Natexis targets service-driven financial culture

Every European country has one distributor who is at the hub of trends and developments, who signs up new funds on to his platforms, and whose name is on the lips of all major fund manufacturers in the capital city.

For France, that man is Philippe Couvrecelle, head of Natexis Asset Square, the fund selection and distribution machine set up to service the investment needs of the country’s regional Banques Populaires branch networks.

Heads of fund sales at all the big fund houses in Paris know Mr Couvrecelle personally, that he has a big family, that he is an easy-going character. His marketing background means he enjoys the type of knockabout humour which is not the natural domain of his more serious boss, Daniel Roy, appointed in 2004 to head up investment activity at Natexis. Today they are responsible for more than ?90bn, with 30 per cent of this held for customers of the group’s 2,692 branches.

Pragmatic approach

Yet Mr Couvrecelle is the man they need to befriend to sell their funds, to get a look-in when he launches a new range of products for his network’s customers. And all the manufacturers want to work with him in a close partnership.

Mr Couvrecelle, however, sees things in a different way, pointing to his team of monitors, which arranges 600 meetings with third-party managers every year – after an initial quantitative screening of 12,000 products registered in Luxembourg, Dublin and France.

“We are simply using the funds of third parties. We don’t need a partnership with producers. It’s easy for us, as all the main providers come to see us in this office, due to our ability to distribute multi-management products,” says Mr Couvrecelle, offering a guided tour of his light and airy premises overlooking the River Seine.

“We don't want to have a specific partnership, as we need to be able to buy or sell funds whenever we want, not to explain to a partner why we don’t like them any more.”

This has not always been the Natexis way. Certainly, in the “old days” of the 1990s, Mr Couvrecelle was in charge of a strategic partnership between Banque Populaire Asset Management (BPAM) and fund provider JP Morgan Fleming. The two groups even launched a balanced product together in 1998, the Profile 369 fund, which has become the most important line sold through Banque Populaires branches. But, due to the growth of Natexis as a force in French asset management following the merger between Banque Populaire and Natexis Banque in 2000, balanced management was brought in-house as it became a core competency.

“JP Morgan was doing the global asset allocation, as well as managing the long-term product for us,” confesses a slightly cagey Mr Couvrecelle, keen to draw a line between the “old” BPAM and the “new” Natexis ways. “But Natexis Asset Management passed from 80 to 200 people, therefore we decided to manage the balanced fund ourselves. That was the end of our specific story with JP Morgan, although we still use their funds.”

When Natexis Asset Square was created by Banque Populaire Group in 2001 as a specialist fund selection unit, there was also a necessity to show to bank shareholders and clients alike that there would be no favourites, with funds selected for distribution on a pre-set list of formalised criteria.

While a product collaboration agreement has been signed with Goldman Sachs Asset Management, which has already placed ?170m with Natexis Asset Square, this type of deal is played down internally, in favour of a “pragmatic” approach, with all third parties treated equally.

Middle ground

The truth probably lies somewhere between the idea of a partnership and an independent, mechanical distribution platform. “Their business is to be as neutral as possible,” says the Paris-based head of distribution with a major cross-border player. “But when we come up with an idea, they listen to us, and then we can provide them with access to our asset managers.”

One of the key topics of debate with external managers is whether they can have their brands displayed in Banque Populaire outlets. Currently, this is not possible. Indeed, Natexis Asset Square opted for a fund of funds model rather than direct, off-the-shelf sales, so that clients are offered good diversification, with no single fund dominating portfolios.

“If one network sells funds directly from 10 promoters, then Fidelity will always have the best name and marketing machine, so they can get 90 per cent of over-the-counter sales,” says Mr Couvrecelle. “But in a fund of funds, they would get just 3 or 5 per cent. This is the advantage of the multi-manager approach.”

Clients come in and buy a fund of funds blind, not knowing who the underlying sub-advisers really are. Mr Couvrecelle admits that this may be about to change, and that some, limited, third-party brand recognition may help boost client interest.

“Through our discussions with the regional banks, we are planning to develop reporting on brands off underlying funds,” he says. “This is important for us. But we don’t want to do a strong marketing campaign around brands, as that’s not our philosophy.”

While Natexis Asset Square runs ?2bn in multi-manager funds for external clients, only an additional ?300m is overseen for its own branch network. Ironically, it is creating and managing products for the latter which is their official priority.

“We have had four difficult years in the traditional asset management business; the big French banks today don’t have net subscriptions in equity and balanced funds,” sighs Mr Couvrecelle by way of explanation. “All of the new money is going into life contracts or structured products. In France, people prefer to by flats or houses rather than this type of product. Our aim today is to install a different type of financial culture in the distribution network.”

This, says Mr Couvrecelle, should be based on education and asset allocation rather than just pushing ‘le plat du jour’. He wishes to avoid the 1999/2000 phenomenon where clients besieged bank branches for high selling, high-octane products investing in technology and the internet. “The challenge is to organise regular subscriptions on a monthly basis,” believes Mr Couvrecelle. “This will avoid mass investments at the top of the market, with investors missing the best periods of performance.”

Asset allocation

French investors, still shaken by earlier crises, are still selling off funds, despite a 15 per cent return in 2003 and 7 per cent in 2004, he adds. And while his group’s branch network, in common with other French banks, is doing a good line in structured products, Mr Couvrecelle believes the capital guarantee is a good half-way house between a straight savings products and an actively managed mutual fund.

“If you don’t go through the first step, then it becomes difficult to sell a riskier equity product,” he says. “Our medium to long-term work involves creating a link between structured products and investment funds. We won’t necessarily collect money in the short-term, but we hope to eventually convince clients to return to classical products.”

The debate for most banks is not about selling in-house or third-party products, believes Mr Couvrecelle. He says product selection is the easy part and that Natexis has had a clean-out, ridding itself of a previous generation of poorly managed strategies.

“The main question for retail clients today is asset allocation, and our biggest effort must concentrate on how to organise this service in our branch network. As a bank, we need to pass from a product approach to a service approach.”

Mr Couvrecelle switches easily between talking about his group as an asset manager and as a branch network or distributor. It may appear schizophrenic, but in reality, it reflects his unit’s ownership and motivation.

“You must integrate the logic of the owner into the entire group strategy,” says Mr Couvrecelle. “And we are owned by our distributors, the regional banks. It is our job to create value for them. We also have good proof for the group that our products are the best, as they are selling through other networks.”

There is a very special culture in the French regional banks, says one Paris-based insider, shedding some light on Mr Couvrecelle’s position. “In Natexis, the power comes form underneath. This is totally different from SocGen, BNP and HSBC, where the command comes from the top about which products to sell. One of the first things Daniel Roy did after his arrival was to create guaranteed funds, because the branches asked for them. You clearly sense who his shareholder is, and that ‘il et au service de’ branch network. All of the foreign managers like Fidelity, Schroders and Invesco are trying to penetrate the tissue of this network, but Natexis funds always have priority, and multi-management is a very effective way to defend themselves against these attacks.”