Download FoHF profile Amundi AI model adapts to trends by focusing on

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Amundi AI model adapts to trends
by focusing on global regulated
investment solutions
Executives plan UCITS managed account platform launch in 2016
A
By Siobhán
Hallissey
mundi
Alternative
Investments
(Amundi AI) is approaching its twentieth year of providing hedge fund solutions to third party investors. The $8
billion firm is using this experience to
offer investors a one-stop-shopping
solution for alternative investments
that is adapted to today’s markets as
well as the enhanced regulatory environment.
According to Laurent Guillet, chief
executive officer of Amundi London and Amundi
Alternative Investments, in the current environment where recovery is still fragile and interest
rates are historically low, investors are looking for
yields but always in a secure environment.
“They want to be protected and treated equally,”
Guillet says of investors. “That’s the route Amundi
AI follows: performance, but in a controlled framework.”
Catering to investor demand, plans are underway
for a UCITS platform that will likely go live in the
first half of 2016.
Amundi AI considers itself to be a trendsetter in
today’s multi-manager hedge fund market.
Onshore, controlled, regulated investment solutions are central to the firm’s offerings, which
encompass direct access to a managed account platform (MAP), dedicated mandates and advisory services, as well as alternative funds of hedge funds
(FoHFs).
The business was formed in January 2010 as the
result of a merger between the activities of Société
Générale Asset Management and Crédit Agricole
Asset Management. Amundi AI is the specialist
hedge fund investment arm of Amundi, the largest
asset manager in Europe.
Guillet has served as Amundi AI’s chief executive
officer since 2011, having joined the firm in April
2007 as deputy CEO to focus on the development of
the managed account platform, and also serves as
the chief executive officer of Amundi London. Prior
to Amundi he worked as head of equity and fund
derivatives sales for Europe, the Middle East and
Northern Africa in the capital markets division of
Calyon and has previously worked in senior equity
derivatives, fixed-income and FX positions at Crédit
Agricole, Cheuvreux and Banque Indosuez.
In the last few years Amundi has attempted to construct a more global focus for its alternative investments division and has strengthened the team with
a number of senior hires to help fulfil this aim.
Michael Hart joined the group as deputy chief
executive officer and global head of business development in November of last year. Hart, who is based
in Amundi AI’s London office, is responsible for the
global strategy of the firm and for identifying where
the business can add the most value for clients.
Hart has over 20 years’ experience in the alternative investment industry, and prior to joining
Amundi AI, was global head of business development for hedge funds at Aberdeen Asset Management where he was responsible for developing and
running the global business strategy of Aberdeen’s
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FoHF profile
Laurent Guillet
alternative investments, with a specific focus
on the hedge fund space.
Between 2000 and 2011 Hart established
and developed the institutional pension fund
business at investment consultancy bfinance.
The Amundi AI team comprises 60 specialists across Amundi AI’s Paris and London
offices. The investment team is based in London and the marketing and client services
team is based in Paris, led by Sophie Dupuy,
head of marketing and client servicing.
Today Amundi AI’s offerings are centred on
a bespoke consultative approach, but similar
to the vast majority of its peers, the origins of
the firm’s hedge fund expertise are in pure
FoHF offerings.
Amundi AI’s hedge fund programme stems
from its parent company Crédit Agricole,
which launched a dedicated fund of hedge
funds business in 1992. On the basis of strong
performance the offering was opened up to
external investors in 1996. The group’s Greenway funds, as they were branded at the time,
received a number of InvestHedge Award
nominations.
For clients with smaller ticket sizes, the firm
still offers a flagship commingled FoHF, the
Amundi Absolute Return Harmony fund, a
flexible relative value, AIF-registered fund
that was launched in May 2001. However,
Amundi AI’s solutions are increasingly engineered based on its client needs with customisation central to its approach.
The asset growth of the FoHF industry
before the crisis was driven by commingled
products rather than customised solutions.
In Hart’s view, the off-the-shelf FoHF model was successful in raising assets due to
the industry’s investor base being far less
institutionally driven than it is today. However, this changed with the crisis, as the
FoHF industry was afflicted with the prob-
October 2015
Michael Hart
Sophie Dupuy
lems of lock-ups, gates and frauds.
“None of the accounts on Amundi AI’s managed account platform were gated, so it provides investors with a good illustration of the
selection and monitoring process we undertake to control our hedge fund investments,”
says Dupuy.
