Given the parlous state of US equity markets, one might expect the tide of European cash to ebb, sloshing back across the Atlantic. But that’s not how CDC Ixis sees it. The newly formed French banking and investment group has almost half its $330 bn in assets invested in North America and has every intention of expanding there.
The new group is, for the time being, a wholly-owned offshoot of the French government-owned CDC, the Caisse des Depots et Consignations. For almost 200 years, CDC has been investing the savings, insurance premiums, pensions, and escrow accounts of French citizens. With the motto foi publique – the public confidence – it has a reputation for prudent asset management.
It began to branch out by leveraging its AAA credit rating to attract private clients and build up an immense European equity, bond and real estate portfolio. Financial folklore says state-owned institutions are stuffy and unenterprising. Faced with such massive evidence to the contrary, privately owned French banks cried foul as CDC expanded into the commercial banking and investment business.
CDC decided on a preemptive move this year, hiving off its commercial investment banking operations in CDC Ixis. The new CEO, Isabelle Bouillot, who is incidentally probably the highest-ranking woman in world banking, envisages other institutions taking shares in the e5 bn company, and thinks a partial listing may happen ‘in four or five years.’
Meanwhile, she points out, the American operations contribute almost half the revenues of the new group, which is a pretty creditable achievement for an operation that started from nothing in New York just nine years ago.
Anthony Orsatelli, chief executive officer of CDC Ixis Capital Markets, doesn’t see the stream of European transatlantic investment being dammed in the near future. ‘To be part of the asset management business or a major player in electronics, you have to be in the US.’ he asserts. ‘So the flow isn’t going to stop just because the Nasdaq is down.’
Still attractive
In the opinion of Luc de Clapiers, the founder and current head of CDC Ixis’s North American operations, ‘The equity market is not too overvalued; the excess has trimmed over the last year.’ Because of this, he maintains, it is unlikely to lose any significant part of its attraction for European shareholders.
De Clapiers says CDC has endeavored to grow its US asset management business through strategic acquisitions, of which last year’s purchase of Boston-based Nvest Funds was the key one. In fact Nvest will be taking the lead over a ‘federation’ of 13 different companies (see sidebar, CDC Ixis in numbers) which will share services where economical, cross-market where profitable, but maintain their respective specialized focuses. As de Clapiers points out, ‘They have a very intimate relationship with their clients. After all, if they don’t succeed in getting what their clients want, they will lose them.’
Orsatelli believes that if the investment pendulum were to swing back across the Atlantic, the new group would be ideally positioned to place American funds in Europe. ‘We offer euro and dollar products,’ he explains. ‘We’ve a strong position in asset management and good products in Europe. We’re a strong player in private equity in Europe, in high technology, telecoms, media, internet and classical venture capital, as well as in European real estate asset management, and we also have partnerships in both Germany and Eastern Europe.’ This combination is necessary, he asserts, to further the group’s expansion plans in Japan.
Top rated
The triple-A rating that CDC Ixis carries over from CDC is a major reassurance to Europeans, and perhaps to recently skittish American and Japanese institutions. Bouillot suggests that is also a constraint: ‘It offers a good position to get funding, but also the obligation to be selective and strict. With this AAA rating we can’t reach the 20 percent return that many banks in New York are looking for. And of course we, Ixis, will pay CDC for the guarantee.’
CDC performed well for 200 years: ‘We made no big mistakes. We managed other people’s money in a safe and prudent way.’ In fact, CDC has taken technology to prudent money management; its products are all attuned to risk management in a way that befits the foi publique. Many are sophisticated derivatives and hedging funds – ‘Genuine ones. We have no Nobel laureates on board.’
Sykes Wilford, chief investment officer of CDC Investment Management Corp (Cimco) in New York, for example, describes the house strengths as ‘specializing in risk management, alternative investments, non-correlated alpha streams.’
Performance does not necessarily depend on whether the stock and bond markets go up or down, Wilford says. ‘The performance is more of an absolute performance. When an investor comes to us, he’s getting something that doesn’t move as much with the market overall. The objective is to create a set of returns that is not related to typical market risks. Technology and transparency are the hallmarks.’ Which is not a bad, modern translation of public confidence.
CDC Ixis in numbers
Capitalized at g5 bn; 5,000 employees worldwide. $330 bn worth of assets under management worldwide, of which 30 percent is in equity, 54 percent in bonds, 7 percent in real estate and the rest invested in money markets.
US assets under management: $135 bn, of which 27 percent is mutual funds, 7 percent managed for private clients, 66 percent for institutions. US assets are 36 percent in equities, 5 percent in real estate, 49 percent in fixed income, 10 percent in money markets.
US subsidiaries
Loomis Sayles & Co
Harris Associates
Reich & Tang Capital Management
Reich & Tang Funds
Jurika & Voyles
Snyder Capital Management
Cimco
Kobrick Funds
AEW
Capital Growth Management
Back Bay Advisors
Westpeak Investment Advisors
Vaughan Nelson, Scarborough & McCullough
Nvest Funds Management
Cimco’s systems
Cimco’s portfolio manager is Jason Wolin, who is responsible for $180 mn in equity-based assets in two programs. The first he describes as a ‘large-cap US core equity program which is benchmarked against the S&P 500, aiming to outperform its characteristics by 1-3 percent annually, based on fundamentals such as P/E industry weighting, Beta, volatility.’
The other is ‘a market-neutral long/short US equity program, with a universe of S&P 500 securities, plus another 50 companies. We’re looking to outperform the Libor by about 3-5 percent annually without taking any market directional risk.’
To do this the investment managers aim to pick outperforming companies rather than industry sectors. To select stocks, the four-strong research team uses ‘quantitative tools and fundamental analysis.’ Admitting that the fund is still ‘smallish’, Wolin confesses to a surprising lack of receptiveness to the kind of input investor relations officers would expect most portfolio managers to find crucial. ‘We don’t feel the need to meet the companies,’ he declares. ‘There’s a lot of publicly available information, and anyway, with Reg FD, management are kind of limited in the amount of information that they can give you that’s material to the valuation of the company.’
He has strong views about whose research is usable and whose is not. ‘We’d use the sell side for estimates, but not for deciding whether a company is a good investment compared to its peers. We try to stick to sell-side research where there is less of a conflict, so for example, we rely a great deal on research from Sanford Bernstein which doesn’t have an investment banking operation. We find them to be more accurate.’
He adds, ‘We get quite a lot done, because we’ve automated much of our investment process, and we collect a lot of data from various database services such as Compustat and Faxstat; and from Ibes for earnings estimates. We also spend a good deal of time going through companies’ financials.’
Wolin laments the dearth of corporate information in a couple of key areas, however. ‘We would love to get more detailed information on a diversified company’s business lines. We would always like more information from companies on the percentage revenue from their various business lines; and more importantly, the size of those markets and how many shares the companies have; and also what they are doing to gain market share.’
Above all, he complains, ‘There is no database that collects the information on stock options. It’s difficult to get information from annual reports on options, which have become a much more important form of compensation. There’s a wealth transfer that the investor needs to understand.’
