Has the European BlackRock outgrown its pond?
THE PRACTICES raising the CEO of a company to the position of president is now frowned upon, if only because a new boss often finds it difficult to free himself if his predecessor looks over his shoulder. This is not the case at Amundi, the largest fund manager in Europe. In May Yves Perrier, his CEO since 2010, will move upstairs and Valérie Baudson, her current assistant, takes the helm as general manager. Shareholders have reacted rather well to the news: Amundi’s share price has risen 11% since its announcement in February.
This shows how much they value continuity within the company. Under management, assets under management and net income for Mr. Perrier Amundi more than doubled to € 1.7 billion ($ 2.1 billion) and € 962 billion at the end of 2020. Its market capitalization fell from 7.5 billion euros in 2015, when it went public, to around 15 billion euros. The company is still a cut below the American titans: BlackRock, for example, manages around $ 9 billion in assets. Yet Amundi is nearly twice the size of its closest continental rival, and the only European company in the global top ten. The question for Ms. Baudson is whether the business has much more room to grow.
Three factors have supported the rise of Amundi since its creation in 2010, the result of the merger of the asset management divisions of Crédit Agricole and Société Générale, two French banks. One is the 650 billion euros in assets she took back from her parents, which allowed her to spread costs and pocket recurring income. Cleverly, it signed almost exclusive distribution contracts with the banks, thus ensuring its role as the main manufacturer of investment products for their institutional clients, and this turnover would remain stable.
Amundi then used its excess cash to acquire competitors, including the asset management arms of UniCredit, an Italian bank, in 2016, and Banco Sabadell, a Spanish lender, in 2020. While the portfolios it inherited gave it a foothold in retail investment, where margins are higher, these transactions have allowed it to further expand its distribution network. Amundi has made it easier to integrate these units by developing its own data and portfolio management platform, rather than relying on vendors – its third smart choice and one that BlackRock has also made. This has reduced operating costs: at 51% of revenues, they are among the lowest in Europe.
Ms. Baudson can expect a few benign months. Unable to spend much during lockdowns, households have stored record amounts in banks, some of which are expected to be returned to fund managers. Yet beyond the short-term bump, being “the biggest and most efficient manufacturing machine” may not be enough, says Haley Tam of Credit Suisse, a bank. Unlike BlackRock, Amundi cannot tap into a large domestic market and its growth avenues are narrowing.
Some problems are common in the industry. The margins are overwritten. The switch to low-cost “passive” funds, which track an index, is accelerating in Europe and lowering the average fees of managers. The competition is fierce. And falling interest rates (and therefore yields) make the high fees of active managers more visible precisely when regulators demand more transparent disclosure of costs and fees.
Other concerns are specific to Amundi. Some of the contracts she so cleverly signed with the banks will expire soon. History suggests they are usually renewed, but on worse terms for the manager, says Mike Werner of UBS, another bank. And, in an attempt to seek additional returns for its clients, Amundi wants to expand its alternative investment franchise. But it faces fierce competition from specialists. And its scale is a problem. The company is too big for this relatively tiny company to make much of a difference in revenue.
Mr. Perrier is unperturbed by all of this. Amundi has room to develop, he argues. More than half of its assets still come from France (see graph). The company is already established in fast-growing markets, such as India, where it has a joint venture with the country’s largest bank, and China, where it has a link with AgBank and Bank of China, two major lenders. It is targeting 500 billion euros in Asian assets by 2025, compared to nearly 300 billion euros today. “The idea that in the next five to seven years China will become as important as France is not stupid,” says Perrier.
Even in Europe, organic growth is possible. The shift from defined benefit pension plans to defined contribution pension plans, which give savers more flexibility over how they invest, should boost retail investment, says Tom Mills of Jefferies, a bank of investment. The enormous interest in environmental, social and governance products also contributes to this: last year, they represented around 70% of Amundi’s net inflows.
Amundi also has around € 1.2 billion of excess equity available for acquisitions. The company is in talks to buy Lyxor, Europe’s third-largest provider of exchange-traded funds (AND Fs), from Société Générale for € 825 million. A merger would make Amundi the second largest supplier of AND Fs (after BlackRock).
The company is also embarking on new activities. Last year, it created a division to license its software suite to smaller managers, putting it in competition with BlackRock (analysts expect Amundi to price its services more cheaply. ). It aims to multiply by six these sales by 2025, to 150 million euros. That would give the share price a head start: Perrier notes that these companies are typically valued at 20-22 times profit, compared to 13-14 times for the group as a whole.
Done well, all of this could support rapid growth. This helps Ms. Baudson experience the fastest growing areas of the business, including AND F unit, which she currently heads. She has relatively little experience in making acquisitions. But if she needs advice, the consummate negotiator will be a few steps away. ■
This article appeared in the Finance & Economics section of the print edition under the title “Alpha plus”