Opening up conduits to private clients

Proud of its multi-local approach, SGAM’s distribution operation counts the options for furthering fund sales across Europe. Yuri Bender reports. Société Générale Asset Management (SGAM), the funds arm of one of the top banking names in Europe and Asia, is pushing hard to increase sales of investment products to retail investors and private clients through third party distribution channels. The main consideration is one of profits and business efficiency, rather than pure fund flows, reveals François Bazin, flamboyant head of SGAM’s European distribution machine. “Margins are much higher in retail products than institutional business, but you need many more contacts,” says Mr Bazin, surveying the post-modern Parisian landscape from his 24th floor vantage point in the financial district of La Défense. “High net worth and retail business is much less volatile. If you are seeing inflows of E1m, it can be from 20,000 customers. But a pension fund client can redeem E1m at the click of a finger.” Before SGAM’s creation in 1996, funds were handled by a department of the Société Générale parent bank. At that stage, 80 per cent of the E60bn assets were managed on behalf of the bank’s retail clients. But the political will was there to create a wholly-owned subsidiary with a distinctly separate identity. Today, the bank and funds house are in separate buildings, with a 10-minute stroll between the two. Around two-thirds of the E232bn of assets under management are still from bank customers, but there is a new trend in favour of external distribution channels. “We are witnessing a huge cultural change,” says Mr Bazin. “Retail money used to come in just from our banking customers. But now it is being shipped in from large warehouses all over the world, from Europe, Japan and the Middle East. This has been much more helpful for our development.” Over E12.5bn of new assets were garnered by the SGAM sales force last year from both retail and institutional clients. However, distribution models vary hugely according to the marketplace, with three primary models prevalent in major regions of distribution, including France, Germany, Italy and the UK:

• Independent financial advisers (IFAs)
• Multi-managers/funds of funds
• Branch networks of retail and private banks. Independent advisers The market share of IFAs among distributors depends on the maturity of the market, says Mr Bazin. “In large markets such as the UK, IFAs have a strong market share, but in new ones like Scandinavia, they are almost invisible. The German situation is very different. IFAs have been a privileged channel there for foreign fund managers. Last year, new cash came predominantly from banks that were opening up to external managers.” France, SGAM’s home market, is still a very closed one, with banks just beginning to offer external funds through multi-manager and fund of fund products. Funds of funds The vast majority of SGAM business in Germany comes from the top three banks. Deutsche Bank is a particularly lucrative channel. “But we are not on their shelves in the branches,” clarifies Mr Bazin. “We are selected through the fund of funds and also have a strong relationship with their private banking division.” Funds of funds have proved the easiest distribution channel for a foreign house to penetrate, particularly in Germany, says Mr Bazin. “As we are not well known there, it is easier to get in through a fund of funds to professional investors. These can increase our credibility in a new market, allowing us to show our faces a little bit more.” He also sees the UK as a key market for expansion in multi-manager agreements: “London is a very important place for us.” (See box.) Once the groundwork has been done with fund of funds, the next stage is targeting high net worth clients through private banks, before receiving the ultimate accolade of being recommended for sale through bank branches. “When a relationship works, we can be in each bank in the guise of a fund of funds, be present in private banking and through their retail branch network. With the best relationships, we can distribute our products through more than one channel,” says Mr Bazin. SGAM was one of five managers recently selected by HSBC’s French private banking subsidiary, CCF, for its multi-manager range. The product used was the French clone of SGAM’s Luxembourg-domiciled European high yield bond fund. The team, managed by Marie-Ann Allier, has been at SGAM for four years. Ms Allier used to be head of equity and bond management at Banque Transatlantique, who “were the first in France to start a high yield bond fund”, according to Mr Bazin. Italian banks and GPFs – the multi-manager-style private banking products – are handled by a 15-strong sales team in Milan, headed by Christiano Busnardo. “Our Italian team has done well, and were one of the best collectors of cash in Italy last year, but the business is not yet spectacular,” says Mr Bazin, hinting at even better things to come. Distribution agreements have been struck with the largest banks, including SanPaolo IMI and Monte dei Paschi di Siena. “But we have a pricing problem in Italy. We don’t want to sell our products at any price, so we deal with the largest players.” Rival networks Fund sales are also conducted through SGAM’s German retail subsidiary, Veritas, which allows direct access to savings plans. There has been a strong partnership with multi-manager Frank Russell since 1997 and there is increasing contact with larger banks and fund managers for whom SGAM sub-advises portfolios. “This is a way to get into some of our rivals’ banking networks,” believes Mr Bazin. Surprisingly, for a name as well-known as SocGen, the pan-European distribution strategy is a very new one to the group, having been formulated only in March 2000. The group’s fund strongholds were previously in South East Asia and the US. There are historical reasons for this. SGAM purchased Japan’s Yamaichi Asset Management in 1998, while US West Coast subsidiary TCW, acquired in 2001, has strong relationships with key brokerages for managed account business, including UBS Paine Webber, Citigroup, and Merrill Lynch. The overall approach is a multi-local one, with a global presence across the US, Asia and Europe, dubbed as “glocal” by Mr Bazin. “If you want to approach local distributors, you need to speak in their language for marketing purposes,” he says. Progress will now depend on a step-by-step push through Italy, France, Switzerland and the Benelux region. Despite being envious of Fidelity’s brand name and international sales presence, Mr Bazin admits the incremental approach is a more sensible one for SGAM. “Like everybody, we are in a hurry. But we are not in a hurry for distribution. Consistent results and revenue must be shown. It’s like a snowball. What we have started three years ago is growing, growing, growing.”

More contact across the Channel The top management at Société Générale Asset Management (SGAM) has started to integrate its two previously separate companies in London and Paris. Rather than just servicing independent financial advisers (IFAs), the London operation, established in 1998 to showcase the skills of celebrity fund manager Nicola Horlick, is increasingly being used to manage equity funds, white-labelled for Swiss banks. The group picture means the UK has become the specialist centre for equities, while Paris takes care of bonds. The broadening of distribution channels also means multi-management vehicles and discretionary stockbrokers now account for up to 60 per cent of fund sales. In the early days, over 80 per cent of the UK business was being written by a 20 per cent slice of successful UK IFAs. While over Ł1bn (E1.4bn) of funds have been sold in the UK, the retail arm currently manages £350m, reflecting redemptions and a market slump. “Allocations tend to be fewer in number but larger in deal size,” says Mikkel Bates, director of retail business at Société Générale Unit Trusts in London. “We are going into a market where there is already an asset allocation. With multi-managers, you know the business is already here. You can’t say that for IFAs. “Over time, our business mix may vary a lot more. We are likely to fit increasingly into the group strategy rather than standing alone as we have done,” he adds. The Luxembourg range of 47 SogeLux sub-funds is also being authorised for UK sales. The integration means UK performance is coming under the beady eye of SGAM’s Paris-based chief executive Philippe Collas. But Mr Bates says performance concerns were already being addressed when Hugh Sargent was made manager of the UK growth fund, immediately diversifying the portfolio from 60 to 100 stocks.