Hotte to trot out axa product range in europe

The concerns among the management and strategy teams on the higher floors of Tour B, the Parisian headquarters of Axa Investment Managers, relate mainly to profitability. But the corporate videos shown in the 18th floor reception are purely about the public face of Axa, which means client satisfaction. The job of the international sales team, headed by newly appointed director of global distributor business development, Kirk Hotte, is to make sure these two goals are mutually compatible. In other words, products have to be of a sufficient quality for distributors to keep pumping in clients’ savings.

“We have been re-enforcing and re-engineering our product line and platforms to have more consistency and to be stronger compared to the other top players,” says Mr Hotte. “The better the products, the better for distributors and clients. There is still much more of this to be done, but we have made a lot of progress.”

Profitable channels

Of the ?29bn of net new inflows which Axa IM recorded in 2004, helping boost total assets to ?358bn, 66 per cent was institutional money, reflecting its deep penetration of this market. Although Mr Hotte is charged with improving the product line to boost profitability from retail and third party distribution channels, he is certainly not in a panic about the figures. After all, his new department still raised ?9.7bn, even though this was lifted by captive sales through the Axa life insurance company. He believes the business split reflects global trends.

“Everybody would like to have 50 per cent retail and 50 per cent institutional, but that is not likely to be the case in the short-term,” says Mr Hotte, a quiet, bespectacled American who speaks fluent French and has embraced the local culture, cuisine and financial practices.

“There is a pension crisis facing Europe, so it is natural to have this type of split. Our retail market is not like the US. There are no individualised savings schemes here. Whereas 90 per cent of US households hold mutual funds, we are not at that level of penetration in Europe. Clearly people have begun to recognise that there is a significant retirement shortfall, and will have to put more money into mutual funds. But in the short term, that mix will not change significantly.”

Often when speaking about “our market” or “our” political and financial leaders, it is not clear whether he is referring to George Bush and Alan Greenspan or Jacques Chirac and Nicolas Sarkozy.

Deep experience of these two very dissimilar cultures is clearly advantageous to Mr Hotte’s role in the cross-border distribution industry, dominated by the European powerhouses, but under threat from big-spending American intruders.

“Our overriding concern is making sure that business develops in a profitable way, but we are relatively conservative compared to some American firms. We don’t just go in with lots of people and expect a market to develop around us. We have a more systematic view.”

This view involves establishing local ranges of funds, which can be marketed in tandem with Luxembourg-registered Axa World Funds (AWF) cross-border umbrella vehicles. Axa’s range of French money market funds, for instance, is easily sold through French distributors, but is also a perfectly acceptable way of plugging product gaps across the Spanish frontier. “But it’s a waste of time trying to sell them around the rest of Europe,” admits Mr Hotte, who sees net inflows into fixed income as one of the highlights of 2004. “What works in one market won’t necessarily work in another, so we need the Luxembourg/ onshore combination.”

Best talent

Sub-funds of the AWF range currently being plugged by Mr Hotte’s team include the Talents fund, managed by ex investment banker Charles Firmin Didot, investing in “the world’s most successful companies and entrepreneurs,” which has raised ?88m since its launch in April last year.

The domestic product range is however, the key starting point, with Axa “obliged” to have good products in Paris, where it began to target third party distribution, with the spin-off of Axa IM as a separate unit in 1994.

In France, Mr Hotte’s team concentrates on selling to funds of funds, platforms, independent financial advisers (IFAs) and other life insurance companies, particularly those which use an open architecture, although there is sometimes a problem in dealing with rival insurers due to clashing brands.

Status issues

“If we are talking to another insurer and trying to convince them that we are on the same playing field as other asset managers, our status can be an issue,” reveals Mr Hotte. He cites German insurance giant Allianz, which has a big banking platform through its Dresdner subsidiary as an example. People may perceive the two to be competitors, but this is a superficial view, believes Mr Hotte.

“Once people dig deeper, we get beyond this initial reaction, and there is not usually a problem,” he continues. “We are not going to spend our development efforts talking to insurance companies – this will be part of our second phase. It is more of a priority to talk to big retail and private banks, for both over-the-counter and sub-advisory distribution.”

Despite this reluctance, Axa IM has good relationships with life companies including Generali and Cardif, the insurance subsidiary of BNP Paribas. Products are also sold through private banking arms of UBS, Société Générale and BNP Paribas.

French retail banks are still seen as fairly closed to the open architecture concept, with most having the advantage of a captive distribution. “We are not positioned as an in-house manager to a bank. The likes of Crédit Agricole and BNP have access to a huge potential distribution,” argues Mr Hotte.

“But we do have some captive distribution capability. Because of our insurance company roots, we are also good at certain types of asset management expertise, which has allowed us to successfully develop certain types of funds which other banks have been unable to do.”

Popular derivatives

Falling into this bracket are the areas of liability matching techniques and structured products, with current appetite among distributors for products structured on baskets of mutual funds, indices and equities. Axa IM is also innovating in the area of credit derivatives for retail investors.

A typical example of a structured product recently closed at more than ?70m by Axa IM for French retail investors is the Patrimoine Obligation Croissance (POC), a principal-protected credit derivative fund. POC uses a constant proportion portfolio insurance (CPPI) strategy.

It is designed to perform while credit markets are stable, allowing for some growth during uncertain times. ABN Amro, which invented the CPPI concept, structured the derivatives for the fund.

Typically, these products are made to order for the Axa group, which prefers to have exclusivity. “The relationship with a distributor doesn’t always filter through to more profitability for Axa IM. If you have a lot of assets with a particular client, they tend to be more greedy,” said one source within the company, identifying the reasons why most structured products are marketed through the network rather than outside.

Room at the top: Axa IM’s Paris headquarters