La Française strives to make equities more palatable

With €37bn in client assets, French funds firm La Française AM – product of a 2011 merger between boutique house LFP and real estate manager UFG – is fast becoming a European player of note.

Chief executive and distribution boss Patrick Rivière, previously European regional head of Invesco, reports strong inflows of €1.6bn in 2012 into French real estate products, money market funds despite the low rates they pay and a mixture of fixed income and equity institutional mandates.

“It’s a good time to come out of fixed income into equity,” says Mr Rivière, who spends much of his time seeing key clients in Germany, France, Belgium and Spain. “But investors such as insurance companies are restricted by regulations,” while retail investors are hampered by volatility, which led to fund redemptions until the end of 2012.

“A lot of fund managers are saying the time is right to move into equities, but if the client is not ready to hear this story, then distributors will not push it,” he explains. “We need more confidence from end investors to return to equity and there is no confidence at the moment due to volatility. This is the big issue in the market.”

Indeed he sees a coming together of the way many clients see equity and bonds, with a regular payout now one of the main priorities. Mr Rivière says: “The only certainty for many investors is that they will get a dividend. That is an important driver. Equity is more and more seen as a fixed income-type game.”

Global reach

Another key demand from distributors is for their European equities products to be exposed to faster-moving developing countries, a need addressed by La Française through its LFP EM Impact Europe fund.

“European investors believe growth will not come from Europe for at least the next five years,” he says. “But at the same time you are seeing many client firms with an internal restriction or regulatory limitation on emerging markets, so European equities may actually be a good way to invest.”

Many distributors and their customers are naturally cautious of buying into emerging companies, due to uncertainties over corporate governance structures. “But if you propose to them to invest in the really big names, often listed in New York or Hong Kong, they can get high quality access to emerging markets.”

While Spain has recently proved an increasingly difficult market in which to sell financial products, La Française has stepped up its presence in the troubled Italian funds sector.

Domestic players have struggled in Rome and Milan, but groups such as La Française have prospered in Italy due to a broader, cross-border perspective rather than managing just Italian equities. “Italy is closest to our home French market in terms of investment culture,” says Mr Rivière, with the implication that this rising boutique is now reached a scale where it can start taking advantage of some distribution synergies.

“Most of what we sell in France, we can now sell in Italy. These markets are very similar in terms of both product and pricing,” with many distributors, particularly the smaller players becoming increasingly stressed about the impact of regulations – including Mifid, Fatca and local versions of RDR – on the future of their businesses, says Mr Rivière.

“It is a tough time for this population of distributors, who are all concerned about the evolution of regulations looking at rebates and transparency of remuneration.”

The expected redrawing of the French distribution landscape will also embrace the sub-advisory model, with more white-labelled funds sold by a smaller number of distributors, bound more tightly to their manufacturing partners.

The changing business backdrop could however prove deadly for both smaller distributors, such as independent advisers, and some boutique players who have prospered in the traditionally Artisan-loving French funds sphere. “At our size we will be able to build relationships with distributors, provide service and improve the platform we have built for IFAs,” says Mr Rivière.

“New regulations may change the nature of relationships and we don’t yet know where the market is going to end up, but we don’t feel too uncomfortable with the direction.”

While Benelux, Spain and Italy are still seen as important markets, despite local difficulties, which have yet to be resolved, La Française has surprisingly scaled back its exposure to what was previously seen as a lucrative field of opportunity in Germany. “Germany is a long-term market and requires a lot of local resources,” Mr Rivière has concluded.

“You need a significant, decentralised presence, with regional offices. You are never going to serve Germany with just one sales guy and his dog.”