PARIS - Global money managers are targeting French institutional investors as their appetite for equities and international investments is growing.
With planned adoption of the euro Jan. 1, 1999, French investors are taking a broader outlook. During the past few weeks, a series of manager startups and new distribution channels reflect major shifts taking place in the French institutional marketplace, with roughly 9 trillion trillion French francs ($1.5 trillion) in assets.
Major developments are:
United Asset Management Corp., Boston, has launched a Paris-based money management firm called Expertise Asset Management that is staffed by four former professionals of Fimagest S.A., a Paris-based money manager.
Caisse Centrale des Reescompte, a 97% subsidiary of Commerzbank, has formed CCR Actions, a Paris-based unit specializing in European equities, that is run by two other former equity managers from Fimagest.
Dresdner RCM Gestion, Paris, has raked in $40 million during the past month for a new emerging markets product run by its London affiliate. Future product launches include global equity and European equity this fall.
Frank Russell Co., London, has started distributing its Dublin-based fund-of-funds product through Banque de Louvre, a Paris-based private bank, while setting up a specialized U.S. small-capitalization equity fund for Societe Generale Asset Management, the Paris-based banking giant.
(Separately, Frank Russell officials announced distribution of its family of funds with Johannesburg-based Liberty Life Group. The South African government recently relaxed overseas investment rules for retail investors.)
"We do expect a rash of other (distribution arrangements) to be announced within the next 12 months," said Len Brennan, Russell's managing director for Europe, the Middle East and Africa.
The firm plans a series of such arrangements around the world.
Money managers are focusing on France as several factors drive French institutional and individual investors to take a more international approach to investments.
European companies are radically restructuring and bond yields remain low, triggering a general move toward equities. What's more, the planned adoption of a single European currency, which will lead to the abandonment of the French franc, is causing many investors to focus on pan-European equities instead of French-only strategies.
In addition, global fixed-income is becoming more attractive as investors seek higher yields.
Expertise's unusual startup
Expertise Asset Management comprises four former professionals of Fimagest, which was sold by Compagnie de Indosuez last year to its Belgian subsidiary, Generale de Banque.
The new firm will offer global fixed-income and European equity products, primarily to the French institutional marketplace.
A startup firm is very unusual in France, as the investment scene is dominated by major banks and insurance companies. What's more, consolidation among major players - such as the recent merger of AXA and Union des Assurances de Paris, and Credit Agricole's purchase of Indosuez Asset Management - is leading to a smaller number of very large players.
That's why Expertise officials think they can find a niche. "Because of the concentration, there could be more room for a boutique," explained Herve de Lattre, one of the firm's four managing partners.
He added the backing of UAM - which owns 80% of the new firm - should help establish the entity in the marketplace. European institutions generally are keen to know their manager has a strong parent. The four partners own the remaining 20%.
Diversification is key
Mr. de Lattre said French institutions, which traditionally have invested most of their assets in French bonds, are seeking to diversify their investments overseas.
Despite the lack of traditional pension funds, France has substantial sums held by other types of institutions, such as insurance companies; caisses de retraites, which are supplementary pay-as-you-go funds; mutual insurance firms; and regional banks.
The expected development of advance-funded pension funds and the current restructuring of state-owned French industries likely will stimulate the growth of French equity markets. Individuals concerned about the adequacy of their retirement income, as pay-as-you-go systems are becoming squeezed, also will boost equity markets, Expertise officials believe.
Expertise officials plan to market services directly to institutional clients as well as through subadvisory relationships.
The firm's global fixed-income product uses a highly quantitative, top-down approach. Expertise managers will compare their model with consensus views to develop a contrarian, risk-adjusted method of global asset allocation.
The European equity product will be growth-oriented, combining a top-down sector approach with country allocation and individual stock selection. While dominated by large-cap stocks, the product will include small-caps.
The experience of Expertise's professionals should help the firm win clients while building a track record, the partners hope.
Jean-Francois Tilquin will oversee the fixed-income product while Isabelle Delattre will oversee the equity products. Plans are to hire two additional portfolio managers, one each for bonds and stocks. Michel Rabeil is head of marketing, while Mr. de Lattre is responsible for operations and client service.
CCR Actions forms
Meanwhile, two other former Fimagest professionals have formed a value-oriented equity manager that will market to French institutions. The new unit, CCR Actions, is 80% owned by the Caisse Central des Reescompte, which in turn is 97% owned by Commerzbank, Frankfurt.
Francois-Marie Wojcik explained that he and fellow equity manager Marc Renaud already had decided to leave Fimagest earlier this year to create an independent money manager. They subsequently were contacted by CCR officials and negotiated the sale of the 80% stake.
"The reason is Commerzbank and CCR in France believe in the development of equities fund management," Mr. Wojcik said. The new unit will complement CCR's existing fixed-income capabilities.
CCR Actions will complement Commerzbank's other overseas subsidiaries, including Montgomery Asset Management in San Francisco, Martingale Asset Management in Boston and Jupiter Asset Management in London.
A Fimagest official declined to comment on the departures.
Elsewhere, Dresdner Bank subsidiary Dresdner RCM Gestion is introducing international equity and bond products into France, said Michel Haski, chief executive officer of the Paris-based unit.
Formerly known as BIP Gestion, the manager had run about 20 billion francs ($3.3 billion) in short-term arbitrage-type products. But the combination of Dresdner Bank's various money management subsidiaries - particularly San Francisco-based RCM Capital Management and London-based Kleinwort Benson Investment Management - have enhanced the firm's ability to offer more diversified products, Mr. Haski explained. Before, "we didn't have the credibility," he said.
For the European equity product, the firm's three French equities managers will be integrated with London's 14-member team. Also, the Paris unit will be responsible for quantitative products, guaranteed products and hedge fund products.
Multifund approach expands
Meanwhile, Frank Russell Co. has launched two forays in France in its fund-of-funds business. The firm already has gathered $1.2 billion in assets through its European-based funds, largely for European clients, through direct marketing efforts.
The next step is to create distribution channels through financial intermediaries, either for its existing products or to create specialized families of funds.
To that end, Russell now is offering five Dublin-based SICAVs - covering U.S., Japanese, Pacific Basin ex-Japan and emerging markets equities, as well as global fixed-income - through Banque de Louvre.
In addition, the firm has designed a specialized U.S. small-cap fund-of-funds for SocGen Asset Management, one of France's largest mutual fund managers. Three managers will run the assets: value manager Barclays Global Investors, San Francisco; growth-stock manager Fiduciary Trust Co. International, New York; and WestPeak Investment Advisors, Boulder, Colo., whose "market-oriented" approach will use the Russell 2500 index as its benchmark.
"This is the first time that a big French retail bank has decided to outsource and offer a product they don't manage," explained Frederic Jolly, managing director of Russell's Paris office.
"As a global company, our strategy is to offer a comprehensive range of products to our clients," Philippe Collas, SocGen's chairman, said in a release.
Mr. Jolly said Russell officials decided seven or eight months ago to pursue partnerships with domestic institutions to provide local distribution.
Mr. Brennan explained the firm is seeking distribution into institutional, high net-worth and retail markets. Russell officials hope each distribution arrangement will generate about $1 billion in assets under management within three or four years.
By going to Russell's multimanager approach, they avoid problems of picking a single manager that might run into problems.
In addition, big institutions are seeking to learn more about international investments, Mr. Brennan said. Russell offers not only their product but support services such as personal computer-based asset allocation models and sales training, he said.