Systeia’s driving force

After crashing out of the recent Lisbon-to-Dakar car rally, losing his engine after just 54km, Jean-Louis Juchault, chief executive of Paris-based hedge fund boutique Systeia Capital Management, immediately started making plans for the 2008 race. Avoiding similar burnouts in the funds he manages – as well as making money for investors – is one of the key priorities for Mr Juchault, whose boutique, founded in 2000, runs $1bn (?775m) in five styles with eight strategies, concentrating on equities and managed futures. The most successful currently is the quant long-short fund, which was up 12 per cent over 2006, although slightly down in 2007. Apart from the location – sandwiched between Honda, BMW and Yamaha motorbike dealerships, en route between the old Paris of the Arc de Triomphe and the concrete and glass of La Défense – there is nothing about Systeia, which feels too much like a boutique. And this is not surprising, as it now falls under the Crédit Agricole umbrella. The same team previously founded Barep Asset Management, as part of Société Générale in 1990, but looked for a new backer after they could not get equity. After 10 years, Systeia split off, and Alain Papiasse, then director at Crédit Lyonnais, agreed to take a 78 per cent stake in the boutique in 2001, and invest ?250m of the bank’s own capital. Systeia was inherited by Crédit Agricole after the two banks merged. The modern office houses 40 staff, encompassing functions expected in a much larger group. “We have a compliance officer, legal officer, marketing, an IT department, everything,” says Mr Juchault. “We face the same set of regulations and compliance issues as the long-only world. All of this was not true 15 years ago.” The hardest thing for a small group such as this to implement is the correct back office environment, to prevent the kind of blow-ups about which Mr Juchault, and many potential hedge fund investors, are concerned. All the back office functions at Systeia have been outsourced to BNP Paribas, in what Mr Juchault refers to as an “industrialisation” process. “We decided that investors need to be secure about their environment. This is a difficult job, as we are traders and decided to outsource everything to one party, a big name, and a name that can at the same time act as the back office, custodian, depositary bank and eventually the registrar,” says Mr Juchault. “If our bank says the n.a.v is x, then we know this is true, no matter which instrument or jurisdiction we are talking about. This is a huge advantage.” In past years, hedge funds were not sensitive enough to needs in the back office of the business, believes Mr Juchault. There was an attitude that investors should be lucky to have their money in a hedge fund with skilful traders, and little consideration about how comfortable the private client felt. Big-name backing “Hedge funds must now demonstrate that their organisation is sound, that they do not outsource to unknown people, and they have deep pockets to pay for any mistake,” he adds. “We all know that most of the time, the large number of failures in the hedge funds industry happen due to a mess-up in the administration. Once they realise what’s happened, it’s too late. But BNP can say to us: ‘This price doesn’t look right to us, how did you come up with this calculation?’” Although Systeia is run more or less independently, it has the financial and infrastructure backing of Crédit Agricole Asset Management, which includes Systeia funds in its advertising and marketing literature, although there is no official link with CAAM’s own fund of hedge funds business. “They look at our funds, but it’s their decision as it is for any investor. Our relationship with them is the same as it is with any fund of funds,” says Mr Juchault. But how far the sponsorship goes is debatable. Crédit Agricole has around ?350m in strategic investments with Systeia, and some of its local banks apparently invest with the group, so there is a significant percentage of what may be described as “internal” clients. A senior SocGen source commented that Systeia had not done well in terms of asset gathering, although he did not criticise performance, “as 100 per cent of their assets are in-house. The only judge is the market. If you can’t sell your assets outside your own house, you are dead”. Some of this bad blood may be down to poaching, as Mr Juchault took a team of 12 department heads away from SocGen seven years ago. But he has struggled to raise the kind of assets expected in 2001, when targets of ?6bn were confidently talked about. Systeia’s profile in the industry remains strong, and it has capacity to manage ?3bn without damaging its “artisan” philosophy. True, the group no longer runs the fixed income and money market strategies, which led to much of its success at SocGen. But the equity strategies are simpler, and safer to settle in the back office, says Mr Juchault. With his prognosis that private clients can eventually allocate 25 to 30 per cent of their assets to hedge funds – once they feel safe enough to do so – he remains confident about the future.

Juchault: equity strategies are simpler