Institutional investors, including insurance
companies and pension funds, account for
close to 95% of Amundi AI’s investor base. A
marked contrast to the pre-crisis years when
institutional investors accounted for half of
its total client assets.
Amundi AI has invested via managed
accounts since 2005 when the firm bought the
managed account business of Ursa Capital, the
US holding company of privately held managed account-based asset managers Lyra Capital and Starview Capital Management that had
been running the platform since 2001.
According to Dupuy the platform trans-
Amundi Alternative Investments:
at a glance
Headquarters: Paris
Offices: Paris and London
Chief executive officer: Laurent Guillet
Deputy chief executive officer: Michael Hart
Assets under management: $8 billion
Managed account platform assets: $3.3 billion
Number of employees: 60
Services:
Managed account platform
Dedicated mandates
Advisory services
Funds of hedge funds
Source: Amundi Alternative Investments
formed the path of the Amundi AI business as
it allowed the group to meet the requirements of the increasingly institutionalised
industry.
“Originally the managed account platform
was operated separately from the FoHF business,” she says. “Following the crisis, we soon
recognised that the multi-manager industry
was moving towards bespoke solutions so we
reconciled both divisions to offer a combined
entity that focuses on offering transparency,
liquidity and control to investors.”
Now post-financial crisis, managed accounts
are viewed by investors as a comfortable and
secure way to access hedge fund returns.
Amundi’s $3.32 billion managed account
platform has become a core component of
the firm’s client offering.
The underlying fund managers on-boarded
to Amundi AI’s MAP go through extensive
investment due diligence to ensure managers
have as robust an investment process as possible, as well as a stringent operational due
diligence process. In Hart’s view this carries
much more weight in the eyes of investors, as
investing via a managed account reduces the
risk of frauds and style drift.
For investors that are hesitant to consider
hedge funds, managed accounts provide an
additional safety net.
The hedge fund industry as a whole has
seen a trend toward direct investments following the financial crisis, but as Hart
explains, this is an expensive task as investors
need a large in-house team to manage the
allocation and it is an onerous task to conduct
the due diligence and the ongoing monitoring of the managers.
The distribution networks of private banks
or high-net-worth individuals do not have the
internal resources, compared to institutional
investors, to manage the allocation directly.
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FoHF profile
Even for those institutional investors that
have the scale to do so, considering the percentage of hedge funds in a pension fund
portfolio is no more than 15% of the assets,
the resources and time it takes to manage the
investment is disproportionate and Amundi
AI sees the managed account platform as the
common sense route for those investors.
As well as the benefits of liquidity and transparency, the managed account structure enables Amundi AI to customise the investment
strategy. The group does not consider its MAP to
be a distribution platform, as the firm doesn’t
replicate hedge fund strategies for distribution.
Instead the managed accounts are developed
and built from the client’s perspective.
According to Dupuy, the group has always
chosen quality over quantity for its MAP and
has 25 renowned and established managers
with an average of $150 million by account
that spans all of the main alternative strategies. Amundi AI offers 11 strategies on the
platform in total, with global macro, eventdriven, CTAs, convertible arbitrage, equity
long/short and merger arbitrage managers
among the investment sectors available.
To prove its confidence in its managers
Amundi AI invests a significant size in every
managed account it creates, which allows for
greater bargaining power when negotiating
terms with the manager, as well as ensuring
alignment of interest with its external clients.
“We would never on-board a manager onto
the platform unless we have strong convictions in that manager. To emphasise this
point, we have skin in the game with every
single manager on the platform in order to
ensure our interests are fully aligned with the
client,” says Hart.
Typically, Amundi AI invests with managers that are already running a minimum
$200 million in the strategy, as its MAP is not
a seeding platform. The firm can, and do,
look at emerging managers, as ultimately the
team looks to pick the best fund for each
strategy regardless of its size. However due to
its extensive due diligence process, the manager would need to be able to demonstrate its
operational stability even though it is small.
Amundi AI also allows investors to plug
into the platform and create dedicated managed accounts. Typically, a client would need
to be able to invest in the range of $30 million to $50 million as a minimum to launch a
dedicated account, but Amundi AI reviews
each client’s requirements on a case-by-case
basis. If Amundi AI considers the additional
managers to be strong performers, the firm is
willing to use the opportunity to distribute
the strategy to its own clients.
In recent years pension funds have become
accustomed to getting gains from equities,
but with the environment ahead looking
rocky for equities, investors are looking to
lock in these gains and are sourcing marketneutral, uncorrelated strategies that carry
© InvestHedge
lower risk. With volatility expected to rise in
the coming year, in Hart’s view, the biggest
risks facing investors are US monetary policy,
European stability, and the unfolding events
in China.
