Strategically speaking: Lyxor & Amundi

It has also beaten a path in liquid alternatives and in factor investing, and has been an innovative player in the exchange-traded fund (ETF) field since 2001.

A strength has been what in France is sometimes termed investment ‘engineering’ – that is to say, quantitative and structured approaches to solving investment problems.

Despite good recent short-term performance at corporate level, with increasing revenue and AUM, Lyxor has contributed less than 12% to its parent SocGen’s overall income over the past three years and the firm remains sub-scale from an international perspective.

Absolute return and hedge fund strategies have fallen out of favour among investors, institutions included, as returns have proved lacklustre in recent years. Having broken ground by partnering with Lyxor in managed accounts, Dutch pension fund service provider PGGM has since withdrawn from hedge funds altogether, as have many others. 

Factor investing has also been out of favour of late as once-hailed smart beta strategies have underperformed against market-cap indices. Lyxor’s ETF asset flows have been flat or negative in the past couple of years and the firm has been losing market share.

Selling Lyxor will add 18bps to SocGen’s common equity tier-1 capital, underlining that, like so much asset management M&A in the last decade, the main driver behind this deal is the capitalisation requirement of a banking parent.

Despite its recent lacklustre market share performance, the one product segment where Lyxor outpaces Amundi is in ETFs. Lyxor managed just over €77bn in ETF assets as of end-2020 according to Morningstar, compared with about €64bn for Amundi. 

Yet the two are still sub-scale in international terms; BlackRock, by contrast, has just powered through the $3trn AUM mark in ETFs.

When it combines the two firms’ indexing and smart-beta solutions businesses, Amundi might retain the Lyxor brand for ETFs, much as BlackRock kept the Barclays iShares brand when it merged with BGI. 

In any case, the transaction propels Amundi to the number two slot in European ETFs and will boost Amundi’s passive platform to around €200bn, giving it better economies of scale but also a greater voice and more clout as a shareholder. 

Among Lyxor’s interesting niche specialisms is a competence in managing regulatory capital buffers for banks where, according to Florence Barjou, Lyxor CIO, it invests on an asset-swap basis to remove duration risk. 

In summer 2020, Lyxor was the first to create ETF products based on Paris-aligned benchmarks.

Barjou says a key priority for 2021 is ESG integration at the investment process level. “One of my objectives for the end of this year is for all the funds that we manage to include sustainability criteria in the investment processes,” she says. 

“Not all our funds will be labelled but I want as a clear objective that all investment processes before the end of the year include ESG criteria in the investment-decision process.”

Here, Lyxor lags behind Amundi somewhat as the larger firm now includes ESG criteria on all open-ended funds. But the intention certainly aligns with Amundi’s ambitions to be a leading responsible investor.

Lyxor’s managed account platform and liquid alternatives ecosystem will also be attractive to Amundi. The smaller firm’s forthcoming launch of an ESG version of Bridgewater’s All Weather strategy on the managed-account platform is an example of its reach into the hedge fund world and a good example of the kind of partnership it can forge. 

A key bet for any buyer of Lyxor would be that alternative strategies like hedge funds and liquid alternatives return to favour. Barjou acknowledges investor disappointment with many absolute-return and factor-investment strategies, but sees renewed interest.

She says: “We see strong demand, for instance, for low-volatility strategies that can have fixed income-like returns. This is something which you can get through alternative investment strategies.”

Barjou points to merger arbitrage and long-short credit; a solution could be to create strategies with multiple low-volatility performance sources combined with equity overlays for downside protection.

Amundi edged out State Street this April in the race to acquire Lyxor after DWS and Northern Trust reportedly withdrew. SocGen decided to pursue the sale last autumn following a strategic review. 

There are good strategic reasons for Amundi’s move on Lyxor. Despite good overall net new client asset growth, Amundi’s institutional inflows, excluding treasury mandates, have slowed recently, with net inflows across all client segments (institutional, employee savings and Credit Agricole/SocGen group insurance assets) down from €18.9bn in 2019 to €800m in 2020. 

Some of this has been caused by the loss of group-related insurance mandates, which account for over a quarter of AUM, but it underlines the strategic rationale for Amundi to secure its position as a one-stop shop.

There is a circularity to the acquisition and French politicians will doubtless cheer Lyxor’s retention in local hands. 

SocGen’s ties with Amundi are already strong – the bank was a 20% founding shareholder of Amundi when it came about in 2010 as a joint venture with Crédit Agricole, which retains a 69.5% shareholding in Amundi. Amundi and SocGen last year also renewed their strategic partnership for five years.

Since its IPO in 2015, Amundi has doubled its market cap, from €7.5bn to about €15bn. The past few years have been eventful – having completed the 21-month integration of Pioneer Investments in 2019, Amundi has since gobbled up Sabadell’s asset management business and has launched an asset management joint venture with Bank of China.

Now securely in the super league and a top-10 global asset manager with €1.7trn in AUM, Amundi also formally announced Valerie Baudson as successor to Yves Perrier, the long-standing CEO, ending years of speculation. 

Having signed the master agreement in early June, the transaction is set to close by the end of 2021, a month or two ahead of schedule. Given its track record in absorbing large acquisitions, Amundi will be keen to prove that it can integrate Lyxor with ease.