Axa exit sparks questions for others

News Article
Financial Times
June 7, 2009
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Axa Investment Managers is the most recent player to leave the exchange traded funds business, but industry experts say it probably will not be the last.

Axa IM’s withdrawal from EasyETF, its joint venture with BNP Paribas Asset Management, announced last month, comes as others are looking to increase their share of the ETF market. The reasoning behind Axa IM’s decision, however, may have a familiar ring for some existing ETF shops.

Elénore Lesueur at the firm says: “We are convinced our ability to create value for clients will be maximised by refocusing on our active management activities. Maintaining a presence in the trackers market does not correspond to our strategic priorities and would not have constituted a good allocation of our resources.”

EasyETF is the fifth biggest ETF provider in Europe, ranked by assets. As at April 30, it had $151.4bn (£93bn, €107bn) under management in 58 funds, for a 3 per cent market share, according to Barclays Global Investors.

“The impression I got was that [Axa] wanted to be a niche player [in the ETF market] concentrating on the French market and offering products on alternative markets,” says one ETF industry executive speaking on condition of anonymity. “It looks like they’ve taken the business as far as they can and it will be interesting to see the approach taken by BNP – stay niche or become broad market.”

For its part, BNPP AM is “committed” to the ETF arena, says Guillaume Dolisi, head of the EasyETF platform for BNP Paribas.

“It does not really change the overall strategy,” Mr Dolisi says of the Axa IM withdrawal. Rather than decide between niche and broad market products, EasyETF does both, according to Mr Dolisi. It provides the big benchmarks to clients but was also the first to provide access to the United Arab Emirates and Egypt, he says. Future plans include products covering agribusiness, waste management and water.

Axa IM’s decision to pull out of the ETF business was not unique, points out Scott Burns, director of ETF analysis at Morningstar. Northern Trust also recently abandoned ETFs in the US to focus on its core strengths.

“A lot of people who don’t really have a robust trading platform or index business, people who aren’t really committed to ETFs, have found that this is a nice business, but it is a bit of a distraction,” Mr Burns says. “There’s a real first-mover advantage.”

Some question how many firms have profitable ETF operations, particularly after the financial crisis.

“Keep in mind that not only are long-term assets still down 30 to 40 per cent from their highs, there are some doubts about the viability of profits from securities lending,” says Ben Poor, director at Cerulli Associates. “After Lehman, there is more concern about counterparty risk, and ethical considerations – particularly for pension funds, but also for fund houses.”

Mr Poor adds that the best buyers for iShares, BGI’s ETF business which is currently up for sale, or any other ETF operation need to have “quality distribution and existing ETF scale”. Management fees for passive products are lower than on the active side, so scale is key. Strategic Insight global consulting head Daniel Enskat divides ETF providers into three groups.

First are traditional ETF providers, index-orientated companies that have a brand based around ETFs. Second, he points to firms such as Pimco, active managers that see a strategic opportunity to use ETFs to enhance their mutual fund businesses. The third group, Mr Enskat says, consists of “companies that have jumped on the bandwagon in the last couple of years, especially in Europe, and are rethinking it now”.

He adds: “Axa is interesting because it’s probably one of the first European firms to say: ‘We looked at this, we did this, we actually established a brand, but we don’t think this is part of who we are at our core’.

“It’s probably a first mover in that direction to withdraw, and that might spur some questions for other companies in Europe as well.”

US managers stand by expansion plans

News Article
Financial Times
October 19, 2008
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US money managers making a push for European assets acknowledge that the current crisis raises new challenges for their plans, but are not scaling back their international goals just yet.

US asset manager American Century Investments announced its international expansion earlier this month, while Brown Advisory, an independent Baltimore-based investment advisory firm, opened a London office in February in order to build a European fund range and presence.

Groups such as Turner Investment Partners, Delaware Investments, Legg Mason and The Hartford have also ramped up their European businesses.

US fund managers are generally taking a long-term view of the crisis, says Jag Alexeyev, senior managing director and head of global research at consultancy Strategic Insight.

“Most fund managers are reiterating, especially with regards to Asia, the case for long-term growth,” he says.

If US money managers are altering their European strategies, the changes are tending to be of a short-term, tactical nature. Mr Alexeyev says companies are looking harder at how to address their clients’ needs in the next year and how to deal with other immediate issues arising from falling share prices.

Vanguard Group, known in America for its low cost index funds, is one US house that expects its European business to weather the storm.

“We have offered funds to institutional investors across Europe and the Nordics for a decade, and we believe it is a long-term business that can and has withstood shocks to the financial markets,” Vanguard’s Rebecca Cohen says.

”We do not believe this crisis will significantly impact our European business. Our transparent, straightforward funds might be seen as an antidote to less transparent, complex offerings in the marketplace.”

Legg Mason is another US-based asset management business standing firm in its efforts abroad. New chief executive Mark Fetting has previously expressed plans to increase international assets under management to more than half of overall business from about one-third previously.

“Our strategy doesn’t change in a market environment like this,” says Terry Johnson, managing director of international distribution at Legg Mason Investments, the non-US distribution arm of Legg Mason.

The market turmoil could represent an opportunity for Legg Mason’s franchise in European markets, Mr Johnson says, as the assets investors have been taking off the table will eventually create a large pool of capital needing to be reinvested.

Mr Johnson points to Legg Mason’s “multi-boutique” structure, where the parent company oversees 10 independent investment managers that run the funds, as one factor putting the business in a strong position.

James Charrington, managing director and head of international retail at BlackRock, says the market turmoil is going to impact the ability of US houses to parachute their products and services into Europe.

But Mr Charrington does not see US-based BlackRock as such a house, because of its significant presence in Europe. According to Strategic Insight, BlackRock’s BGF Global Allocation Fund is the second-largest Ucits fund as of August, with $18.3bn (£10.6bn, €13.6bn) under management.

“I wouldn’t underestimate the scale of the job in front of us,” says Mr Charrington, who cites investor confidence as the biggest casualty in the ongoing crisis.

Meanwhile, Hartford Financial Services Group announced this month that German insurer Allianz has agreed to make a $2.5bn capital investment in the US-based company. The Hartford unveiled plans earlier this year to sell variable annuities in Germany starting in the first quarter of 2009.

As market volatility continues, the US houses with a fair amount of cash, a vision for the future, and ability to think long-term stand the best chance of riding out the storm, says Ben Poor, director at US-based research firm Cerulli Associates.