The man who let in the enemy at the gates

Jean-Luc Paraire, head of multi-management at the Crédit Agricole group knows a thing or two about internal politics. Going to the top brass of a French banking giant, telling them with a straight face you want to place rivals’ funds inside their branch network, and surviving in your job to tell the tale is some achievement.

But like any true politician or diplomat, he plays down the huge obstacles he encountered in the corridors of the Crédit Agricole empire, spread across a handful of buildings clustered around the bustling Montparnasse station in Southern Paris.

Mr Paraire was involved in group discussions which first put the controversial idea of distributing third-party funds through private banking outlets and high street branches as early as 1998.

The idea gained momentum, as Mr Paraire concentrated on his day job of running an internal fund of funds operation for Crédit Agricole Asset Management (CAAM), dreaming of the day he could squeeze a few third-party products into a previously restricted menu.

“The decision [to use external funds] was taken by the executive committee in 2000,” recalls Mr Paraire, who now controls clients’ assets worth ?6bn, half of which is invested in third-party funds. “The fund of funds operation, which I managed, began to use some external managers to draw on expertise which we did not yet have in the group. This gave us the idea to have a dedicated, specialised team in this area, to build the case and present the project to the executive committee and get the green light.

“It raised some questions of course,” reveals Mr Paraire with customary understatement. “But the idea was simply to promote this to some of our clients that need this kind of diversification. Basically, it’s a service.”

Let’s remember the hullabaloo this initiative – which seems so sensible and logical today – caused at the time, and how things have changed in just five years.

Mr Paraire signed an agreement with Watson Wyatt in October 2001 for the consultancy to provide research on external equity managers. The funds which became available to Crédit Agricole clients included those of competitors such as Axa and SocGen, as well as Commerzbank subsidiary Jupiter.

But the majority of the ?300m raised in the first year came from institutions rather than the wealthy retail and private banking clients who were supposed to be the target of the banking networks. In instigating his plan, Mr Paraire encountered difficulties from two main sources. Firstly, the staff in banking networks had a lack of knowledge of the new products, which were competing with existing lines, such as structured products. He did not feel the products were initially best-positioned for bank staff.

The other source of resistance came from above, with the management giving the ‘green light’ to sell external funds as a defensive measure, as they were worried that clients might start defecting to rival banks such as SocGen, who were beginning to sell external products through a deal with Frank Russell.

Defending the flood

Like in other French institutions, it was decided that third-party providers should be screened by the asset management group – in this case CAAM – rather than the retail branch network. This means the fund house can defend itself from competitors trying to flood the network with cheap products. So although the sale of third-party products had been approved by the CAAM hierarchy, the reality was somewhat different. The top brass reacted with horror that large volumes of competitors’ funds might actually be pumped through their networks.

In a remarkable interview back in 2001, Crédit Agricole’s chief of asset management and bank distribution, Paul-Henri de La Porte du Theil, one of the grander elders of the French funds fraternity, famously told PWM: “In other markets, the product/distributor link has been broken, but we thank God that is not the case here in France. We have agreements with many other French distributors but not competitors such as BNP, Credit Lyonnais or Société Générale. This is not possible with the French mentality.” It appears this is slowly changing. Branch staff seem keener on selling the externally-managed fund of funds product. Inflows have improved from a trickle to a steadier stream. But it still does not amount to the runaway success story anticipated by Mr Paraire and his team.

“Retail and private banking funds have shown a pretty good rate of growth,” says Mr Paraire, revealing that ?5bn is managed in external mandates, with ?1bn overseen for Crédit Agricole’s retail and private clients who prefer external funds. He confirms that the initial surge from institutional clients has finally been overtaken from the interest generated among private investors.

“When we launched the activity in 2001, our idea was to provide the capacity to develop funds for all kinds of clients. But in our minds we thought we could develop first for retail and private banking, and then build a track record, and develop more for institutional clients.

“Our experience was a bit to the contrary, due to the problem of the equity market in 2002, and by the fact that products are more focused on equity multi-management, providing more alpha and high-risk categories.”

Although Crédit Agricole’s take-over of its Crédit Lyonnais rival in 2003 did not mean any changes to his multi-management unit, as the other firm did not have any similar capacity, it has clearly boosted Mr Paraire’s distribution capacity. “Both retail networks are kept separate. The asset management factory of CAAM now serves both networks as clients,” he says. “But although the multi-management products are mainly on the Crédit Agricole side, we are clearly expected to expand them across the whole group.”

The effects of the ongoing merger with Nextra, Banca Intesa’s asset management subsidiary, which has a very strong multi-management facility of its own, remain to be seen, however.

While Mr Paraire is seen by external managers as one of the main drivers of third-party distribution in the Crédit Agricole empire, he can be somewhat lukewarm in his endorsement of open architecture. “In terms of philosophy, I am not convinced by open architecture,” he shrugs, saying that this is a problem for the banking network. “We are the producer, we build products which are good for clients. The architecture questions should rest with the distributor,” he adds.

Open architecture

Whatever Mr Paraire says about open architecture, the external fund groups with whom he works view things very differently. They say he is clearly one of the prime movers of using third-party funds in France, with a clear aim to sell them through Crédit Agricole's branch network.

“In an French environment, you need to be very respectful of hierarchy,” says the Paris-based head of distribution at one group, who knows Mr Paraire well. “You will never hear brash statements from a guy like Jean-Luc saying ‘open architecture is for tomorrow.’ Open architecture will never be ‘la totalitée’ in France, as everybody has to eat. But with the resources which groups such as Crédit Agricole are investing in this market, you can bet that multi-managers are going to grow, and you will see a lot more products being sold through branch networks.”

‘It raised some questions of course, but the idea was simply to promote this to some of our clients that need this kind of diversification’