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Dexia Asset Management believes it is well down the road of being a major player on the European market. In just a few years and during one of the most cathartic periods ever in asset management, a group with formidable European credentials has been created, it claims.
Following the acquisition of Cordius Asset Management by Dexiam, a new structure was put in place in 2001. “That I regard as our base year,” says Hugo Lasat, who created Cordius AM in 1998 and is now chairman of Dexia AM’s executive committee.
Then it was that Dexia’s asset management structure and strategy was put together operationally, with a determination to develop an entity greater than the sum of its parts. That entailed the surgery of a sharp cost cutting exercise. “But this was accompanied by a new strategic and structural framework across all our activities, including IT and operations, as well as investment management.”
This strategy and the full integration of the businesses was achieved within two years, and finalised in September last year.
The key decision was on the investment process. This matter was tackled as the priority in early stages of merger and was completed mid 2001. “We regard this as the most important item within asset management – it’s the engine.”
Lasat says that it matters less where “the production” takes place, the important thing is that it as done as efficiently as possible. Dexia AM reckons it has centralised management of assets, though this is based in three production centres Brussels, Luxembourg and Paris. “Each of these have in terms of the group their own unique competence, with no duplication,” he points out. Brussels, for example, handles the equities and fixed income, Paris the convertibles and alternatives, and Luxembourg, money market, global balanced and multi-management.
“We have coupled this centralised production with decentralised sales and distribution.” Continental Europe is now the asset management’s group’s domestic market and its major focus. “We have no intention of going further afield,” he maintains.
From its established bases in the three local markets, the group is penetrating successfully Austria, Italy, Switzerland, Germany , the Netherlands and Spain – with institutional teams locally active for instance in Madrid , Geneva and Milan. “And we aim to add new countries step by step – one target is to develop Scandinavian markets a bit more aggressively this year,” he says.
As far as client base is concerned, there are twin beams, one trained on leveraging the existing relations of the group. “The other focus is on servicing the European pension fund and insurance industry and lastly focusing on the cross border distribution of investment funds For the latter, we have come from virtually zero two years ago and now running at around E3bn in new business today,” he says.
At present Dexia AM has E62bn in assets. “The bulk is in investment funds amounting to E43bn, of this E14bn is in funds for institutional clients (pooled management). The balance consists of E15bn in segregated institutional mandates and E4bn private clients.”
Lasat is very excited at how a strategy designed just in 2001 has worked out so successfully in practice . For 2003 the institutional mandates grew from the E11bn to E14.9bn during last year, as the number of mandates went from 338 to 370. “Last year was our best ever in terms of net new cash for the institutional segment.”
Another considerable achievement in his eyes is that the group operates on a cost base of 13bps of assets under management as a consequence of the 2001 strategy of heavy cuts and structural reorganisation within Dexia AM . “This shows we are a pretty efficient organisation,” he claims. “But it leaves very little room to improve the cost side further!” But Lasat has no intention of being silly about this being the way forward. “You can only cut so much of costs and once you reach that to go any further can mean taking choices you don’t want to make, as you will cut into your core businesses, which is definitely not the future direction I’m going to take with Dexia AM.” The future is going to be revenue driven, which, he says, is somewhat contrary to mainstream thinking which is still pursuing cost controls relentlessly by reorganisations, mergers and so on. “We were a bit ahead of others in the industry, with a big merger in progress, we took the opportunity and forced ourselves us to make our choices then. But that is behind us and I do not focus on that, but on revenue enhancing moves, looking for new markets, new segments, new distribution arrangements.and making significant investments in our investment processes which proved to be succesful during the past three ‘special’ years.
One of the areas of leadership is in sustainable management, where he reckons Dexia AM is number four in European terms, with E1.4bn in investment funds which represents a market share of 9,6% in continental Europe according to Avanzi Research.. “It’s still a niche but the area is developing significantly,” he says.
Alternative investments is seen as another strong growth point. “We have a team of 40 investment professionals in Paris and have been successful in developing our own processes.” So far, the assets come to around E3bn in “pure alternatives”, he says. “These are hedge strategies, focusing on convertible arbitrage, credit arbitrage, global macro, market neutral, high yield and long shorts.”
The bulk of assets are in the core plain vanilla products of European equities, international and Euro bonds. “We are determined to stay in those markets and to be an ‘all-weather’ manager, managing a wide range of assets and servicing a variety of institutional client types, whether distribution networks or end investors.”

The difference between these client bases is in how they are approached, says Lasat. “We have a dedicated team for the communication towards and the servicing of these clients. Ten years ago you sold products and that was that, value-added services after that point were non existent. In continental Europe there is a trend in servicing clients, in terms of reporting, in information, both towards networks and towards institutional clients. We are investing heavily in this.” So services such as performance measurement , attribution and reporting are now mainstream products, in his view.
In terms of process, Dexia AM is distinctive, he says. “Our approach is process driven, through specialised teams, and not a guru or star led. It is a mixture of small dedicated teams on one hand, with a strong business unit (per asset class) supporting them.” The teams are not correlated with each other. Each business unit has its own investment process and their own reporting line and so on.”
The investment process is model-based largely, developed from in-house proprietary research, implemented by a relatively small team of investment professionals. “The approach is not a purely number crunching exercise, but it is designed to be objective in its approach to the factors affecting financial markets, otherwise you can become too focused on just one item.” This is implemented team by team, according to asset class and within asset class. “We are very pleased with how it has worked out.”
Dexia AM makes a point of operating as a fully integrated asset management company, with a five strong executive committee running it on a fully consolidated level. “It’s nothing to do with having representatives from Paris or Brussels. We have one person is charge of sales and distribution, one for operations and IT, and so on, beyond the legal structures. This is working really well.”
The product offering is pretty wide. “There is no subsidy from one process or product area to another. All are contributing to the profitability of the group.” Most of the assets are Europe-based, but as Lasat points out with faultless logic: “That’s not our decision, it is that of our clients awarding us mainly European mandates.” The main mandates flow the group sees is for European, equity or fixed income, and global balanced.
He agrees that there is a slow push for specialised mandates, driven by consultants, who are playing an ever bigger role in continental markets in his view, but there is still significant global balanced mandates being awarded, particularly by smaller institutional client but even by large institutions . “The average of our 370 plus mandates comes out at around E40m.”
The market is Europe is becoming more integrated certainly, but it is still fragmented by regulation and size of pension funds, all of which affect the characteristics of the institutional business. “As a fully integrated continental player, we are determined to be multi-local in how we respond to clients. But we see this becoming less a factor in the future. My view is that Europe in time will be an integrated market.”
This is particularly so for fund distribution, where the Luxembourg fund range is positioned strategically for pan European distribution. “We have over 50 funds today approved for distribution in up to nine countries, going direct to the end investors, such as institutions or to fund distributors.”
Pointing to the underdeveloped nature of European savings, he sees particular room for growth in investment funds, as well as related life-insurance and pension products. “This sector will grow faster than the average savings markets across Europe, which are set to expand anyway.” He is looking for double digit figures in terms of assets and profits growth. “Demographics will continue to be a key driver for the development in our industry.”
Growth through acquisition is an option if it were to bring company new markets, new clientele and new product lines. “This may sound a little arrogant, but a possibility might be to bring on board less developed asset managers.”
The position Dexia AM would like to achieve is to be not necessarily top of everyone’s shopping list but to be in the reckoning as a matter of course when it comes to choosing European asset managers. “This is not where we are at currently and this year we are coming out of the shadows to show the world what we can do.”

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