Hard going in France
While multi-manager (MM) services have grown dramatically in popularity worldwide, France is one European market where progress has been slow. Foreign entrants to the French MM institutional market have found it particularly hard to make progress, and domestic organisations which set up MM products some years ago have found growth disappointing in traditional asset classes.
However, MM is a must for alternatives, as French institutions are prevented by regulation from investing directly. In the hedge fund arena, foreign providers are dominant.
Historically, CIOs of French retirement institutions have been responsible with consultants for manager selection, and direct contact with the fund manager has been part and parcel of this method of working. Fidelity’s Christophe Gloser feels that there has been a lack of enthusiasm for MM because institutions are reluctant to give up both selection responsibilities and perceived control through their direct reporting relationship with the manager.
A well known MM joint venture is the tie-up between Russell and Société Générale, via Soc Gen subsidiary Crédit du Nord. Sold through bank branches, this initiative has raised $1bn(E0.76bn) through mass affluent investors. But Pascal Duval, Russell’s MD for partnerships and distribution alliances, says that some $800m has also been won in institutional mandates in the last two years, though half of this is in the low volatility Alternative Strategy Fund.
These mandates have been won through the group’s direct sales force as well as through consultants, though Duval sees the consultants’ role in the French market as disappointing. “France will never be a consultant market like the UK. French clients will tend to go directly to implemented solutions,” he says.
However, the appreciation of MM among French institutional clients is growing. Given the market volatility of the last few years, “investors are appraising the possibility of a return to stability from a well structured MM fund”, says Duval.
Other players agree that the market shows promise. In October 2004 BNP Paribas centralised the group’s MM teams in one company, Cortal Consors Fund Management (CFM). CFM offers a wide range of MM services to both institutional, retail and B-to-B clients and is ambitiously styled “a European leader in open architecture” by BNPP.
In a state where the bulk of pension money is managed in balanced funds, with 60 to 70% in bonds, the idea of appointing specialist equity managers, albeit best of breed, is revolutionary. “Most of them are still happy with balanced mandates. They may not be happy with the performance, but they have good contact with the managers. As yet there has been no great catastrophe in the French market to shake them out if this,” says CFM institutional business development director Mario Petrachi.
“Medium-sized institutions are thinking about MM for part of their assets, but progress is not quick. Nothing is rapid in the French market,” Petrachi adds.
Even big foreign entrants have had trouble gaining access to the MM institutional market and see a deal with a local provider as important. CFM’s ‘Plug and play’ service can be used as “a kind of housing” for asset managers who want to get into the French market, but without the expense of setting up a new company.
CFM head Valérie Meurice is positive about the growing MM trend, but agrees that it may be slow to take off. “It could be one and a half years of promotion, of explaining the product, then we will have to wait for the reallocation of mandates. But CFM is positioned for major developments, whenever they come,” she says.
The insurance company market is an important distribution channel. BNPP has access to it through its own insurance division, and insurance-based contracts can also be used to distribute funds via private banks.
Another dynamic source of sales is épargne salarielle – employee retirement savings schemes, which might typically offer members three investment options, one of them being a BNP equity fund of funds. This type of vehicle has been popular with employees and “saw very good flows last year”, says Petrachi.
Finally, Duval sees evidence of a changing culture in the setting up of the FRR (Fonds de Réserve pour les Retraites), a massive fund designed to meet the shortfall in the mandatory pay-as-you-go French state pension system. FRR is in effect a huge MM fund, with several third party mandates for each asset class. This, says Duval, suggests “that the concept of MM is well recognised even if it not as mainstream as in the UK”.