Credit Agricole enjoying the vigour of youth

Crédit Agricole Structured Asset Management (CASAM) is just a new kid on the block, admits its deputy CEO Laurent Guillet, when he compares his four-year old offspring with the eleven-year old child prodigy of key competitor Lyxor. “We are quite similar to Lyxor, but Lyxor is much older than us,” says Mr Guillet. “We are a very recent company, but there are a lot of benefits to being young. You can create your own brand and you can buy new IT systems, for instance.” Indeed CASAM, based in the Crédit Agricole stronghold of Montparnasse in Southern Paris, where many of the bank’s subsidiaries are found, is often accused of aping the structure of its larger competitor, located in the towers of Société Générale, its parent bank, in the French capital’s Northern financial district of La Défense. SITTING AT THE CROSSROADS Both institutions aim to merge the culture of an investment bank with that of an asset management company. But whereas Lyxor appears to be an investment banking creation trying to take on the appearance of an asset management company, CASAM was spawned from a joint venture between fund house CAAM and investment banking brother Calyon. Its culture, if anything, sways more towards investment management. “The spirit prevailing in our company is at the crossroads of both cultures,” claims Mr Guillet, who comes from an investment banking background himself. “In practice there is the possibility to set up funds as well as structured notes.” But things have changed in the last few weeks, with Calyon having pulled out of the ownership structure, now expected to fall fully under the control of the CAAM/SGAM merged fund management house. The reason for the pull-out is a purely political one. Because the newly created funds house is 75 per cent owned by Crédit Agricole and 25 per cent by SocGen, the structure, as it was, would have given SocGen a minority stake in its rival’s investment banking subsidiary. Asset management is one thing, but as much as the French love the complications of cross-shareholdings, co-operating on investment banking would have been a step too far. “It could have made things a bit awkward,” smiles Mr Guillen, with a hint of Gallic understatement. The first goal of Mr Guillet’s company is to develop its structured products or “formula funds” business, which offers clients capital protected participation in equity markets. “This is an extremely important business for CASAM”, and is prioritised ahead of hedge fund and exchange traded fund (ETF) expansion, says Mr Guillet. This contrasts with Lyxor where the hedge fund and ETF platforms have the greatest prominence. “The common factor of these three activities is that they are not active management, as they are not based on opinions or markets,” says Mr Guillet. The use of and expertise in derivatives is another glue which sticks the three units together. TAKING THE LONG VIEW There is also a strong sense in the CASAM corridors – something which does not exist at Lyxor, which sees itself as a rival to traditional asset management groups – that traditional long-only management still has a strong future, with structured management a complimentary skill-set to the equity and bond selection specialists. “Long-only funds are managed by other parts of the group at CAAM and we can use some of them as underlyings for structured products,” believes Mr Guillet. “We compliment each other, rather than competing.” But while he has definite ideas on the areas which CASAM will develop, there is clearly some flexibility to the offer and a sense of laissez faire in running this client-led investment group. “It’s up to the market to decide [which products will be created] – it’s a matter of what the companies want,” he says. Currently his business development priorities and the market demand appear to be aligned. “There is a strong appetite for capital protected strategies and I don’t think the 2008 crisis has deterred people from investing in secured assets,” believes Mr Guillet. And the tentacles of Crédit Agricole’s distribution network have certainly contributed to the mass sales of these products in many corners of the globe. The Crédit Agricole Group’s partnership with Resona in Tokyo, for instance, has helped it secure a 30 per cent share of the Japanese structured products market. This has led to new relationships with regional and national banking networks in Japan, where CASAM now manages 160 funds. Closer to home in Italy, there are strong distribution partnerships with Intesa and Banco Posta. Crédit Agricole is actually in the same corporate structure with Intesa, which also helps to provide momentum for any product pushing initiatives. CASAM also co-operates closely in Italy with Arca and Cariparma. In Greece, sales are made through the Emporiki bank network and through Oko Bank in Helsinki, which was the first in Finland to launch a structured fund, according to Mr Guillet. “Our sales teams have managed to go beyond capitalistic partnerships into new relationships when it comes to structured funds,” he adds proudly. Yet CASAM’s aggressive marketing of ETFs, which has embraced the launch of three products per month during 2009, will also continue. “Demand for ETFs is huge, but the European market is still behind the US market,” says Mr Guillet, who adds that these devices present a particularly liquid and efficient route to entering the market. “One way to anticipate demand is to feed the market with a constant stream of new products.” Although he expects development to be particularly rapid, Mr Guillet is not naïve enough to believe his whole myriad of ETF launches will survive and thrive. This is clearly not the case. “We don’t expect all the products to stay alive, but it’s important for some of them to become best sellers,” reckons Mr Guillen. Structured products have grown to E2.7bn, and have clearly been the strongest parts of the three-stranded strategy of CASAM, which now manages E49.8bn, but inflows to the hedge funds platform have at last started to return. The platform currently oversees E1.1bn. Following CASAM’s analysis of investors’ needs after the crisis, it has been decided only to host fully transparent and liquid strategies on this platform. “We won’t choose managers we are not comfortable with when it comes to valuing the assets,” says Mr Guillet. “What we have seen in recent months is strong demand for very good, liquid, credit arbitrage strategies.” Distressed securities, forex and high frequency CTA funds have also proved popular. EXPANSION PLANS Europe is currently the main priority in expansion terms, although Mr Guillet is keen to grow production capacity in the US, where the company purchased managed account specialist Ursa in 2006. “They have long standing experience of the US market,” says Mr Guillet. “It is very important for us to have that subsidiary, as it gives us access to all the hedge funds based in New York.” When it comes to servicing private banks, hedge funds are normally provided to their clients through the structured products route, although banks with their own alternatives divisions are increasingly accessing hedge fund platforms to enhance their portfolios. Unlike competitors, CASAM has not used its managed accounts expertise to create its own fund of fund business. The group has decided that this should stay under CAAM AI. “Some of our clients offer funds of hedge funds. If we were in competition with them, there would be a conflict of interest,” says Mr Guillet. Clearly CASAM is still in its early days, and needs to establish its reputation, both domestically and globally. Unlike most of France’s high finance establishment, Mr Guillet is keen not to step on any toes and not to rubbish the opposition. And when it comes to politics, he could teach the country’s elected officials a thing or two.