Newborn Natixis shows its colours on alternatives

It is something of a paradox that Natixis Asset Management – the recently merged entity bringing together the funds units of French banks Ixis and Natexis Banques Populaires into a ?585bn mega-house – is talking about concentrating on expanding assets in alternatives. While stating this key objective, the newly-formed organisation has been busy closing down its internally-managed hedge fund strategies. This rationalisation started in secret, but has now emerged into broad daylight, as the organisations attempt to build bridges between two sets of staff on either side of the river Seine. “It used to be the case that we had five alternative strategies which we were developing internally,” says Pascal Voisin, recently installed as chief executive of Natixis Asset Management after a prolonged power struggle. High-profile personalities who left prior to the merger include Peter Voss, who headed Ixis Asset Management, Daniel Roy, who previously led the funds arms of both Ixis and Natexis, and Philippe Couvrecelle, who set up the multi-management arm of Natexis Asset Square. “Four of those [alternative] strategies have now been closed down, with just one remaining – a satellite, event-driven strategy, which is very successful,” says Mr Voisin. This decision was taken shortly after the arrival just over a year ago of Mr Voisin, who now runs the European assets of Natixis, amounting to ?375bn, handled by a combined staff of 700. “Our decision, based on the results of performance and profitability, was taken so we could focus on strategies we feel more comfortable in, and to re-allocate resources to a multi-management approach, more in line with the needs of the market,” says Mr Voisin. The way forward will be not just to sell the US-led strategies of Natixis affiliate Harris Associates in Europe, but also to boost the ?3bn in alternatives handled by NAM in a fund of funds approach. “It is difficult for us to develop alternative management internally,” concludes Mr Voisin, subscribing to the widely held belief that the structure of the largest houses prevents them from successfully generating alpha from hedge funds. This view does not, however extend to the core equity and bond asset classes, where Natixis believes it has created the optimal organisational structure, despite recent performance problems. “With European equity, looking at our performance of the past two to three years, it is not good,” admits Mr Voisin. “But the Natexis track record over a longer period shows excellent performance. The equity team has a long, stable record over 15 years, even if the past two years have been less convincing.” Even then, the performance of the core equity product does not tell the whole story, claims Mr Voisin. He points to strategies such as emerging Europe and socially responsible investments, both from the Ixis side of the divide, which he says have been more than holding their own against the so-called boutiques, which have proliferated in French fund management. “When looking at the performance of boutiques, they have been particularly good when the value style has been very much in favour, but now looking at those boutiques last year, they have not been as convincing as in 2002, 2003 and 2004,” he says. “We want to create the type of organisation in which all investment departments will enjoy very much autonomy. This will not be the type of place where there is a command from the investment committee that will drive an early allocation decision within each group.” Creating this merged structure has not been too problematic – although many staff have yet to move to the new building in Quai d’Austerlitz – because the two companies are “quite complementary in terms of product offerings”. The core specialities at Natexis were money markets and equity management, while Ixis has been known in France as a leading manager of fixed income, plus some niche equity offerings. One of the highlights for the new group will be the ?7bn merged multi-management capacity, created from two autonomous units, Natexis Asset Square and Ixis Private Capital Management (PCM), both of which had their own followings among clients and managers, keen to get on rosters which almost guaranteed sales of underlying funds. Multi-management power While Ixis PCM took an institutional approach and refocused it on wealth management clients, the new organisation hopes to use the same approach to attract a much wider client base. “It will still be catering for the needs of the private banking type of client, but will also address distribution to third parties and institutions,” confides Mr Voisin. “It’s a balanced client mix, and the more your mix is balanced, the more safe and secure you are. We need to be able to satisfy all types of clients.” The core clientele for Natixis, and the two banks which merged to form the new institution, will always be its branch networks. These comprised outlets of the Caisse d’Epargne, which runs a chain of 35 regional co-operative banks, and the 2,700-branch Banques Populaires, mutually-owned regional banking network. Serving diversity “One of our key challenges is serving different banking networks, including Banque Populaire, Caisse d’Epargne, CDC, plus many kinds of clients,” says Mr Voisin. “We want to be able to serve this kind of diversity, while rationalising what needs to be rationalised. Each retail network has its own product range – this is already the case. “While we have a precise set of products offered to each banking network, we have clear ideas of how this product range can evolve. But it’s not a big bang type of operation on the retail product side, as each network’s range is already established, and there are things you cannot change that easily.” Natixis handles approximately ?55bn for its affiliated branch networks, which despite all of Mr Voisin’s attempts to play down its significance, because it is dwarfed by institutional money, is up there with any captive management network in Europe. Yet he has much bigger plans for the networks. “What I am looking for, for years to come, is that in the retail side of our business there is huge room for growth,” says Mr Voisin. “Both the Banques Populaires and Caisse d’Epargne are well below their natural market share compared with what they have in the credit market – there is a significant gap.” But Natixis will face significant competition from other players in the market, as these networks begin to open up to third party players. “Our networks are now more willing to open up to third party products, they are willing to look at new players coming into the market, which is a natural evolution. We won’t fight against that, but we will continue to manage products for them.” It is the private banking units in particular, of the three key networks serviced by NAM, which have already moved towards, what Mr Voisin refers to, as an “open architecture-type set-up”. But he is more protective of the business in the retail branches, where much of his group’s high fees are coming from. “For products being offered within the network, things will be very different, and take much longer to see the open architecture-type of movement,” he says. “For retail banking networks, it is not an easy task to sell retail funds at teller level, on top of credit, consumer products and current accounts. “The answer is to go the multi-management route to open a product range to third parties and guarantee to the network that funds are professionally selected and carefully monitored.” Independence is key So who will control this operation of selecting funds for sale in the merged bank’s branches? Look no further than Mr Voisin’s multi-management teams, who have been appointed to the job, following his claim that they operate independently and in the customer’s best interests. “Multi-management is already completely independent of manufacturing, and it’s very important to us that they keep that independence,” says Mr Voisin. “The multi-management business was created purely to serve our network. But when you look at multi-management right now, the fastest growing segment is institutional money, not retail money.” Despite these statements, it is not yet clear in which direction Mr Voisin will take the asset management arm of Natixis. He is obviously a safe pair of hands, as the management board knows he has had previous experience of mergers, but that is the only certainty. "Pascal Voisin is a quiet, hardworking man from a Protestant background," says a source from the French finance world, who regularly comes across him. "But he is not the typical mass communicator who heads up the other big French houses. He is more difficult to work out."

Voisin: departmental autonomy