Natexis Asset Management (NAM), investment subsidiary of France’s sixth largest bank, Group Banque Populaire, has already put down its marker as one of the country’s fastest growing fund production units. Now it has received an extra shot in the arm with the addition of the bank’s self-selected pension fund business. The merger has boosted assets under management by €12bn to €83bn.
The news is a coup for NAM’s highly reputed chief executive officer Daniel Roy who has re-shaped a product range, constructed a blueprint of key European target markets and shaped a recently-created distribution unit during his first 12 months in the job.
He describes the newly-acquired assets of Natexis Epargne Entreprise as “belonging to the French 401k market, with strong roots in the retail world.” This pensions arm has made its name by marketing funds to corporations in an institutional-style sale. But the products are eventually selected by employees, often through a fund of funds on an open architecture basis.
With a lack of funded pension scheme provision in France, this institutional/retail ‘Epargne Salariale’ hybrid has been identified as a key growth area for French fund managers.
“We have a lot of corporate clients due to historical relationships with treasurers and HR departments of the Fonds Salariale,” says Mr Roy, whose remit involves developing business for both retail banks and more traditional institutions. By volume, 70 per cent of his money is currently from institutions and 30 per cent from retail distribution.
“This is a very natural clientele for us. But we have less market share on the pure institutional side, and my goal for 2005 is to develop this. We have a good RFPs department, we know how to answer beauty contests and we understand the challenges of the institutional market. But the beauty of my position is that I have retail profitability from the bank, and I have enough faith in the institutional market to benefit from this.”
Over at some of the big players such as the asset management divisions of rival French banks Société Générale and BNP Paribas, this faith in the French institutional market is not so easy to detect, outside the area of alternative products. But Mr Roy believes last year’s €17.5bn share-out among mainly French managers by the country’s Fonds de Reserve de Retraites, a fledgling long-term pension system, should give great confidence to the Parisian institutional world.
“The FRR mandate process was highly professional and a great example for everybody. It was very nicely done,” comments Mr Roy, with not a shred of sympathy for foreign players who claim they were excluded from a Franco-French process.
“The Anglo-Saxon camp dislikes the fact that it did not win many mandates. But Anglo-Saxons are not aware of the French legal environment. It’s the same story the world over. You can’t just go to Tokyo tomorrow and say: ‘Buy my products, because they are the best!’ You have to be familiar with the market. Maybe some of the players complaining today were not paying enough attention to the French market.”
Despite some hard-luck stories from competitors, he believes there is enough money changing hands, often due to underperformance from the old guard, to justify a sustained, institutional push.
“Asset management is never a done deal. Performance is the key,” says Mr Roy, with a forceful tap on the table for emphasis. “If you win a mandate and don’t perform, you will lose it at the end off the day. I receive direct calls from institutions looking for new managers, saying they are unhappy with existing mandates. We are making good progress in this area.”
He talks emphatically about a natural turnover of providers in the business, and demographic changes, combined with a troubled pay-as-you go system all playing into his hands.
In balanced we trust
Both institutional clients and distributors are presented with three main strategies, in an essentially product-driven approach. These three areas are European equities, cash management and balanced investment. “I identify with the camp that believes the future of private pensions is in balanced products,” says Mr Roy, who still has some work to do in improving investment performance in this area.
“I disagree with consultants who say you need to manage pure products. This may be OK for the FRR, but not for smaller clients without resources.”
Niche products, generally managing smaller assets, are also offered in areas such as high yield, corporate bonds and sectoral funds.
“The demand from the market can often be larger than our product can offer,” confides Mr Roy. “What can we do with the other clients? Open architecture is the answer for the future.”
The bank has a second affiliate to tackle this area, Natexis Asset Square, also controlled by Mr Roy. “We will never position ourselves as a US or Japanese equities manager. But we have enough resources on those sides to be a global balanced manager,” adds Mr Roy.
