After three years in a bear market that has seen asset managers operating in Europe bringing out the magnifying glasses to scrutinise the bottom line of a business formerly held up as the great profit driver, you could expect things to be different for those responsible with plotting the way ahead.
Jean-Baptiste de Franssu, chief executive officer of Invesco Continental Europe, however, is somewhat philosophical.
“Yes, things are quite different from what they used to be three years ago, but life goes on! As with most other asset managers we’ve experienced some slimming down of our organisation, but overall I believe we are on the right track and are continuing to roll out our long-term plan. We just wish the markets would be a little kinder!”
Despite the prolonged depression of global equity markets, De Franssu believes that structurally speaking little has changed in the way the company approaches Europe.
“What we saw as the attractive point of being in Europe is still the same. The opening up of channels of distribution as well as pensions markets in Europe has not changed just because the equity market has gone down.
“Certainly there has been an effect in terms of scale of resolution or volumes of business that can be generated in the short-term, but fundamentally the issues remain the same and so our strategy remains the same.”
Similarly, the Invesco European head sees little real impact on the company’s business from the EU directive on pensions, Ucits 3 or the European savings directives, noting that Europe has always been about “being progressive”, not “brutal” in any changes.
He explains that the group’s approach is based firmly on being a “local player” in the different European markets: “You can’t just scratch the surface. You have to have the appropriate local structures and you have to ensure support in leveraging the group infrastructure towards this.”
However, he notes that all European markets are not equal in the firm’s eyes in terms of opportunity.
“We believe that there are three core markets in Europe: France, Germany and Italy. We think that these are the markets that in the next five to 10 years will be the most significant in terms of assets to be seized. Therefore we have to position ourselves to benefit from this potential expansion.
“This doesn’t mean that markets like the Netherlands, the Nordics and Austria, for example, are not important – they are, but the long-term prospects in those markets will not be the same as in those markets that I call the golden triangle of Europe, which is Milan, Paris, Frankfurt.”
De Franssu also argues that these three markets increasingly have more commonalities than differences, noting that on the retail side France and Germany look very similar.
“Italy is slightly different because there is no real IFA market but at the same time they have moved quicker into banks selling third party funds and that gives you a number of different potential distribution links.”
On the institutional side, he highlights the common theme of relatively young pension capitalisation schemes, all of which are accessible to foreign players at the same time as their domestic rivals.
“Of course these markets are not exactly the same, but they are not fundamentally different either. Consultant penetration is relatively limited in all three and I believe that the biggest barriers remain language, culture and tax – operational issues rather than anything else.”
De Franssu believes that Invesco’s focus on France, Germany and Italy makes them somewhat unique: “Most of our competitors have built a presence in the more open markets: Scandinavia or the Netherlands, and so have we but not to the same extent. We believe the market shares that we have built in France, Italy and Germany are much more valuable for this reason – and we really intend to leverage from that.”
One business aspect that the Invesco chief argues has changed in the falling markets is what he dubs the ‘flight to quality’.
“Customers are becoming more demanding as to the quality of products they are buying.
“I believe that’s a good thing though – and only firms of a solid infrastructure will be able to respond.”
On top of that he adds that the management of existing clients rather than just the courting of new ones has once again taken precedence.
“In the world we are now in you tend to be much more worried about existing clients than the ones you want to acquire.
“You take more time than you did when money was absolutely pouring into the system. This is not a new perspective, but it is a different focus.”
In terms of how Invesco is meeting the challenges of today’s markets, De Franssu says he feels there are two important factors that play in the firm’s favour – scope and resources.
He argues that the wide range of different investment capabilities throughout the group - added to considerably by the acquisitive streak of parent company Amvescap in the late 1990s – means that the firm is capable of finding most investment solutions for clients within Invesco itself.
“When you are a one product type of shop it is much more difficult to suit the needs of your clients to that extent. That’s a strength for us.” He says the group also has enough resources to be credible on a local basis: “In these times it is vital for clients to be able to go and talk to their managers locally in their own language and we fully benefit from our local presence versus many of our competitors.”
Asked whether Invesco will seek to expand organically in its target markets or to buy into them, De Franssu does not rule out the acquisition approach, noting that this has often been the strategy of the Amvescap board: “The chairman has been quoted as saying that we would certainly look at any deal if there was an interesting piece of business anywhere around the world which fitted in terms of geography and investment style to the aims of the group.”
“In Europe this may be quite important at some stage because if you compare us with say DWS or SocGen then the gap between our assets under management in Europe and our assets world-wide is quite marked, whereas the others have most of their business here.
“This means there is clearly a disadvantage for us when we are trying to penetrate Europe and acquisitions would certainly be a way of quickly consolidating what we have put in place in the region.”
Certainly this route might make sense in the long run, particularly as De Franssu does not yet believe that any of the large US players coveting Europe - of which he believes there is a lead group of three or four including Invesco – have yet made substantial enough progress on the continent to challenge what he calls: “the big local elephants”.
“I do think one of the ways that this will be achieved is through acquisition, yes.”
In a market where he predicts increasing competition as more and more people are attracted by the long-term prospects in Europe, De Franssu says he is pleased Invesco has over the years built up what he believes to be “a significant competitive advantage”.
“I hope that we will be able to develop this through our European network, which is quite unique to the industry.”
He points out that this is vital in an industry where profitability is being challenged “big time”.
“The crisis in the equity market has meant that the revenues for the industry have shrunk so dramatically and so quickly that this is bringing a lot of concern to many organisations.
“This is a time of great challenges where you try to cut through to the essential and the most sensible parts of your business.
“It’s a time where brand name and the flight to quality are crucial and where you have to look after your clients as well if not better than in the past.
“It’s not easy to manage a business in this environment, but we don’t want to be derailed. I think if we stay on our current track this will make the difference when the hay days come again.”