With over €680 billion in assets under management (including around €120 billion in money market funds), Amundi is Europe’s third-largest asset manager. Amundi was created by combining the asset management expertise of Crédit Agricole and Société Générale. Treasury Today spoke to Frédéric Barthélemy and Thierry Darmon about Amundi’s money offer and the challenges faced by corporate investors in the current market.
Frédéric Barthélemy
Corporate Sales – Europe, Global Liquidity
Frédéric Barthélemy is responsible for Global Liquidity sales within the European Corporate Sales team at Amundi. Prior to the creation of Amundi, he worked in institutional sales at Société Générale Asset Management. From 2004 to 2007, Frédéric was a Managing Director at Société Générale (SG) in New York, heading their clearing and cash management business for the Americas. Frédéric joined SG in 2000, where he held various positions, first in London, then Paris and New York. He covered SG bank clients for the FIG group in London from 2000 to 2002, before becoming Deputy Head of Sales for SG’s cash clearing business in Paris. Frédéric started his career with BNP Paribas in London, where he was in charge of liaising with financial institutions. Frédéric has a degree in physics and mathematics and is a graduate of the SKEMA Business School.
Thierry Darmon
Deputy Head of Euro Fixed Income and Credit, Head of Money Market and Short Term Solutions
Thierry Darmon joined Crédit Lyonnais Asset Management (CLAM) in 1993 as Euro Fixed Income Portfolio Manager. He was appointed Deputy Head (2000) and then Head of Euro Fixed Income (2003) before becoming Head of Absolute Return Management in 2004 following the merger between CLAM and CA-AM. Thierry holds a Master of Statistics from ENSAE (Paris) and a degree in Actuarial Studies from the Centre d’Etudes Actuarielles (Paris).
How long has Amundi been present in the cash management market?
TD – Amundi has been managing a full spectrum of short-term and medium-term products from AAA-rated liquidity funds to short-term fixed income or absolute return solutions for years. In France, the Amundi Group has a market share of around 33% of the market, with around €120 billion under management in this asset class.
Our management team follow a very safe investment process that has been in place for over 15 years, thus allowing them to achieve a good risk-return profile. This security-driven investment philosophy enabled us to come out of the financial crisis unscathed.
FB – Whilst we have been very present in our domestic market for sometime, we have not as yet built upon our shareholder’s footprint in the Europe corporate market. We are now extending the savoir-faire we have accumulated over the years in our domestic market to investors across Europe and beyond.
TD – Indeed, there is clearly an ambition to share the positive experience we have achieved in France, especially during the crisis, which our funds rode out with no damage of any kind. During 2008, we benefited from a probable ‘flight-to-quality’, as our money market fund assets grew by more than €19 billion. We enable our clients to benefit from the large amounts we manage and from the privileged access to the market that we are able to provide given these volumes. We are talking about an industry where size is very important. We provide clients with sizeable funds, and we manage money market funds that have significant assets under management.
What sets Amundi’s liquidity offer apart?
FB – Our competitors are fairly big in this market, but we are confident that we are just as good in the way we manage money market funds and that we have a best-in-class approach. We aim to offer competitive fees, and good performance within a safe environment. We keep our funds liquid because it is important for clients that we are able to accept any kind of redemptions, even at very short notice. We are used to actively hedging a large part of our fixed rate investments, hence pushing down the weighted average maturity (WAM) of our portfolios. This is advantageous in the current interest rate environment because even though rates are low, we may expect some increases in EONIA in the coming months. We are well-positioned and are prepared to take advantage of this scenario, whereas some of our competitors may have to wait a little longer before they are able to do so.
TD – We use front office tools that are directly linked to our risk management teams and to various pre-trade controls and risk monitoring processes. We have defined very strict risk limits. Not only do we monitor these limits on a ‘live’ basis using our tools but we also make overnight compliance checks on the funds. In addition, we benefit from pre-trade risk blocking if a trade is not compliant with the limits that we ave set. This is an additional factor of security for our funds and for the client.
It must be difficult to provide competitive returns in the current interest rate market.
FB – Yes and in addition to this, when interest rates are very low, small variations are more significant. When rates are around 50 basis points, a difference of a couple of basis points is much more important for the client, which was not the case when rates were higher.
TD – Performance is one of our objectives – but it is not the primary one. We have to be clear about that. We intend to maximise performance and work within the given risk framework. A money market fund is not designed to provide performance first and foremost. Our priority is to provide customers with security, liquidity and transparency in their investments.
FB – In the US, most treasurers of large corporations are limiting themselves to very safe money market investments – a new trend in Europe. Every week we are meeting treasurers who have in the past not chosen to invest in money market funds but have now chosen to take this route. A corporate treasurer has to do their best to achieve the best possible returns for their company – but it appears that an increase in interest yields by a couple of basis points is less consequential than a loss in their portfolio.
