TREADING A CAUTIOUS PATH IN THE STORM

He may lack the apparent sophistication, flamboyance and joie de vivre of rival personalities in the French funds market, but the cautious, scholarly approach of Gilles Glicenstein – CEO of BNP Paribas Investment Partners and a visiting Professor at the Dauphine University in Paris – appears to be paying dividends. “Gilles may like you to think he is the kindly uncle, the benevolent professor to whom you can confess your problems, but the reality is that he is as tough as anyone in the business,” reveals a senior manager within the group. While other Parisian houses are licking their wounds, Mr Glicenstein, with a little help from his bosses at the bank, has secured the funds business of Belgo-Dutch group Fortis, boosting his healthy E327bn asset base to E553bn, leaving him at the helm of Europe’s fifth largest investment house. Mr Glicenstein is not yet ready to comment about the implications of the acquisition, but will be pleased by the diversified portfolio managed by Fortis Investments. Like BNP Paribas IP, the Fortis funds house has less than 25 per cent direct exposure to falling equity markets. Pricing problems This time last year, as storm clouds gathered, things were not looking so good for Mr Glicenstein. Incredibly, he was being blamed in many quarters for the onset of the financial crisis. Rivals called his decision to temporarily close three retail funds - with assets of E1.6bn heavily exposed to US sub-prime debt - “commercial suicide.” Alan Greenspan, ex chief of the US Federal Reserve, wrote to the Financial Times, blaming BNP Paribas for sparking stockmarket panic. “Looking back at that period, we saw that we had apparently reached a problem in July/August, and we couldn’t price our products properly,” recalls Mr Glicenstein. “We had the choice to either do a fire sale, or take a little time, find some liquidity and protect our clients, which is what we did.” With BNP Paribas labelled the bête noire of the financial world, he cannot resist a swipe at some larger competitors: “How come institutions like Citigroup, Merrill Lynch and UBS had not said a word about sub-prime in August last year, even though each bank ended up writing down billions? “My belief is that the reason for the magnitude of the crisis, which is still continuing, is the lack of transparency. That is what brings fear to everybody. No one trusts other institutions any more. Many banks believed they could hide toxic assets by talking about ‘business as usual’. We instead have chosen transparency. BNP Paribas Investment Partners and BNP Paribas bank got through this crisis because [we have demonstrated] more transparency.” Italian outflows Around half of the E6bn outflows which BNP Paribas IP has experienced in the first half of this year are believed to have been in Italy, where the group took over the branch network of Banca Nazionale del Lavoro (BNL) two years ago. Within weeks of the takeover, Italian branch customers were sold E600m worth of balanced fund products by Mr Glicenstein’s distribution team. They managed to reverse the poor image suffered by BNL’s savings and asset management products, which had been fast losing market share. Because BNL had a captive funds unit, products were designed purely for the bank’s customers, with no incentive for innovation. By making available selections from BNP Paribas IP’s Luxembourg-based Parvest range, sold and road-tested through distribution partners across Europe and Asia, the French funds house was quickly able to improve both product quality and morale amongst BNL staff. “With the BNL network in Italy, the money of most customers was in the domestic funds range, which was suffering and a lot of clients were asking us for different products,” says Mr Glicenstein. “Many were happy to shift from domestic assets to our Luxembourg range. At the same time, we developed structured funds for the retail network, which required some innovation and proved quite a success. Most BNL clients changed from what they had before to our dedicated products.” But the initial success was short-lived, as rival Italian banks, desperate for balance-sheet assets, offered mouth-watering deposit rates to tempt customers out of mutual funds. A serious interpretation of Europe’s Mifid regulations by Italian authorities has also led worried distributors to order client withdrawals from fund products. What BNP Paribas refers to as a “general reallocation of household savings in Italy” decimated the group’s Italian asset base in the first six months of 2008. Mr Glicenstein admits that even though Italian assets are beginning to return, they will in no way offset money going into bank deposits and index-linked products. “Italy is a market that can change very quickly, so it is very difficult for the industry,” he concedes. This air of realism extends to the private client market in general. The old mood which existed at BNP Paribas and other banks during the bull market – find a buyer, create a product and sell it, with private banking seen as another distribution channel – appears to have subsided. A new dialogue-led approach has taken root. “Private banking clients are typically risk-averse, which is understandable as it’s their own money,” says Mr Glicenstein. “There may be interesting long-term opportunities, particularly in credit areas. But for the majority of assets, private clients want to know if their investments are safe.” Rebuilding portfolios The most important message delivered to the client is that describing the rebuilding of a portfolio. “Today there is a conflict between valuation, which is attractive, and market sentiment, which is increasingly negative,” continues Mr Glicenstein. “We need to fight market sentiment and protect the portfolio as much as we can. If some of our [distribution partners] have equity portfolios, we try to advise them not to get the client out when the market is in turmoil. They need to stay invested,” he explains. With a large range of internal ‘boutiques’ within its internal partnership structure – including global fixed income specialists Fischer Francis Trees & Watts, Indian equity house Sundaram and recently purchased UK multi-manager IMS – there should be no danger of portfolios being tied to a particular style of management. “We don’t tell people not to worry if their portfolio is down 20 per cent, because that is where it is supposed to be in the current market,” says Mr Glicenstein. “Our private clients are diversified. I try to take the best decisions for them, without being systematic.” Anxiety fuelled by the current crisis has been particularly intense at bank branch level, where French retail investors have traditionally chosen guaranteed, protected and money market funds. “This anxiety is not just about the quality of products, but about who is managing the money,” says Mr Glicenstein, with clients needing reassurance about the stability of their counterparties and of the banking industry in general. “My clients want protection, but even the idea of going into deposits is not necessarily the safest one,” says Mr Glicenstein. “We can give them investments with state-covered obligations. There are different types of portfolio solutions for all types of clients seeking protection; we try to reassure them that they don’t have to fear some sort of systemic risk,” he adds.

Gilles Glicenstein