With assets under management of €814bn (according to the Lipper pan-European fund flows report of November 2005), France is the second largest funds market in Europe behind Luxembourg. France holds just over 19% market share, behind Luxembourg’s 28% but ahead of the UK on 11%.
The funds industry in France received a boost in 2003 when financial markets regulatory body Autorité des marchés financiers (AMF) set up a legal framework for funds of funds and single managers. This opened up opportunities in the market that are now being realised. International funds of hedge funds and European institutional investors view France as a growing hedge fund marketplace.
Gilliane Philip-Courtines, head of relationship management at BNP Paribas Securities Services (BNPSS) in Paris, says there has been a big increase in the number of non-French asset and money managers distributing their products in France or managing pension plan assets. “The market is opening up and the notion of open architecture is becoming a reality in France. We are seeing more and more investment going towards all types of securities instruments.”
In terms of securities services, three local banks - Caceis (formed in September 2005 by the merger of the securities services businesses of Crédit Agricole and Groupe Caisse d’Epargne), BNPSS and Societe Generale Securities Services (SGSS) - dominate the French market.
The merger created the number one securities services provider in France, says François Marion, chairman of the Caceis management board. “We have a 40% market share across all the lines of business. This will be an advantage in terms of marketing, but also we will have the economies of scale to significantly decrease costs on the systems side. From this strong position, we will look to further expand outside the French market.”
The merger of the issuer services businesses was completed on 6 March, creating Caceis Corporate Trust, which is now up and running. On 31 March the merger of the two separate fund administration businesses will be completed, says Marion. This merger will create Caceis Fastnet, which will employ 500 people and will administer more than €600bn of OPCs (collective investment) capital. In the third quarter, the custody operations will be merged. “By the end of the year our IT systems will have been changed and we will be ready to pursue new ventures in 2007,” he says.
Despite being dominated by three suppliers, securities services providers describe the French market as very competitive. Says Sebastien Danloy, global head of sales, investor services at SGSS: “France is a very competitive market, particularly in terms of pricing of global custody and fund administration services. If you look at the top 12 global custodians in the world, three are French. Local service providers hold the top three positions in France and that cannot be said of any other market in Europe.”
Danloy’s colleague and deputy head of investor services at SGSS, Etienne Deniau, says France is a huge market and is of interest to foreign custodians, “but all the ones that have tried over the years to come into the French market have never really got anywhere”. He argues that there is a significant advantage in being involved in a market from the very beginning. “Outside providers that try to establish a presence in the market cannot really match the local knowledge we have.”
Philip-Courtines says competition in the French market has increased during the past two years, despite the mergers that took place in late 2004 and early 2005. “At the same time, several France-based securities services providers are expanding in Europe,” she says. “We have also recently seen the arrival of the US custodians, who traditionally have been very strong in the UK market but not as present in France. We welcome competition because it helps to move us forward.”
State Street has had one of the biggest successes for a foreign custodian in France, picking up a €300bn outsourcing deal from AXA IM. The deal, completed in December 2004, covers middle office, fund accounting, performance measurement, fund administration and investment support.
The AXA deal changed market participants’ attitudes towards the US bank, says Raphael Remond, managing director of State Street Banque in Paris. “Since the deal people now realise that we are not only an investment management provider but also a full service provider which can also offer investment management services across the middle and back offices,” he says.
Admitting that most continental European markets remain very much in the hands of local securities services providers, Remond argues this is a consequence of these providers being universal banks, which had to develop all types of services in order to meet clients’ needs.
However, this is set to change. “In today’s climate, clients are looking to their securities services providers not only for local services, but also for global capabilities,” he says. “You can have very good local service providers, but things can be tough for them when their clients are looking beyond their local markets.”
Remond says the trend towards more global services will change the scenery in Europe – it has already happened in Germany and is beginning to happen in France. “Institutional investors and even medium and large investment managers want services that go beyond France,” he says.
As investors become more sophisticated, they require more sophisticated service providers. “This is how State Street can differentiate itself from the universal banks, because we can focus on our areas of expertise while the others have to look to service all areas,” says Remond.
The French banks are responding to the increased sophistication of investors. Marion says Caceis’ clients are looking for a much broader depth in the services offering. “Our clients want performance measurement and valuation of OTC transactions, particularly derivatives. They require their securities services providers to deliver a whole range of tasks they no longer want to do themselves.”
Philip-Courtines agrees: “As asset managers’ margins come under increasing pressure, they want to focus on managing their assets and distribution – they don’t want to do the rest. That presents opportunities for BNPSS and we must be aware of market trends and be able to make the investment needed in systems and people to react quickly to market trends.”
Her colleague, Jean-Marc Pasquet, head of territory for BNPPSS, France, says the French market has become very complex, as clients are more demanding in the range of products they want. “Clients may want a package of different products that could include custody, clearing and settlement, outsourcing, issuer services, liquidity services and FX, securities lending and cash financing. The ability to combine different products is important in this market now; it is much more difficult for niche or specialised providers to fulfil all these needs.”

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