Large organizations that do a bit of everything often get bad press. They risk being seen as jacks of all trades but masters of none. Yet the French investment house Amundi, which with €1.0 trillion ($1.1 trillion) of assets is one of the world’s biggest non-U.S. investment managers, is trying to become more rather than less comprehensive.
“We have a bunch of mature areas in which we have established leadership: fixed income, structured products and money market funds,” says Pascal Blanqué, who has been chief investment officer since the firm was founded through the 2010 merger of the asset management arms of Crédit Agricole and Société Générale. He also identifies a “second bench of fast-rising stars, where we want to invest more.” These areas include exchange-traded funds, where Amundi has broken into the top five players in Europe, with €20 billion in assets.
Blanqué has good reason to expand Amundi’s horizons. Fixed-income investments account for 52 percent of its assets, and money market instruments another 18 percent. And 40 percent of the firm’s assets come from the insurance arms of its founding banks. Blanqué can’t count on all those captive assets staying put. SocGen unloaded its 20 percent stake through Amundi’s €1.7 billion initial public offering last year; Crédit Agricole remains as controlling shareholder with 75 percent.
So Blanqué is ramping up Amundi’s distribution efforts in Asia to add retail investors to its institutional clientele. He is building up the firm’s equities capabilities with the acquisition of Kleinwort Benson Investors, a €7.6 billion Irish institutional equities specialist, from the French private bank Oddo & Cie in May. And he is expanding Amundi’s offerings of ETFs and smart beta to capture the growing demand for low-cost passive strategies. “If you have exposure to various geographies and client segments, you end up with some robustness,” he explains.
The diversification drive is bearing fruit. Amundi boasted net inflows of €80 billion last year, most of it from areas outside of France that the firm is targeting for growth. Some €37 billion came from Asia and €22 billion from Europe ex-France. Asia also made the biggest contribution to net inflows in the first half of this year — €12 billion out of a total of €16.8 billion. The region now represents half of Amundi’s non-French business, as the firm managed €130 billion in assets in Asia as of June 30, up 36 percent from a year earlier.
One notable absence from Blanqué’s expansion drive is the U.S. At a time when U.K. managers such as Aberdeen Asset Management, Insight Investment and Schroder Investment Management are targeting the vast U.S. market for growth, Amundi stands out for its reticence. The firm acquired Smith Breeden Associates, a Durham, North Carolina–based fixed-income boutique, in 2013, but it did so to provide U.S. product and expertise for its European and Asian clients rather than to establish a U.S. beachhead. Blanqué sees better uses of the firm’s capital than to try to tackle the likes of BlackRock, Goldman Sachs Asset Management and J.P. Morgan Asset Management on their home turf.
“Our development focus remains in Europe and Asia, which we consider our second domestic market and in which we have been present for three decades,” says Blanqué, who earned a Ph.D. in finance from Université Paris-Dauphine, started on the buy side at the old Paribas in the early ’90s and jumped to Crédit Agricole as chief economist before rising to the CIO post. In recognition of his accomplishments, in June Institutional Investor named Blanqué its Manager Lifetime Achievement honoree in its 2016 European Investment Management Awards.
Blanqué insists that aside from the odd bolt-on acquisition like Kleinwort Benson, “The main driver of growth will remain organic.” Some analysts speculate that he and Amundi CEO Yves Perrier may be tempted to open up their checkbook soon, though. The new CEO of UniCredit, Jean-Pierre Mustier, is reportedly considering a sale of the Italian bank’s €221 billion fund management subsidiary, Pioneer Investments, to raise capital. Amundi tried to buy Pioneer six years ago only to see UniCredit decide to hold on to the business.
Asset growth hasn’t done much for Amundi’s earnings, a reflection of the pervasive margin pressure in the industry. Net income rose a modest 1.5 percent in the first half of 2016, to €278 million, as fee and commission income was flat at €813 million. Lower-margin institutional business accounted for 75 percent of assets at the end of 2015, but 52 percent of net inflows last year were in the higher-margin retail business, and the retail share of inflows rose to 60 percent in the first half of 2016. The stock closed at €44.99 on September 16, virtually unchanged from its November 2015 IPO price of €45.
Fixed income faces big challenges given the low to negative policy rates prevailing across much of Europe. “Opportunities to get positive returns are shrinking,” acknowledges Eric Brard, global head of fixed income. Like others, Amundi has responded by emphasizing credit. The firm is managing close to €10 billion of euro high-yield debt, up from about €3.5 billion two years ago. “We have seen very strong growth in euro credit investment coming from Asia, and in particular Japan,” where rates are even lower than in Europe, Brard says.
The firm is looking to grow its Asian retail business through its joint ventures in the region. Amundi has a 37 percent stake in SBI Funds Management, the mutual fund arm of State Bank of India; a 33.3 percent stake in ABC-CA Fund Management, a venture with Agricultural Bank of China (which owns 2 percent of Amundi); and a 30 percent stake in NH-Amundi Asset Management, an arm of South Korea’s NongHyup Financial Group. The three JVs collectively manage €82 billion. Amundi is also tailoring products specifically for the Asian market. In April it launched the world’s first ETF based on the Hang Seng HK 35, an index of the 35 largest stocks listed in Hong Kong.
The Hong Kong ETF is part of a broader, global push into passive products. “Institutional investors are concerned about costs,” says Fannie Wurtz, managing director of ETFs, indexing and smart beta. The firm claims its weighted average charge for ETFs is 26 basis points, compared with an industry average of 30 basis points. That edge helped put Amundi in fifth place in Europe’s ETF market at the end of July, just behind UBS and ahead of Vanguard Group, according to Thomson Reuters Lipper.
The firm is also making a big play for the green market. Amundi partnered with MSCI, the French pension reserve Fonds de Réserve pour les Retraites and Sweden’s AP4 pension fund to develop a family of low-carbon indexes, which were launched in 2014 by MSCI. The indexes remove the most polluting companies from existing MSCI benchmarks and tweak the remaining constituents to maintain a low tracking error of 70 basis points. “We generated a free option on climate change,” says Frédéric Samama, deputy global head of institutional and sovereign clients. “If nothing goes wrong you achieve the market return, but if the stock prices of polluting companies are penalized, you outperform.” Amundi now manages €5 billion of low-carbon assets.
Amundi continues to be a giant at home, capturing 55 percent of French mutual fund inflows last year, but its growth potential remains limited by the market’s overall lethargy. The firm aims to generate €15 billion a year in French retail inflows, but Michael Werner, a UBS analyst who follows Amundi, believes €10 billion is more realistic. “We have seen no evidence to suggest French households will increase exposure to asset management products in the near term,” he wrote in a recent research note.
Amundi’s performance has been strong, if not spectacular. At the end of 2015, 21 percent of the firm’s open-ended funds boasted top-quartile performance over five years, and 61 percent of funds were in the second quartile, according to Morningstar. The firm’s operational excellence, rather than a roster of star managers, holds the key to its appeal, says a senior private banker who spoke on condition of anonymity. “The big houses and banks are looking for partners that are really reliable – based less on personalities and more on processes,” he says. “Amundi fits that requirement.” •
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