The middleman’s moment

Axeltis has forged a pretty decent niche market slot for itself. Its remit, acting as a middleman for rebates between individual funds and multi manager distributors, is successful due to its simplicity, according to head of business development Pierre-Adrien Domon. But how will Axeltis’s remit change now that parent company Natexis Banques Populaires has merged with Ixis, creating Natixis? The firm is currently servicing the fund distribution of Natexis Asset Management and the rebates collection for multi-manager subsidiary Natexis Asset Square. Once the merger is operationally complete, Axeltis can expect to find itself dealing with a much broader array of internal clients with a combined total of ?580bn under management. As if this is not enough, the Axeltis expansion plan includes the acquisition of external clients and expansion into virgin territories. Mr Domon believes the issues Axeltis will face are essentially about coping with larger volumes of traffic, and that this is basically a continuation of what the company has been successfully achieving since it was set up in six years ago. Indeed, born of the 2001 merger between Banque Populaire and Natexis in 2001, Axeltis was created to fill a functionality gap. The combined asset management units of the new entity had a growing third party and multi manager business but no way of easily collecting the rebates that are such a fundamental part of this model from the individual asset managers supplying the various areas in the bank. Mr Domon explains that in 2001, with markets well down, there was an issue over resources and ability to provide this function internally at a cost-effective rate. Hence Axeltis was created to serve the needs of all the bank’s internal clients. The rebates themselves are based on the concept that the multi manager or other buyer of an individual fund is essentially acting as a distributor to the end investor. “Accordingly, they then expect to take some commission on the subscription and redemption fees and also on the management fees charged by the single fund manager,” says Mr Domon. He adds that the proposition is unique in that it does not attempt to encroach on any another area of the value chain. This is so that the bank’s internal distribution arms already have their own arrangements in place. French connection “Individually, each distribution arm is the best placed to decide on who should carry out its various function such as asset allocation, modeling or execution as well as performing middle and back office functions according to their own specific needs,” says Mr Domon. “We look only at doing this small but essential part of the value chain.” This small and simple function was then extended to external clients such as Goldman Sachs in 2002. Since then it has forged more than 20 agreements with French distributors. “In this case Goldman Sachs did not want to set up in France but did want to distribute, and we were able to facilitate this,” says Mr Domon. Axeltis is now able to boast 101 asset managers as counterparts, 5,700 available funds and 56 external distributors. “We are looking to set up preferred status with third party transfer agents and custodians and we think we can bring additional value to the chain,” Mr Domon says. He adds that the recent merger has not slowed down the pace of talks with third party providers and that gaining additional volumes adds critical mass and therefore credibility. Going forward, the plan is to gain a foothold in Belgium, Luxembourg and Switzerland. The UK is also being targeted, representing both an opportunity and a challenge with its investment culture and distribution channels being so different to continental Europe. For Axeltis, then, the function is pretty simple: to act as an intermediary between asset manager and distributor, be they multi manager fund, private or retail bank. But how does it adapt its own fee structure according to the category of client it is dealing with? “Obviously we need to take a portion of the rebates, but we need to be able to do that in a flexible way and in negotiation with our clients,” says Mr Domon. He adds that typically Axeltis would look to keep 10 per cent of a rebate and that the rebate would usually be around 75 basis points, or around half of the management fee charged by the individual fund manager. But does Axeltis expect to expand indefinitely within its niche market? Mr Domon says that the third party distribution space is expanding so rapidly that there is no current need to consider expansion into other functional areas. He also speculates that competitors could potentially do themselves a disservice by offering an all-or-nothing package that comprises not only rebates, but other functions too.

Domon: maintaining flexibility