Dexia deploys alternatives expertise
Naïm Abou-Jaoudé has been CEO of Dexia Asset Management since the beginning of the year. As head of the alternatives division until December 2006, he now has the opportunity not only to raise the profile of the alternatives division, but also to find ways for long only and alternatives to co-operate. Moreover, he would like to work on cross-fertilisation between long only and alternative investments.
One of those areas will be 130/30, or short extension, the newish strategy that has gathered much publicity in Europe these last few months and years as both quant and fundamental houses plan and launch benchmarked funds with a limited, pre-determined shorting component.
So Dexia Asset Management's 130/30 plans will be a good opportunity for the group's alternative and long only capabilities to work together. How are they doing so far?
The 130/30 strategy is on its way to fruition but backtesting is still taking place. "The launch was supposed to be by the end of the year but we will postpone it by three to six months," says Abou-Jaoudé.
"We are reconsidering this approach and taking more time to make sure that we are 100% comfortable with the launch of this product. Perhaps because of the experience in 130/30 in July and August we need to learn in order to improve our product."
Nevertheless, Abou-Jaoudé says that underperformance over this time was not significant. "We are trying to analyse what happened in terms of quantitative backtesting and we have three different explanations. In the quant part of the business [the issue was] the leverage on different multi strategy quants.
"Two, the financial sector was over represented and it suffered more than others and the decorrelation between the performance and the fundamental factors I think it was also something that impacted the performance. Because of what happened in July to September we are postponing the launch by three to six months to see what we have to improve. We like to be consistent when we launch a new product There is no pressure on the fund manager unless they are very confident.
Other points of co-operation are in the area of derivatives: "The implementation of derivatives instruments,
options, and credit default swaps, kinds of underlying that were not very common in the traditional area. Now we are implementing these products in order to offer more flexibility," says Abou-Jaoudé.
The asset management division managed a total of €111.1bn at the end of June this year and €59.4bn for institutional clients; €28.1bn in institutional mutual funds and €31.2bn in segregated institutional mandates.
Abou-Jaoudé has been working on a business review, which, among other areas, looks at geographical expansion, including expansion in the US. "The idea is to complete our institutional production capabilities and expand our client coverage in the US through acquisition or partnership. We are looking to the Asian market but more in terms of distribution,"
As well as the co-operation between alternatives and long-only, Abou-Jaoudé has also continued to focus on new client segments, such as central banks and international organisations, as well as third party distribution.
Abou-Jaoudé would also like to study the active management of Dexia AM's product range, "how to adapt with new launches and how to be more reactive," as he puts it, with a "mix between the long term and short term view".
Geographical expansion - in Germany, Poland and Ireland - is quite well advanced. In Frankfurt Dexia AM already has four people, having opened a representative office in October last year, and net new cash has been positive since beginning of 2007. "What we identify is interest for quantitative products, SRI, high yield bonds and alternative investment and structured solutions," says Abou-Jaoudé.
And east of the Oder, plans to open an office in Poland are advanced. A branch manager has been hired and two relationship management staff have been recruited. The development of the office is in progress and regulatory approval is expected by the end of the year.
In Ireland Dexia AM is looking for senior sales and marketing staff members as part its expansion drive in anticipation of the opening of a representative office.
Planned products are triple and double-A money market funds to service the custodian bank market and SRI funds for local pension funds. "We wanted to start in Ireland and see how the market starts and the UK would be a second step."
Interest in de-risking of pension liabilities through interest rate swaps has been a trend in the Neherlands. And Dexia AM has been looking at what it can do in this area. "We are offering a custom-made solution and do not have an off- the-shelf product," says Abou-Jaoudé. "We were working on an LDI kind of product but for the moment our objective is to find the client, determine their objectives and try to work on identifying and analysing the liabilities and matching the duration and the assets and liabilities of the pension fund. We have found that the needs of clients differ."
Fiduciary management has also been a
noticeable trend in the Netherlands. But Dexia AM is not interested in entering this market per se. "Are we willing to do it? It depends how you understand it. If you look at what some of the managers are doing, playing the role of selecting asset managers and fronting everything, that is not something we want to do.
"We have the know-how to do it but instead of fiduciary management, which is not a very common term in Europe outside the Netherlands, we would like to do advisory or overlay management. This is not a number-one priority. It is something we are doing and are trying to customise our offer. It is a little like the duration matching product. What we are trying to do is to adapt the bespoke approach," says Abou-Jaoudé.
"To be clear, we are not going to go into fiduciary management because I don't think we have added value as a manager but we are going to invest in advisory and overlay management on a bespoke approach." This might include asset allocation with asset classes such as fixed income, equity, commodities, real estate and alternatives.
As for the market crisis in the summer, Dexia AM feels it has escaped lightly. "The cash enhanced products did experience some drawdown but have all been positive year to date," comments Abou-Jaoudé.
"For us we were doing well, delivering performance close to what we were offering, meaning that volatility, performance and liquidity were very well monitored and we did not have any problems." There was no direct sub-prime exposure and no positions in CDOs or similar structured credit products in all our cash enhanced products for all of this year, he adds.
A Dexia veteran of more than 10 years, Abou-Jaoudé is a member of the executive committee of Dexia Group having been appointed CEO of Dexia Asset Management earlier this year to succeed Hugo Lasat.
Before joining in 1996, Abou-Jaoudé was a partner at Transoptions Finance, a subsidiary of Crédit Agricole Indosuez, where he was a market maker on interest rate options, head of convertible bond trading and also launched and managed his own convertible bond arbitrage fund.
Abou-Jaoudé graduated from the Institute of Political Studies in Paris (IEP-Sciences Po) and also holds a masters degree in Economics and Finance from the University of Paris II.