Fine art of asset management
In the iconography of European asset management, Dexia Asset Management could be cast as the hero from zero. In the 1990s it was merely a gleam in the eye of the Franco-Belgian Dexia banking group. Today it is one of Europe's leading asset managers, with over €100bn assets under management.
Over the past five years, the investment management arm of the Dexia Group has transformed itself from a domestic asset manager operating in Belgium, France and Luxembourg to a pan-European player with an ‘opportunistic' international presence - currently an equity capability in Sydney.
And over the next five years Dexia AM aims to transform itself further by becoming a European player with a ‘strategic' international presence.
Hugo Lasat, the CEO of Dexia AM and the man who is presiding over this transformation, says the shift from an opportunistic to a strategic presence is a primarily an expansion of resources. "By a strategic international presence we mean an international network of sales and distribution people, and also some production capabilities outside Europe which is for the moment mainly dominated by Europe."
Yet Dexia AM has no plans to become a full-blown international asset manager, Lasat says. "It's far too arrogant to say at this stage that we will be a global player. That's the playground of the HSBCs of this world. But we have demonstrated that we are capable of defining and implementing a strategy over the past five years, and now we are continuing to invest in what we have, and moving on to another dimension."
Lasat is the former head of Cordius Asset Management, the investment arm of US-based Artesia Banking Corporation. He became CEO of Dexia AM when Dexia's asset management arm Dexiam merged with Cordius in 2001 to form a new entity. The purpose of the merger was to create a new organisational structure for the group's asset management business.
The result has been a substantial broadening of Dexia AM's footprint, says Lasat. "In 2001 Dexiam was a continental European asset management company, operating mainly in Belgium, Luxembourg and France. It also had a small presence in Sydney, Australia.
"In 2001 we designed a completely new strategy for Dexia AM to make it a pan European asset management company that was present in all countries, including continental Europe, and building further on our presence in Australia."
Dexia AM has adopted a horizontal organisational structure, built around different business units - traditional and alternative asset management and an autonomous sales network. The aim has been to operate through a limited number of centralised competence centres and decentralised sales and distribution teams to apply the same investment processes across the various parts of the business.
Today, Dexia AM positions itself as a continental European player. It also has a significant presence in Australia, where assets grew 130% last year to €4bn. "Today we are a pan-European asset management company present in almost in all European countries, and we are slowly but surely covering any gaps in coverage that we have," he says.
he areas of growth demonstrate the shift in the asset manager's centre of gravity, he says. "Roughly 60% of our growth is coming from markets outside our historical domestic markets - France, Belgium and Luxembourg. This is in line with the strategy we laid down in 2001." Dexia AM now operates from four management centres - Brussels, Luxembourg, Paris and Sydney - covering seven major competencies. Brussels is responsible for equity and financial analysis, quantitative equity management, fixed income, money markets, structured products, and SRI management and analysis.
Paris manages enhanced money market funds, convertible bonds and alternative investments including hedge funds. Luxembourg is the production centre for global balanced management and multi management, while Sydney manages Australian equities and fixed income.
On the sales and distribution side, Dexia AM has rolled out its European coverage, opening offices in the Netherlands, Italy and Spain in 2004, Sweden and Denmark in 2005 and Germany and Bahrain in 2006.
Assets under management have grown from €61bn at the end of 2001 to more than €100bn this year. Institutional segregated mandates in this period have grown from €11bn to more than €26bn.
Institutional business (funds and mandates), including pension funds and pensions related schemes, now represents 49% of total assets under management. Institutional business has been the main provider of net new cash, which has increased as a percentage of assets under management from 9% in 2004 to 17% in 2005. "More than two-thirds of our growth comes from new cash, while the market impact is less than one-third," says Lasat.
Dexia AM itself is a combination of a traditional asset manager (Cordius) and an alternative asset manager (Dexiam), and alternative investments are now one of Dexia AM's key competences.
Alternative investment is a portmanteau term for three types of offering: structured products that can be managed either statically - that is, with a simple capital guarantee structure - or dynamically; enhanced money market products that offer , depending on the level of risk, returns of between 25 and 250bps over money market rates; and hedge funds.
"We have the typical fund of hedge funds, which is which is managed out of Luxembourg and is quite successful," says Lasat. "We also have single strategy hedge funds managed out of Paris. We try to develop, whenever we have the expertise, a wide range of individual strategies of hedge funds so that we can offer our clients a panel of different hedge fund strategies .
"What we offer will depend on the capabilities that we have internally and the potential we see in the market. For instance, when we launched an index arbitrage fund two years ago we were one of the first in Europe to launch such a fund and we have been very successful." The same is to be said regarding the emerging market funds, the global event funds and the leveraged loan funds all launched during the last 18 months.
Dexia AM has also focused on sustainable and responsible investing (SRI) as a specialist competence, and now has some €13bn assets under management in SRI products. "We are convinced that SRI is something that can add double alpha - one alpha from the SRI screening and the other alpha from asset management," says Lasat.
Sales growth of SRI products in France has been impressive, he says. "In the French market, SRI is now on the agenda of many pension schemes."
The target for the next stage of Dexia AM's expansion strategy is to increase its assets under management from €100bn to almost €150bn and its institutional mandates from €22bn to €36bn by 2009. This assumes a market effect of €3bn a year and net new cash of €10bn a year.
The aim is to expand in geographical areas where Dexia AM is either not present or only partly present. This means full coverage of main regions in continental Europe.
Germany is a key market, and Dexia AM opened a sales office in Frankfurt in October. "The intention is to penetrate and try an institutional approach in Germany," says Lasat. "The focus will be on SRI portfolios, pension funds and funds managed according to quantitative models for institutional and private investors."
The move into Germany is seen as a launch pad for further moves into markets such as central and eastern Europe. "We plan to do the same in selected countries such as the Czech Republic, Hungary and Poland to give us full coverage of continental Europe," says Lasat.
Dexia AM also plans to focus on high growth areas such as the middle-east, and has opened a sales and distribution office in Bahrain. "We want to access high growth markets in terms of savings," Lasat says. "The business case for the middle-east is the same as we used to have in Europe in terms of identifying institutional clients and offering them solutions for their investment needs."
A similar strategy is planned for south-east Asia, which Dexia AM defines as Taiwan, South Korea, Hong Kong and Singapore. "We are fine-tuning the implementation of our strategic project and testing different options of how we would like to cover those markets," says Lasat.
Over the next five years, Dexia AM plans to increase the number of specialised competence centres from the current four to seven to include Istanbul, for emerging market equity and fixed income, Asia for Asian equity management and the US for US equity.
"We want some production capabilities outside Europe. We also want to participate in the US market, the most important institutional market in the world. Dexia AM is currently looking for an acquisition in the US, Lasat says. "One investment management capability we don't offer in continental Europe to our institutional clients is US equities fundamentally managed. We do have an institutional US equities expertise but it's purely quant driven. Today there is also a market in Europe for US equities that are fundamentally managed.
"We are not looking for a huge asset management company. It's got to be something that is fitting Dexia AM's current organisation. If we don't find a partner that is fitting our organisation, then we will not do it."