Additionally, Axa IM is a standby manager for an inflation-linked international bond mandate worth €480m.
Nathalie Boullefort-Fulconis, Axa IM’s head of global institutional business, believes the FRR has spurred a trend towards specialist mandates in France which her firm can capitalise on.
She says: “Institutions are restructuring their portfolios along core-satellite lines and the example set by the FRR will only add impetus to this trend. We are seeing a move towards European equity, passive and enhanced index investments, all asset classes in which we are winning mandates. There is also growing interest in alternative assets such as funds of hedge funds and funds of private equity funds.”
Ms Boullefort-Fulconis adds that in the last two years, the size of mandates awarded by French institutions has been increasing. One reason is that caisses de retraites (savings schemes for pensioners) are merging in order to reduce administration costs and improve efficiency. As a result each single institution has a larger pool of money to invest.
She cites the “euro effect” as another reason. “Where we were used to seeing a Fr100m [€15m] mandate, now we are seeing a €100m mandate. The size of mandates awarded is now reaching levels seen in Anglo-Saxon countries.” she observes.
The range of potential clients in Axa IM’s home market is also widening. Besides business from caisses des retraites, many investment mandates are coming from insurers and banks.
Fixed thinking
But despite increasing interest in equities, French institutional investors remain firmly wedded to fixed income.
Ms Boullefort-Fulconis says that concern about volatile markets is fuelling demand for cash-enhanced products not only in France, but in Germany, Italy and Spain.
Axa IM manages a euro-denominated short-term duration high yield product and a dollar-denominated Libor plus product.
Concern about rising prices is also driving demand for inflation-linked bonds.
She says: “Two years ago, inflation-linked bonds were marginal. But now institutional investors are including inflation-linked bonds as a standard component of their asset allocation.”
Axa, which manages assets of €7.3bn in inflation-linked bonds, has been running sterling ‘linkers’ for 20 years. Five years ago, it started to manage inflation-linked bonds denominated in other currencies.
The firm, which manages €92.7bn of assets in government bonds and €59.7bn in investment grade corporate bonds, is also seeking to boost its meagre €824m of assets under management in high yield bonds.
Ms Boullefort-Fulconis notes that continental European institutional investors are starting to include high yield bonds in their portfolios and is confident of picking up new mandates, particularly in Germany.
Axa IM has two fixed income teams – a high yield team based in the US and Paris since 2001 and a US-based investment grade bond team, formed last year. The high yield team manages global high yield, US high yield and European high yield and the short-term duration high yield product. These strategies are being promoted to investors in the US and Europe.
Enhanced index mandates are handled by Axa IM and US-based specialist equity subsidiary, Axa Rosenberg. In addition to running €982m in index-plus mandates, Axa Rosenberg also runs €34.1bn in active equity mandates.
Axa IM manages €612m of assets in enhanced index mandates using a quantitative platform within its balanced and structured products business.
The firm is intent on exploiting the emerging trend for medium-sized insurance companies in continental Europe to outsource asset management.
Ms Boullefort-Fulconis says: “There are a limited number of such mandates at this stage but I believe the trend will develop in Germany, France and the Netherlands and we are investigating how we can benefit from it.”
Does she think that in pursuing this strategy Axa is hindered by the fact that it is also an insurance company?
She says: “I do not believe so. One-third of total assets managed is for third parties. So I think the marketplace understands that we are an independent entity. Corporate governance is very strong now. There is no conflict of interest and I don’t think it should deter any potential insurance clients.
“Rather our status as an insurance company should constitute an advantage because we are used to managing assets for insurance companies. This is a competitive advantage for us.”
Germany and the UK have been singled out by Axa IM as “top priority” markets for business growth potential.
Opportunities in Germany are evolving as institutions review their existing relationships with asset managers.
Axa IM has won €1bn of new business in Germany over the last 12 months, mainly through real estate and private equity mandates. The firm manages assets of €29bn for German investors including €5bn for third-party clients.
Axa is looking to win liability-matching mandates in the UK. The firm manages €10bn of assets globally in liability-matching products mainly for institutional investors in the UK and Spain.
Ms Boullefort-Fulconis says: “We see a lot of opportunities in the UK due to the trend towards liability benchmarking. Some pensions are under-funded and they are thinking about their asset allocation in conjunction with the liability side.
“We have developed an expertise in building liability-driven products. We have the ability to analyse a particular situation and devise a solution involving asset classes and product-structuring capability with derivatives.”
In Italy, where Axa IM manages about €1bn of institutional money, business growth opportunities arising out of changes in the TFR system could lead to larger amounts available for investment.
“The Italian market is specialising, so giving us an opportunity to promote our fixed income and absolute return products as well as Axa Rosenberg’s equity strategies. And as in France there is a demand for short-term cash-enhanced products,” she says.
Axa is also seeking to grow its business in the Nordic region where the firm has won real estate mandates and some equity mandates for Axa Rosenberg.
Further afield, Axa is targeting government agencies, banks and insurance companies in the Gulf Co-operation Council countries of the Middle East with private equity, real estate, collatoralised debt obligations (CDOs) and fixed income products.
Axa Rosenberg is actively seeking business in the Asia-Pacific region, where Axa IM is also promoting its e14.3bn CDO business.
Specialist entity
Twelve months ago, Axa issued what was the largest European CDO of 2003, the $3.5bn (r2.8bn) Overture deal. This was followed by the $1.3bn Aria CDO 1 in July which was structured to appeal mainly to pension funds and first-time buyers of structured credit.
In a recent financial report, Axa attributed a 7 per cent increase in assets under management and a 38 per cent increase in earnings in the first half of this year partly to higher fee products managed by Axa Rosenberg and the “leveraging” of a multi-specialist asset class structure.
Ms Boullefort-Fulconis explains: “Axa Rosenberg, with its fundamental, systematic approach to equity management is one specialist entity within the Axa group, our fixed income platform is another specialist area. Hedge funds and private equity are also specialist areas.
“Each investment management team is constituted as a boutique structure, an empowered unit in the search for investment excellence. We believe that these investment teams must have flexibility, while benefiting from shared research and a sales resource.”
In a further move towards specialisation, this year Axa IM decided to outsource to State Street its fund administration and support services in the UK, France and Germany in order to focus solely on asset management.
Ms Boullefort-Fulconis is bullish about the firm’s prospects in the future. “We are large enough to benefit from economies of scale and are striving to the highest level of professionalism because it is the only way to survive in this industry.”
Mandates awarded to Axa IM by the French Fonds de Réserve pour les Retraites
- €960m European investment grade fixed income
- €620m European large-cap equities
- €240m Pan-European active equities excluding eurozone
- €200m European small- and mid-cap equities
Axa Rosenberg will manage all three equity mandates.
