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InvestHedge FoHF profile 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 Disclaimer: This publication is for information purposes only. It is not investment advice and any mention of a fund is in no way an offer to sell or a solicitation to buy the fund. Any information in this publication should not be the basis for an investment decision. InvestHedge does not guarantee and takes no responsibility for the accuracy of the information or the statistics contained in this document. Subscribers should not circulate this publication to members of the public, as sales of the products mentioned may not be eligible or suitable for general sale in some countries. Copyright in this document is owned by HedgeFund Intelligence Limited and any unauthorised copying, distribution, selling or lending of this document is prohibited. InvestHedge 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. © InvestHedge InvestHedge 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