Smart outlook

Yuri Bender talks to Axa IM chief executive, Nicolas Moreau, about the company’s evolution into an innovative money management organisation. The youthful Nicolas Moreau, until recently chief operating officer of E268bn investment house Axa Investment Managers, has slipped effortlessly into the role of chief executive, previously occupied by senior industry stalwart Donald Brydon, who remains company chairman. The move mirrors a similar switch several rungs up the ladder which occurred two years ago. Claude Bébéar, the outgoing chief executive, known in France as “the godfather of finance”, handed over the reins of the Axa group to his chosen heir, Henri de Castries. It is no coincidence that Mr Moreau worked as assistant to Mr de Castries before joining the asset management division in 1997. “Our strategy is one of evolution, not revolution,” says Mr Moreau, repeating a mantra often heard in the Axa headquarters. Many senior staff were unhappy with the move last year from Central Paris to the soulless, concrete and glass suburb of La Défense. But when Mr Moreau looks out from his 18th floor office in the looming Tower B, he sees only opportunities for wealth management in the French market and beyond. While French growth is currently fuelled by a small number of major tenders for institutional managers, Axa is poised for a surge in retail product sales, triggered by a proposed system of self-selected pension funds. “At 14 per cent, the savings rate is high in France,” says Mr Moreau. “So we are expecting re-allocation from one savings vehicle to another. This will fuel growth from the asset manager perspective.” With this overseeing role, Mr Moreau does not see artificial distinctions between managing assets for institutions or high net worth private clients. To him they are just two sides of the same coin, served by different distribution channels. He is the man who must sometimes unite two conflicting strands of thought. Or promote certain aspirations while downplaying others. “There are great opportunities, as we have such a diversified book of business,” says Mr Moreau. “But we must raise our profile outside France, so people can get to know what we are doing. We want them to think of us as a professional, innovative money management organisation, not an insurance company. We want to prove to the market that we are a credible player.” Changing image The move away from the insurance image is part of a push to raise much needed fee income against a poor economic backdrop. Just E80bn of Axa IM’s total is currently managed for external clients. But E9bn in new funds pulled in this year has helped offset asset losses due to market depreciation. And a favourable change in asset mix to higher fee generating products, reflected by a 13 per cent revenue hike, has fuelled profits of E130m for the first nine months of 2002. One of Mr Moreau’s hallmarks has been identifying new revenue streams from existing asset management expertise. Under Mr Moreau, the E19bn structured and alternative investment management (Saim) division, driven by Robert Kyprianou, has been adapted to market a systems-driven approach to trading futures contracts to funds of hedge funds, private banks, high net worth individuals and family offices. These products are now seen as an integral part of Axa’s wealth management offering. “Quant is systematic and very useful for management of all assets,” says Mr Moreau. “When I joined the industry, I was booking structured products and quants, so I was always attracted to that side.” He divides structured offerings into two types. Firstly, retail style – guaranteed, indexed and tranche – products which are sold through Axa’s insurance network, are currently attracting a steady E1bn flow each year. Secondly, institutional-style structured products using credit derivatives to enhance the rate of return for government bond portfolios, Concerto I and II, both high yield collateralised debt obligations (CDOs), raised E400m and E500m respectively. Jazz 1, an investment grade CDO, raised E1.5bn in March. “If we see distributors interested in this type of product for high net worth individuals, we will look at it,” says Mr Moreau. “But there is always a risk of mis-selling into this marketplace.” The right distributors He has long-ago embraced the idea of using the right distributors for the right market – banks and fund supermarkets for France; independent financial advisers (IFAs) and portfolio managers for the UK; banks and their associated family advisers, known as Promotori, in Italy. UK sales have brought in more than E70bn, 84 per cent of this in retail funds, making Axa a leading player. But an uncertain marketplace, with the future of IFAs as a distribution channel left unclear, has led to some soul-searching. “If we were not in the UK today, I don’t know whether we would go in at all,” admits Mr Moreau. Italians, with their insatiable hunger for increasingly complex products, are seen as a more reliable target. Axa’s Milan office recently struck a pioneering deal with Banca Lombarda, whose branch staff will market a fund of exchange-traded funds, including an Axa IM managed segment, to wealthy clients in northern Italy. Open rivalry But Mr Moreau is reluctant to become over-enthusiastic about the free-for-all “open architecture” principle, which forces rival institutions to sell each other’s products. Axa IM does not even yet sell the products of its US subsidiary Alliance Bernstein, although the two are co-operating on back-office projects. “Open architecture can be valuable for sophisticated clients who have sufficient volume to purchase asset management at the right price,” he believes. “It is valuable for high net worth clients in the US and we have it for our top-end clients in Europe. But products differ too much from one country to another and it does not generate huge volumes.” The concept has come too early for continental Europe, says Mr Moreau, as there are not sufficient flows of money to make the economic model a viable one. The answer, he argues, is multi-management products. Axa IM has already raised E3bn through this route using distribution partners including French retailer Carrefour and UK mortgage lender Bradford & Bingley. Guest managers, with a five-year performance record, selected by Axa’s in-house team of former investment consultants, include Schroders, Credit Suisse and Goldman Sachs. Not that this policy of using external managers has made Mr Moreau popular among some of his employees, who prefer to push pure Axa products, including the Luxembourg-domiciled cross-border funds range. “My team doesn’t like me to talk about multi-managers,” confesses Mr Moreau, “because they feel they are in competition with them.”

King of the Quants A graduate of the École Polytechnique and the Centre d’Etude Actuariel, 37-year-old Nicolas Moreau is an advocate of quantitative and systematic asset management. He joined the Axa group in 1991 as vice-president of the treasury department, before rising to head the corporate finance division in 1994. His team put together finance for the purchase of UAP and Australia’s National Mutual. Mr Moreau transferred to Axa Investment Managers in 1997, in order to build quantitative and derivative activities. He led the 50 per cent purchase of quant house Barr Rosenberg in 1999, and then became chief executive of the subsidiary, now known as Axa Rosenberg. Back in August, Axa Rosenberg won a second mandate to provide quantitative-driven funds to wealthy clients of Abbey National’s private banking division, Inscape. Mr Moreau cannot hide his enthusiasm for the quants division, now 75 per cent owned by Axa. His recently initiated transfer of E5.6bn of continental equities to Rosenberg’s computer-driven model was seen as a huge vote of confidence in the subsidiary. And by hiving off European shares, Axa IM can now concentrate on assets with greater fee potential, such as real estate, hedge funds and complex fixed income products.