Are any other factors prompting treasurers to consider using money market funds?
TD – They are not necessarily fully comfortable with counterparty risks when leaving deposits with their banks. Money market funds can offer them a good way to mutualise this risk and simplify their access to liquidity.
FB – For treasurers, it is also a question of resources. If they wanted to do what we (asset managers) do, they would need their own analysts and a specific back office. This is a lot of work and for us, it is our core business. A few large corporate treasurers have their own dealing rooms and to a certain extent, they replicate what we do by investing in short-term debt from different issuers with different maturities while maintaining their own liquidity.
However at the end of the day, if you invest in a mutual fund, you benefit from the overall liquidity of the portfolio and no matter how big corporations may be, it is rare that they would manage as much as €120 billion.
Would you agree that corporations are looking for more visibility in their investments since the crisis?
FB – Indeed. They all want to have a look at the portfolio, see the details and analyse how the fund is structured. On the other hand, these corporations know that if they invest in a AAA-rated money market fund, they already have the answers to a lot of questions. They choose to invest in a AAA-rated money market fund because it is a source of comfort for them.
TD – Upon request, we are able to provide our clients with comprehensive details of the portfolio within a short deadline. We believe that client relationships need to be based on trust and trust comes from having control; so we are very happy to provide as much information as we can to our clients in order for them to be comfortable with investing in the fund. As professional investors, they have the right to this information.*
At the same time, feedback related to areas such as risk or country exposure helps us to improve our offer. We set up regular client meetings with the fund managers to discuss our investment strategies.
What challenges are corporate treasurers currently facing in terms of liquidity management?
FB – The world has changed. A lot of corporate treasurers have expressed shock about the crisis; by the fact that some financial institutions have gone bankrupt and that a couple of money market funds either lost some of their Net Asset Value (NAV), or could not offer liquidity. Treasurers discovered that part of their job was to manage counterparty risk. A new kind of money market fund is emerging – the AAA-rated liquidity fund – that helps treasurers make sure that they are investing in an instrument with very low credit risk and excellent liquidity – and that it is an instrument they can use on a daily basis for large amounts.
How are treasurers using money market funds in the current market?
TD – Treasurers are using money market funds for obvious reasons – to manage their cash balances for one, especially the big corporations that have a high concentration of cash. Clearly, for corporate treasurers, money market funds are seen as a convenient and practical tool to manage their inflows and outflows on a ‘live’ basis. They are using these instruments to match their exact needs in terms of the speed of execution, of getting back liquidity when they need it and of investing daily cash flows.
More generally, investors – and not necessarily just corporate treasurers but institutions in general – are using money market funds as tools which can be used somewhat like a parking lot. Our French money market funds benefited from these kind of inflows during the crisis, when institutions sold their risky assets such as long-term bonds or equities. They were happy to place their cash in this kind of mutual fund for a certain period, which in practice lasted for a long time, since risk remained at a rather high level.
What impact are regulatory changes likely to have in this area?
TD – After the events that followed the Lehman collapse, it is clear that we are now working within a new regulatory environment, especially for money market funds in Europe, where the new regulator (ESMA) has changed the classification criteria for funds belonging to this category. On 1st July 2011, there will be two new categories for money market funds – the first is ‘Short-Term Money Market Funds’ and the second category is simply called ‘Money Market Funds’.
For both categories, the limits that have been set and that we will apply are much stricter than those that have existed so far. In actual fact, this regulatory development will not change anything for our entire range of money market funds. Even before the crisis and before these new criteria were applied or were even defined, our funds were by and large already compliant with these new criteria, so this will in effect not make any difference to our investment processes.
Disclaimer
Potential investors must consider the risks associated with an investment in a product, notably by referring them to the section “Risks” of the full prospectus of each product in order to determine if such investment is suitable and make sure that they understand the full contents of this document. Investors are invited to consult their own advisers in order to determine if an investment in the products is suitable.
Subscriptions will only be accepted on the basis of the product’s latest complete and simplified prospectuses, their latest annual and semi-annual reports and their articles of incorporation that may be obtained, free of charge, at the registered office of Amundi.
*Please note that detailed portfolio holdings are available upon request and subject to the signing of a confidentiality agreement.
The value of, and any income from, an investment in the product can decrease as well as increase. Further, past performance is not a guarantee or a reliable indicator for current or future performance and returns. The performance data do not take account of the commissions and costs incurred on the issue and redemption of units.
This article neither constitutes an offer to buy nor a solicitation to sell a product and shall not be considered as an unlawful solicitation or an investment advice.
Amundi is a société anonyme with a share capital of €578,003,350 – Portfolio manager regulated by the AMF under number GP04000036 – Head office: 90 boulevard Pasteur – 75015 Paris – France – 437 574 452 RCS Paris.
