Remodelling the asset management side to fit core-satellite approach

Implementing a core-satellite approach often involves rethinking business models on the asset management side.

In France, over the past couple of years, Société Générale asset management (SGAM) re-shaped all its balanced assets in a core-satellite strategy, in order to better monitor and improve performance. The concept also resulted more efficient in terms of pricing, explains Michel Agou, director of business development at the French firm.

But embracing this approach brought with it a re-structuring of the organisation.

Last year, Alain Clot, chairman and chief investment officer at SGAM, decided to create a new investment strategy unit inside the company, called ADO, the French acronym for equities, balanced and private, bonds and money market, appointing Alain Pitous, head of balanced and private management, to run it.

The traditional asset classes, previously split into three separate units were re-organised in a one more performing entity. SGAM Paris is now a strategy-oriented organisation, designed towards meeting the needs of specific client types and demand for asset classes, explains Mr Agou, who is ADO’s director of business development.

This is the result of the convergence process between alternatives and traditional asset classes, which has pushed SGAM Paris to overhaul its way of managing assets, placing it, in a way, more on the satellite side, says Mr Agou.

“Traditional active managers find it difficult to compete with the cheap products that tend to form the core part of the ‘core-satellite’ approach, simply because active asset management is more expensive than trackers or indexed funds,” says Mr Agou.

“At SGAM ADO most of our investment bricks used inside our balanced funds for the core part are index funds and low tracking error

actively-managed funds, whilst on the satellite side we include more aggressively managed funds,” continues Mr Agou.

“So our low tracking error actively-managed products have been obliged to ‘redesign’ themselves either by increasing their alpha, so that their strategies become part of the satellite range, or by lowering their tracking error in order to fit as a core investment.”