Durability of multi-affiliate model holds sway at Natixis

Matt Shafer, head of international distribution at Natixis Global Asset Management, makes no excuses for leaving Merrill Lynch, one of the world’s best-known financial brands, 18 months ago, for Natixis, a French franchise with seemingly much less pulling power.

“On the wealth management side at Merrill Lynch, I was facing off 45 to 50 asset managers in the UK and Europe,” says the man from the US rust-belt city of Buffalo, just across the river from the Canadian landmark of Niagara Falls.

“I saw first-hand managers such as Natixis and all their industry peers and was able to see who is the most innovative.”

He is also quick to praise the controversial multi-boutique (or multi-affiliate) model – where each asset management company has a central brand, accompanied by a dozen or more specialist affiliates – advocated by Natixis, but currently out of favour in many other quarters, after its pre-crisis heyday.

“When you look from the eyes of a client, I find this one of the more compelling stories on the street,” he says. 

Yet in Europe, the Natixis brand was unheard of outside France, when its US asset managers were first paraded in front of UK institutional consultants in 2004. “Nobody knew them when the journey started,” admits Mr Shafer. “But now we are very much part of the fabric of the UK’s asset management industry.”

This has required more manpower to spread the word among private banks and distributors, rather than the slower burning institutional story disseminated through a handful of powerful gatekeepers.

Guided architecture, pioneered by German banks soon after the turn of the millennium, originally advocated partnership of an institution with seven or eight external fund houses. Bank staff would then market investment ideas from these third parties to customers coming into branches.

Most banks have since expanded to 10 or 15 partners, he believes, with the influence of fund houses seeping into advisory as well as discretionary channels. But any manager selected for a strategic partnership must be able to provide “something different” in terms of product, rather than just big brand excitement, with local teams employed to communicate the message to distributors.

“We have had to be more local, on the ground, engaged in hand to hand combat, telling the story of Natixis and its affiliates,” with active manager Loomis Sayles, real estate specialist AEW and absolute return house H20 featuring prominently among the 27 associate brands, says Mr Shafer. In total, the group manages $890bn (€785bn).

This multi-affiliate model allows his distribution staff to present a “whole basket of investment ideas” to clients, he adds, with the concept particularly gaining popularity in Taiwan and Dubai.

Asia is seen as a particularly rich hunting ground. “Not only are all global private banks starting to build a retail footprint in Hong Kong and Singapore,” says Mr Shafer. “But mainland Chinese banks are coming in at a fast and furious pace,” necessitating fund houses such as Natixis to build a solid “local infrastructure”.

Asian banks are focused on diversified income solutions, whereas their cousins in Latin America – where Natixis hopes to make a splash – are still very bond based

“Most of our peers have made their hay in Latin America, but it is the next stage in the evolution story for us,” he says, adding that London will be the new hub for international expansion. “We are now a truly global business, no longer Franco-American,” stresses Mr Shafer in answer to criticism that his brands only have resonance in the heartlands around the group’s existing hubs of Paris and Boston.

“We will be a big player in the UK funds market and London will be more and more important to us as a new global hub for business,” he says. “Our organisation put a lot of capital and efforts into becoming global in down markets, opening offices in Taipei, Dubai, Singapore and Latin America in the years which were not the best from an asset growth perspective.”

More than 50 per cent of his team’s time is spent discussing alternative and “non-traditional” solutions, such as private equity, with clients. Even exchange traded funds – under the affiliated Ossiam label – are further from the plain vanilla “passive” label than many imagine, more likely to embrace smart beta and minimum variance strategies, rather than old-style index-hugging robotics.

Rather than pushing specific blockbuster products in the mould of BlackRock and other competitors, Mr Shafer’s strategy has been to highlight the group’s Durable Portfolio Construction (DPC) concept, already road-tested and commercially successful in US markets.

This has allowed regular contact with clients, especially since the French group’s launch into the UK retail market in February 2013. Staff numbers in the strategically important UK market have doubled in the last 2.5 years to 75 heads and are likely to continue to increase.

H20’s liquid absolute return solutions, produced by French maverick financial modeller Bruno Crastes, who originally developed his concepts at Credit Agricole, and Amundi, before “repositioning then for today’s changed market environment,” have proved one of the best selling products. He has already raised $100m (€88.5m) from clients in London.

DPC, however, is clearly the favourite selling tool for the smooth-talking Mr Shafer and the mantra in the group’s American stomping ground. “We looked at potential clients and asked them, ‘how can we become your best partner?’ We found that whether they are a global private bank, national consultant or regional IFA, they wanted more portfolio construction advice rather than pure product.”

Yet despite the need of most banks to discuss their holistic portfolio solutions needs, the majority of manufacturers went in and tried to sell a handful of high profile products, he says.

In order to achieve credibility in this sphere, Natixis tasks an internal team of CFA-qualified researchers to analyse client portfolios for various trends and to identify specific factors that can be communicated to clients.

He is adamant that the process does not lead to restructured portfolios stuffed full of own-brand solutions. “Just because we are reviewing a portfolio, it doesn’t mean a Natixis fund will necessarily show up at the end of the day,” says Mr Shafer.

“We can help clients identify correlations, to gauge their exposure to a particular sector or theme. We can help position them for the volatile ride we are facing ahead,” he says.

If for instance, clients are too heavily exposed to European equity funds tilted to global growth, or to emerging market debt funds, this is highlighted in the overall risk assessment of the portfolio. 

Many discretionary portfolio managers and private banks simply want “another set of eyes” to look over their client assets or to “take the temperature” of portfolios, with particular concerns regarding regulatory compliance in a world of regularly redrawn rulebooks. This is particularly true for smaller players, which do not have the sophisticated machinery of some global wealth managers.

“It is a concept from the States, we are taking to Europe and refining,” says Mr Shafer. “Clients are telling us this is really relevant from a regulatory perspective,” bearing in mind “suitability” rules in the UK, Mifid in Europe and tighter frameworks for marketing funds in Hong Kong, Singapore and the Middle East.

New regulations provide a huge opportunity for asset managers, he believes, with the latest entrants to the market able to immediately launch “clean” share classes, not burdened by the “RDR hangover” of rebates, which clouds the thinking of many established UK players. “We did not need to convert our share classes. RDR [the UK’s Retail Distribution Review] was an opportunity for us to tackle the market head on, while peers were still dealing with ramifications of earlier activities.” 

The key transformation in the fund industry has to be one which serves the needs of the client, not the fund manufacturer. While Mr Shafer talks about the need for US-style “commercial relationships” between the fund house and bank distributor, he also refers to the frequent entreaties of his boss, CEO John Haler, stressing that all staff have a “moral imperative” to serve their customers’ needs.

“These could include planning for retirement, children’s school fees or paying for a second home. Whatever the problem is, we are there to help you solve it.”