If they can’t do something internally, Mr Roy’s team will buy in third-party funds from the market. “Our open architecture is not the same as Frank Russell. It has delegated mandates and sub-delegated portfolios of external managers,” he explains. “We buy US equity funds managed by Loomis Sayles [an affiliate of Ixis], one of my previous employers for our fund of funds.”
Experienced hands
These days there may be a queue of rival fund managers knocking on the door of Mr Roy’s Parisian HQ, sandwiched between the River Seine and the Gare de Lyon railway terminus. But any salesman who thinks they can offload a truckload of second rate funds should first look at his cv, which lists his string of top roles in corporate finance, private banking and investment management. “Daniel Roy is aware of all the failures of asset management, so it is not so easy to sell European equity to him,” says a sales team chief at a leading French investment house. Those allowed to pitch are given a hard, but fair hearing.
What Mr Roy believes is that in the long term, banks that try to manage all assets internally to preserve margins will suffer client defections. Embracing this open philosophy, Natexis prepares products for sale in both its own Banque Populaire branches, as well as competing retail networks.
“We have a very close relationship with the retail business. These guys are under huge pressure from local competitors. Their old fashioned approach of ‘I want my own cookies and will not buy anybody else’s’ will have to change, as they are also under pressure from the man in the street,” believes Mr Roy.
“We have a process, with thousands of products under review,” says Mr Roy, describing the role of Natexis Asset Square. “We visit the companies and make the final choice. We don’t say that we will refuse to sell SGAM funds because they are part of SocGen. The only real question for us is: ‘Is it a good product?’ But it is an unfair deal if you do not apply reciprocity.”
Prominent investment houses obviously recognise the key distribution role played by Natexis. Players such as Goldman Sachs Asset Management have made much of their close-cooperation with Natexis Asset Square.
This is something played down by Mr Roy. “It is not a long-term deal with GSAM. We are not pregnant with this agreement. We do with them as we do with Fidelity, JPMorgan and Frank Russell, with whom we have possible co-operation on products and ideas.
“We are a product driven organisation. If we can set up a product meeting clients’ needs, with Goldman Sachs, or another provider, we are going to do it, but it’s never done on an exclusive basis. We ask them what they bring to the table. It’s not a partnership, only discussions on their ability to make investment funds.”
But there is also a hint of something a bit deeper, particularly through discussions between GSAM and Axeltis, Mr Roy’s wholesale distribution affiliate, and the use of some Goldman products in Natexis multi-management strategies. Mr Roy also sees some similarities between Natexis and GSAM, with both attaching significant importance to the somewhat unglamorous cash management sector.
“Cash management is not very often a key product in any organisation,” says Mr Roy. “But I disagree with that, as it can very easily manage economies of scale. One third of GSAM’s assets are also money market assets, which are highly profitable, and similar to our business model.”
This focus on profitability is clearly helped by a highly supportive retail banking parent. In his previous role as CEO of the funds division of CDC Ixis, managing more than €300bn, before it was bought by the Caisse D’Epargne banking group, Mr Roy was responsible for some vast institutional mandates.
He does not talk about the circumstances in which he left the giant asset manager, ending up at the helm of a much smaller player, but reminds us of the history. “Remember, I didn’t decide to leave CDC Ixis Asset Management. It was a shareholder decision at the time of the takeover of CDC Ixis by the savings banks.”
He says that the future in European asset management will lie either with smaller groups, or those with larger assets, split into a number of smaller affiliates. He sees
€50-100bn as the ideal size of a profitable funds business, with the ability to explore some foreign opportunities in Germany, Italy and the UK.
But watchers of this combative funds boss are expecting more than just everyday organic growth. “In two years’ time, Natexis Asset Management under Daniel Roy will not be the same as now,” says one. “Today they are seen as a niche player, tomorrow they will compete with the big boys. And who might buy Banque Populaire?”
Few would bet against Mr Roy once again running asset management for one of his former employers or their competitors.
