Société Générale’s commitment to asset management outside France is of recent origin, but once it decided that this was to be the third leg of its banking and investment banking business, the group moved decisively and quickly.
“SGAM started life in 1997, when we had just over e50bn in assets, but 98% of its focus was on France and the emphasis was on retail business,” says Philippe Collas, chief executive of SGAM at the La Défense head office. Just five years later, total assets under management come to e250bn, of which just 49% is in France, and only 56% is retail business. How has such a volte face happened?
The move into institutional business was the result of a conscious decision to diversify, he says. “Not only was this route the fastest way to grow assets, but it also seemed that the best way to develop our process was to work with institutional clients.” He saw it also as an opportunity to develop management skills by providing the level of services these clients would need. As a result, SGAM is ranked AA+ by Fitch AMR, one of its best rankings.
Being a very focused French player, it would have been difficult to offer global services from Paris, Collas points out. “So we opted to be a multi-local player instead of a global player.” As one of SGAM’s four main investment centres, Paris now looks after global bonds, French equities and alternative investments.
The expansion started with the acquisition of Yaimichi Capital Management in Japan. This was a coup as it was the first time a domestic manager, handling pension trust money was bought by a foreigner. “The financial system was so poor in Japan, that when I met the company’s domestic clients in the two weeks after we bought Yaimichi, explaining what we would do, I realised that we had made the move at the right time, as the old way of running money for Japanese funds is over. Now they are interested in performance, process and so on.”
Yaimichi had so-called global capabilities and had been running everything, says Collas. “Now they are focusing on Japanese equities and bonds and are dedicated to that.” So it provides SGAM with a strong capability in Japanese assets.
But acquisition was not the only way of expanding, as the decision to start up business in London demonstrates. This happened in January 1998, with a founding team of Keith Percy, John Richards and Nicola Horlick, all with a high profile in the UK market. The UK operation has moved from zero in January 1998 to £7bn (e11.3bn) in assets now, by attracting business particularly from the pensions market, a feat most would have dubbed mission impossible without a five-year track record.
Collas says: “We were successful for three reasons. First, we built a true partnership with the right people on board, and secondly, we gave the management a strong incentive – and thirdly, we were lucky that when we started, the performance of existing firms was poor. This combination has proved itself.” Of the eight products SGAM offers in the UK, five have been the top products on the market for the past two years.
The US gap was filled in 2001 with the acquisition of TCW, the third largest US independent fund management company.
The US now accounts for 36% of AUM, with Japan and the rest of Asia representing 12%, with Europe accounting for the balance. “In terms of clientele, two thirds of our assets are managed for institutionals.”
But he is conscious as to how the group is positioned. “We do not see ourselves as a global but as a strong multi-player, with each centre focusing on its own market. So we do not have a global CIO. We want to have the best fund managers in each centre and we try to give them substantial freedom in which to operate to deliver the best performance possible”
Each centre can sell the products of the other centres to its market, so Yaimichi, for example, gives the operations in the US, UK and Europe , a major opportunity to offer products in Japan. “Our teams are known to Mercer, Russell, R & I, Daiwa and the other consultants there.” The same scenario applies to continental Europe as well, Collas points out. “And the US is not so different either! We want to be close to the market, close to our clients.”
He takes no credit for this philosophy, declaring there was no alternative. “It was the only way we had to develop our business! We just have to be a strong local player to be successful.”
At the end of 1998, the team in London was asked to develop a global equity product, which had to be global ex-US, ex-Japan and global ex-Europe. “To do this, the London people worked with the Tokyo, Paris and US teams, using the research capabilities of each centre,” he says.
The product is controlled by one person, who ensures the consistency of approach. “The person looking after the Japanese part of the product has no responsibility in taking the decisions for investing of the Japanese element of the global product. That decision is taken in London – it is the central focus for running the product.”
With these four centres, Collas says the group is covering nearly 100% of investible assets globally and he believes a stable platform is in place for SGAM’s institutional business to develop further.
“What we need to do now is to develop our sales capacity in terms of retail business,” he says with an eye firmly on the better profit margins available there. “We are moving ahead with distribution agreements, which we have now with local banks and insurance companies. And we are working with new distribution channels, in particular the non-financial distribution channels, such as Carrefour.”
Another way forward is by taking stakes in medium-sized banks and insurance companies to acquire distribution outlets. “We have done this with SAI, the third largest Italian insurer, and in Japan with a major insurance company. In France, we are developing a ‘multi-channel’ bank. The idea is to grow our distribution capacity.” In Europe, the insurance and banking sector have increased its market share for selling investment products, according to the latest trends in the market, he maintains. “We are sure that asset management players who are part of banks or insurance companies medium size will ask the bigger players to help them in managing money. We want to do more of that with the products they do not offer.”
Collas has a very clear focus about group products. “The investment process and products being delivered to the retail market are exactly the same as to the institutional markets. The retail clients are looking for the same benefits – the financial competence is the same. The difference between a retail and an institutional fund manager is disappearing.”As the pension markets in Europe go the defined contribution route, “the fee structures will become more integrated too”.
From 1998, anticipating the black times in equity markets, the firm has been developing its alternative investment capacity – it has a team of over 100 in Paris running this class. “To have this strong presence in alternatives is very important for us.” He thinks investors are happier using the larger groups rather than smaller boutiques for alternatives. The AI assets handled in Paris come to e18bn, but he can also point to TCW in the US as a very active player with $6bn (e6.7bn) in alternatives.
He sums up his view of asset management: “There are always ways to make money!”