Jean-François Boulier, chief investment officer (CIO) of Aviva France’s €79.8bn asset management business, Aviva Investors France (AFI), formerly Aviva Gestion d’Actifs, is fond of repeating a fable by French poet Jean de La Fontaine, which reads: “Patience and the passage of time do more than strength and fury.”
From Mr Boulier’s perspective, this should apply to both modern investment portfolio theory and the egos that drive the buyside business in Europe.
The passage of time since March 2008 when Mr Boulier teamed up with fellow Ecole Polytechnique graduate Alain Dromer, now Aviva Investors’ global CEO, has been undoubtedly tough on everyone concerned with a funds business owned by an insurance group.
Woes in the insurance industry inspired by American International Group’s (AIG) liquidity crisis following a credit downgrade saw a negative knock on in which Aviva Group’s share price slid from 580p to 240p in the five months after Mr Boulier joined, before bottoming at 160p in March this year (it has since recovered to around 330p).
But the CIO’s patient approach to portfolio management, underpinned by Aviva Investors’ emphasis on a longer-term investment horizon, has supported growth of around 10 per cent in assets under management for the French unit since the end of 2008.
Life insurance contracts sold by the parent company in France have contributed to this growth in assets, in addition to Mr Boulier and his team catching the bond market bubble at just the right time. Aviva Investors France holds around 70 per cent of total assets in fixed income, especially Euro corporates and financials.
“We have been looking passionately at our numbers in fixed income and increased our exposure at the beginning of the year. We are active in managing the yield curve and felt the time was right to buy long-term bonds just as interest rates in Europe was ticking up,” says the CIO.
Assets under management for Aviva’s entire business globally was €450bn at the end of 2008, with the 15-country strong funds business managing around €280bn mostly in fixed income, equities, and property. Its third-party business, at €25bn, remains comparatively small but there are plans to grow this untapped stream this year, acknowledges Mr Boulier. “We have the potential to grow this part of the fund management business certainly in France but maybe across the Eurozone too. I think we have something to bring to third parties especially institutional investors.”
Mr Boulier’s experience in fixed income and credit, especially when Crédit Lyonnais and Crédit Agricole Asset Management (CAAM) were tying the knot (he would end up running CAAM’s Euro fixed income desk before the Aviva role caught his attention), has shaped the CIO’s position primarily towards the long end of the curve. His background also helps to counter the equities focus of his boss in Paris, CEO Eric Duval de la Guierce, who ran a successful securities desk back in the 1980s at assurance firm Mutuelles du Man.
For example, though exposure to asset-backed securities (ABS) was minimal, so sidestepping the ‘strength and fury’ exhibited by many wayward credit investors hunting yield at any price, he does admit to buying too many financials just before Lehmans blew up and so the collapse of the investment bank, and major counterparty of a number of debt issues, “came as a bad surprise to us”.
He also says Aviva will hold its buy status in financials, but selectively, now that it has largely weathered the 2008 storm. “Most of the movement in corporate spreads has been made and we see more value in financials so have returned to them. The bond repurchases by a number of banks offer some nice liquidity, but we are being choosy: We are fearful of German and Spanish banks, where we see a lot of trouble,” he cautions. “We are taking a bank-to-bank approach throughout the financial bonds sector.”
AFI’s €10bn equity portfolio – 90 per cent of which is invested in euro equities and mutual funds – is the end product of a patient build-up by Mr Boulier and his Paris-based team, with special emphasis on the pre-2009 rebound. The balanced fund was tipped in equities’ favour during November last year at a time when Europe’s top banks were approaching their respective governments with caps in hand, before a 57-43 split in April was rebalanced to 52-48 in favour of equities. “We had enjoyed most of the rebound by the spring but are keeping a positive outlook for corporates. Many have been good at managing costs though this isn’t always reflected in market valuations.”
Mr Boulier likes the emerging markets (EM) story, especially the BIC part of the BRICs (Brazil, Russia, India, China). “Russia is an exception to our EM buys for the moment. We’d rather focus on countries where the state is active in spending and where this will have a large impact on the rest of the economy. In the case of Russia, we are wary of getting sucked into the commodities game.”