These concerns and the memories of 2008
are influencing investor decisions. The
Amundi AI team are working to re-persuade
investors that the industry is not the same as
it was in 2008. The team is providing education to large local authority trustees on the
benefits of the managed accounts structure.
Pension funds are looking for uncorrelated
returns to diversify the risk, but are concerned about drawdowns at the same time. If
the market drops, clients want low volatility
from hedge funds and a return that ranges
from between 4% and 6% net of fees, rather
than seeking the double-digit returns more
often achieved before the 2008 crisis, and
they want lower fees, more transparency, and
lower correlation.
Hart advises clients not to look at hedge
funds in isolation as they will not get the
most out of the allocation if they take this
view. “Hedge funds must be used as a bespoke
optimiser and diversifier of global portfolios.
It’s a good complement to other asset classes,
it’s not a one size fits all asset class or even a
separate asset class.”
Hart encourages clients to consider how a
hedge fund allocation can fit with the overall
portfolio. Amundi AI addresses the needs of
the client closely to ensure the best decision is
made for the benefit of the pension fund.
This consultative approach means clients
consider Amundi AI to be an extension of its
in-house investment team.
Education is an important part of Amundi
AI’s service and in Hart’s view has been the
firm’s edge following 2008.
“We focus on building our clients’ trust
and ensure we keep them informed as all
members of the plan need to understand
the allocations so they feel comfortable
with the investments. In my view client servicing in the alternatives investments
industry is far behind the service provided
in the long-only world,” says Hart. “To
bridge this gap we tailor our reporting
materials to provide the information in an
accessible format that is useful to the manager of the pension scheme as well as the
chairman of the board trustees.”
Amundi AI offers dedicated client servicing
and explains why the investment team has
chosen to invest with a manager. This open
dialogue provides comfort to clients as they
can understand the investments and why
they are performing in a certain way, adds
Hart.
Regulation is a key component of the controlled environment Amundi AI offers its
investors. “We were at the forefront of the
trend for regulated solutions and are amongst
the sole onshore platforms worldwide,” says
Dupuy.
Amundi AI’s AIFM registered managed
account platform was launched in Dublin
and a new UCITS platform is in the offing.
In Amundi AI’s view AIFMD appeals to
institutional investors as it has more flexible
guidelines and not as many constraints as the
UCITS structure. According to Hart, AIFMD
solutions will increase in popularity as institutional investors become increasingly familiar with the structure. It won’t be as quick a
process as with UCITS, which has become a
very well established brand, but AIFMD has
strong advantages for the right investor, such
as less liquidity mismatch and more performance engines.
“A number of strategies do not lend well to
UCITS. To fit the requirements managers
need to create a carve-out of the strategy.
Whereas AIFMD allows us to replicate the
strategy, in terms of leverage or concentration for instance, almost identically,” says
Hart.
For Amundi AI AIFMD represents the best
of both worlds with the combined benefits of
investment flexibility, similar to offshore
products, while ensuring preservation that is
in line with UCITS products.
The MAP enables Amundi AI to offer midsize or emerging US managers, who would
otherwise be constrained from marketing to
European investors due to the end of the private placement regime in 2018. It becomes a
cost effective route to gain access to the
region through both its AIFM and UCITS
capabilities.
Amundi AI has seen demand from private
banking clients for UCITS structures, so it is
planning to launch a UCITS platform to meet
the demand in the marketplace. The UCITS
MAP, however, will be more focused on the
distribution side.
“We have spoken to investors that are aware
of our reputation in the MAP space, who
know the platform is conflict-free, are aware
that we have skin in the game with every
manager, and value the safety of our conservative approach. These investors have said
they would like to work with us if we can
offer UCITS,” says Hart.
Amundi AI does not expect Crédit Agricole
and Société Générale’s decision to launch a
project for the initial public offering of Amundi – as announced in June this year – to
have any impact on the Amundi AI business.
“It will be business as usual for Amundi AI,
we will remain focused on our aim to collaborate with investors to offer a bespoke
approach to alternatives allocations in a
secure, controlled environment,” says Hart.
“With the additional benefit of a UCITS platform we will be able to offer a solution that
meets the constraints of both AIFMD and
UCITS in managed account structures to offer
our investors the full spectrum of hedge fund
strategies to a full spectrum of investors.”
October 2015