“It could be a global balanced fund, with a mix of fixed income, equity, cash and derivatives; or it could be an absolute return fund that just uses fixed income. There are lots of different engines to satisfy demand.”
Protection
Another consequence of the doubts around the equity markets is the demand for certainty – and La Française has been happy to offer a solution: Ucits IV funds that use derivatives to protect the downside but don’t go net short. A second absolute return option is strategic bonds but for now Lecomte has little optimism for the sector.
“Three years ago it was an exciting sector – and it can be a good engine to create absolute return,” he says. “But today, because of the low interest rate environment, it’s very difficult to offer absolute returns with only fixed income investments.”
Carbon neutral
An unrelated but interesting development has come out of a series of global agreements between governments to try to reduce carbon emissions. As part of the negotiations, there have been various initiatives to get the financial services industry to play its part. “We are seeing a big demand, especially from insurance companies, for de-carbonisation. A new law was passed [in France] in the summer concerning insurance companies which encouraged them to de-carbonise their portfolios.“
“We have launched a de-carbonisation fund and I think it will be a huge success.” The law forces pretty much all financial institutions to publish their strategy on SRI and carbon-neutral investing, outlining how they are participating in the country-wide effort to go carbon-neutral. “Our fund is run by a team in London with this specific SRI approach.
Fixed maturity
Another asset class that has been very popular with worried clients, especially in the retail space, is fixed maturity funds. “Fixed maturity funds are like a bond: you hold it to a maturity,” Lecomte explains. “The day you buy it you know what you will be paid at the end – perhaps three or four years. There has been a very high demand for this in France, Spain and also some markets outside Europe.”
Decorrelation
What links all these asset classes and strategies? It is the fact that they promise a different behaviour from the mainstream equity markets. And the longer-term cause of this is the relentless increase in correlations between all asset classes. It is so serious that Lecomte identifies it as the primary long-term threat to investors.
“This is something which is new,” he says. “The interdependence of the markets is complex and hard to avoid. Clients want to have protection – to be sure that in two weeks’ time they are not losing 15% to 20% and find themselves back to square one. This is something that we should all be worried of.”
Of course, while the increasing interdependence of markets is a threat, it is precisely that which has created these opportunities for La Française. So how does Lecomte intend to capitalise on it? Well, in his view, the trick is to focus on the strategies in which they particularly stand out. “If you want to be successful inside your own country then you need to be the leader in that country,” he says. “And you can’t be a leader in lots of things.“
“La Française is well known for real estate and fixed income. We will see a huge growth in both of these areas in Europe and I’m sure we will double our assets under management in the next five to 10 years.”
