Can mid-sized asset management firms survive in today’s world? That is a key challenge when the market appears to be bifurcating between the super-large supermarkets and suppliers of passive products exemplified by BlackRock and Vanguard at one end, and small specialist high-alpha boutiques at the other.
One mid-sized firm that does appear to be thriving is La Française. It has been increasing AUM at the rate of over 10% or so per year for several years and now has €65bn.
As its name suggests, La Française is a French company. But with a marketing slogan of being ‘not so French’, it is clear its ambitions lie way beyond its home market. Indeed, as its CEO, Patrick Rivière, points out, the firm has little choice but to go outside France if it wishes to expand, given the hugely competitive environment in France, with mammoth firms such as Amundi, AXA Investment Managers, Natixis Asset Management and BNP Paribas Investment Partners alongside as many as 500 boutiques.
The strategy that La Française has adopted involves using its core strength in the French property market to anchor a bold and opportunistic approach to new products and new markets through acquisitions, partnerships and in-house developments.
Real estate still represents a critical component of the firm’s business with €14.5bn of assets under management. To that has been added traditional asset management, SRI equity, investment solutions and alternatives, including private equity. La Française also has smaller partnerships and activities in specialist areas, such as non-listed debt, making investments mainly in France on an opportunistic basis.
La Française started 40 years ago focusing solely on packaging French real estate investments for French retail clients. The majority shareholder of La Française, with 92% of the capital, is Crédit Mutuel Nord Europe. The real expansion of La Française started in 2009 with a merger between the original strong real estate business and a traditional asset manager. That also introduced a strong institutional client base alongside the existing retail property clients. That combination, says Rivière, gave the firm the capability to aggressively seek clients outside of France.
Critical for mid-sized firms is getting the right balance between building on core strengths and opportunistically taking advantage of new trends in the marketplace, which could, after all, turn out to be short-term fads.
Rivière argues that mid-sized firms need diversity in products, but also a depth of expertise in the few that they do offer, to be able to differentiate themselves. Client servicing can also be a key competitive strength. Beyond a certain size, more attractive opportunities for business development lie outside the domestic market.
Real estate has historically been La Française’s door opener to new markets, and the firm has entered into partnerships to expand its product range. Now that has been achieved, Rivière is seeking to integrate these partnerships, or in some cases close them down.
One catalyst for overseas expansion was the acquisition in 2014 of Cushman & Wakefield Investors, a pan-European real estate investment firm with $1.2bn (€888m) in assets under management and a significant Asian client base. As a result, La Française has opened an office in South Korea to primarily service its local real estate clients there.
This strength in real estate should open doors with large institutional investors. It also enables the firm to attempt a global marketing effort, but the main proposition in new markets is the property team’s deep knowledge of French real estate: “We probably did €1.5bn of transactions in the French market and accounted for 7% of the real estate activity in France in 2016. It means we are seeing 50% of all opportunities in France,” says Rivière.
“We probably did €1.5bn of transactions in the French market and accounted for 7% of the real estate activity in France in 2016”
Can the firm continue its growth rate of 10% per year for much longer? Perhaps. Growth is more subdued in traditional asset classes with a focus more on the European fund buyer market. Outside Europe, the US is difficult to tackle but La Française has gained entry to the region through selling real estate investments to Canadian institutions using a third-party sales agent. Asia could provide opportunities for future growth.
La Française started off in Asia in the Singapore private banking market and manages almost €750m in French, German and UK property for Korean investors. Overall, Asian investors accounted for nearly 25% of the total real estate funds raised in 2016. The clear and as-yet-untapped opportunity is China. So far the firm has approached the market via Chinese investors based in Hong Kong. The lure of Parisian property may well be tempting enough, though, to attract more mainland institutional investors if La Française is able to find appropriate local distribution partners.
La Française saw €6bn of new investment in 2016, and 2017’s total is expected to surpass this. But growth at such high rates comes with its own risks, and Rivière points out that the focus on property and fixed income means the firm is sensitive to interest rates. “If we were taken by surprise, a big increase in interest rates would be difficult to manage,” he says. The recent political turmoil in France also led to much anxiety, given the political risks France was facing, but the strong commitment by President Macron to Europe has provided stability. “If we had this discussion three months ago we would have been more anxious.”
La Française is an example of what a mid-size firm can achieve with a bold approach. It has the luxury of a parent that can presumably underwrite some more entrepreneurial initiatives. For mid-sized firms, survival may not be dependant on just one product, but they have to be aware that their niche product could also become their tomb if they are not willing to diversify.