Supplément bilingue de L'Agefi Hebdo du 2 décembre 2010

Wait and see for the French institutional market

le 02/12/2010 L'AGEFI Hebdo

With question marks over the future business potential of both insurers and pension institutions, corporate business could represent a growth driver for asset management companies.


he French institutional market is in better shape, but it is too soon to start celebrating because there are still numerous uncertainties hanging over the sector. After a year marked by a fall of 9.1 % in assets in 2008, the situation improved in 2009 when, according to the AF2I-Seeds Finance Morningstar survey, assets increased by 14.4 % to 2,893 billion euros. "This recovery was due not only to an increase in valuations but also to a recovery in inflows, in particular in funds invested in life insurance, which is the most important segment because it represents half of the institutional market", specifies Cyril Blesson, Director of Economic and Institutional Research at Seeds Finance Morningstar, who is predicting an increase of 8.5 % in 2010.

Bond allocations less likely to be outsourced

However, market growth does not result systematically in an increase in the assets entrusted by institutional investors to asset management companies: only a fraction of their assets are outsourced to third-parties. Over and above the statistics showing that the market is recovering, numerous institutions are currently adopting a wait-and-see approach. That is the case of insurance companies, mutual societies and provident funds subject to the Solvency II Directive. These organisations need to review their strategic asset allocation in order to take account of the capital requirements for each type of asset in their portfolio (see page 5). "We do not yet know the real impact of Solvency II, but the directive will clearly result in a reduction in the share of satellite management, which requires high levels of capital, in favour of the portfolio’s core investments, composed of bonds, notes Samuel Raoul, a consultant at bfinance. There is a risk that this might reduce the volumes outsourced to third-party asset managers, since large insurance companies tend to manage their bond allocations in-house." This phenomenon clearly requires a reaction on the part of asset management companies. "Insurance companies might be tempted to outsource their bond management to cut costs, as is the case in the United States. But this type of decision takes time", notes Sylvain Favre-Gilly, Head of Institutional Business France at BlackRock. Some wishful thinking, therefore, for the time being. But management companies are getting ready: "We have set up working groups devoted to Solvency II,specifies Antoine Tiago, Deputy Head of Sales at Natixis AM. We want to give our clients greater visibility on the capital consumption of their portfolio via our reporting." The problem is identical for banks concerned by Basel III.


Pension institutions, another rapidly changing sector, are also currently reviewing their asset allocation. First, because the current, wide-ranging consolidation trend in the sector is forcing institutions to reorganise their portfolios (a zero sum game for asset managers to which the asset management is outsourced). Secondly, because they have had to contend in recent months with net disbursements, requiring them to reposition their assets and switch to shorter term products. More precisely, their outflows have exceeded their inflows since the last quarter of 2009. This trend was expected, but it has been sped up by several months by the crisis. Consequently, they are now focusing their investments on the most liquid assets, for example long-term cash management products, or diversified products with scheduled repayments, integrating for example fixed quarterly payments. "Pension institutions are playing a wait-and-see game, as can be seen from the strong fall in the number of calls for tenders, notes Samuel Raoul. They cannot really change their asset allocation as long as there are still question marks over the pensionable age and the terms of the reform." In addition, the transfer of 35.7 billion euros from the Pension Reserve Fund (FRR) to the Cades, that affects a very large number of French and foreign asset management companies, is also a serious blow for the sector.

However, there is still room for hope. The pensions debate has raised awareness among many French people, who may be encouraged to increase their retirement savings. "There has been a significant increase in the number of calls for tenders, in particular for employee savings plans, notes Antoine Tiago. We now need to be able to offer large companies multiple solutions to satisfy their cash management, employee savings plans and liability management needs." Corporate customers could thus represent an interesting growth driver for asset management companies.

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