantly there,” he says, conscious of not wasting marketing resources. “We would rather concentrate on markets like Italy and Spain, where we can control or grow market share.” Mr Glicenstein’s belief in the power of third-party distribution is so strong that he has set up a division called CFM, dedicated to selecting other groups’ funds. CFM’s resources are used by the asset management, private banking and insurance divisions of BNP Paribas, with the retail bank expected to eventually enter the group-wide initiative. “Gilles believes not in God, not in politics, but in open architecture,” said one BNP Paribas insider close to the venture. Mr Glicenstein’s faith in the distribution market is partly due to his own company’s experience, where the rate of growth of externally managed funds, sold through BNP PAM’s Parvest umbrella vehicle, has been double that of plain vanilla internal funds. “This is interesting, because even in a not very attractive market, the innovative funds have still experienced rapid growth,” says Mr Glicenstein, who sees doubling external funds to E26bn over five years as a realistic target. Insurers join in French insurance companies are also moving heavily into third-party distribution. As well as selling external funds, the mutuals, including MACIF and MAAF, have invested in a specialist third-party distribution company, Ofivalmo, headed by former Banque du Louvre mastermind Thierry Callaut. He has overseen growth in assets from E3.8bn to E8bn in 18 months since his arrival, after his former employer was swallowed by the HSBC empire. He describes the operation as “very controlled open architecture system,” bringing previously unknown, mainly foreign funds, to a French audience. Boutique US equity managers such as Third Avenue, Turner and Driehaus are typical of the strategies chosen and sold by Ofivalmo. “We are not offering a whole range of products managed by the likes of Fidelity and Invesco,” says Mr Callaut. “We are focusing on 25 to 30 companies we know very well, to market their products directly, using a fund of funds.” Much of his work has been for distributors such as French private banks, including the two Rothschild houses and BNP Paribas. “BNP Paribas has decided to copy our business model, but open architecture is only just beginning in France,” says Mr Callaut, hinting that there is room for many distributors in this market. Another entrant is Natexis Asset Management which manages E70bn, including retail assets for its parent company, Group Banque Populaire, France’s sixth largest banking group. Natexis has spun off two subsidiaries, Natexis Asset Square, which runs E1.68bn in multi-manager funds, and Axeltis, which has over E2.4bn in intermediation for 20 distributors. As a wholesale distributor, Axeltis handles the negotiation and organisation of distribution agreements between manufacturers and distributors. “Open architecture will not happen overnight in France, by definition,” says Daniel Roy, CEO of Natexis AM and its two distribution arms. But the approach must be a democratic one to succeed. “The only way to move forward is to provide performance, from funds of all competitors, to clients. This does not mean saving these products for a few high net worth investors, but extending them to every man in the street,” he says.

‘The only way to move forward is to provide performance, from funds of all competitors, to all clients’
Daniel Roy Natexis Asset Management