Looking to Leap
Lyxor’s Nicolas Moussavi discusses the launch of new architecture program Leap and expresses concerns on market liquidity.
At Lyxor, Nicolas Moussavi heads the 10-strong mutual fund research team overseen by Daniele Spada, managing director and head of the Lyxor Managed Account Platform.
Tallying some €27bn in assets under management and advisory as of end June 2016, the firm took a further step in fund selection earlier this year with the launch of Leap, an open architecture programme seeking to help institutional clients achieve their investment objectives from beginning to end.
Lyxor intends to benefit from momentum in the pension funds space in Europe.
The European Insurance and Occupational Pensions Authority outlined findings in January 2016 that occupational schemes were underfunded by an aggregate €428bn and that pension funds’ actuarial deficits may be deeper still.
Another reason for the launch of Leap is the forthcoming implementation of the Institutions for Occupational Retirement Provision (IORP) II directive which will require pension funds improve their governance and work on their portfolio transparency.
“A number of institutional clients are considering outsourcing their fund research and selection. Some are looking to us because they mainly used to hold fixed income strategies in their portfolios and now they want to allocate assets to the alternatives segment.
“At a time when markets are challenged, they ask us what to do and how. Our platform Leap is a modular open architecture program that aims to provide full servicing to institutional investors to help them improve their infrastructure and investment effectiveness. It also resolves governance issues as institutional clients often do not have appropriate governance to react to market events,” Moussavi explains.
He argues one of Lyxor’s major edges is that its parent company, Societe Generale, does not run a traditional asset management business anymore.
“For large asset management groups that shelter a fund selection division, referencing an external fund is a loss of money. Asset managers tend to push clients to choose internal funds rather than external ones. At Lyxor, we do not encounter such pressures and we fully rely on a pure open architecture system,” Moussavi says.
Lyxor assesses that institutional clients would make savings of up to 40% by outsourcing their process to Leap.
Moussavi stresses that institutional clients tend to still favour investment grade and government bonds strategies but that if they seek to achieve some consistent yield, they have to look at emerging asset classes such as alternatives, loans, private equity or infrastructure.
In regards to the current market environment, Lyxor recommends alternative strategies. Moussavi argues they will offer investors a hedge against high market volatility.
“The recent rush on alternatives has pushed us to look for new funds. But we were invested in some of these strategies far before. That helps in some situations as we develop good relationships with fund managers and we can still enter in some funds that have been soft closed,” he explains.
Is the fixed income market being shot down by the ECB’s policy?
“The fixed income market has already been partially killed by regulatory requirements even if it is difficult to assess the difference between the monetary policy and regulatory policy impact.
“Despite the short term appreciation of assets that could be considered as positive, the current level of yield given the risk is rendering the asset class less attractive,” Moussavi replies.
Market liquidity remains under surveillance even though it is not currently a problem on all fixed income sub-asset classes, he says.
Moussavi observes that on the one hand, the ECB asset purchase programme is putting pressure on liquidity, reducing the amount of securities available.
But on the other hand, regulatory requirements such as LCR requirements for banks are leading to balance sheet costs, he says.
Consequently, banks tend to lower their market making activities, that traditionally supply the market with liquidity, Moussavi explains.
Nicolas Moussavi has been head of Mutual Fund Research at Lyxor since May 2014. He joined the firm in 2009 as senior fund analyst and portfolio manager.
Formerly, Moussavi worked for SGAM Alternative Investments in the Structured Asset Management department where he was in charge of selecting and analysing underlying funds for structured products.
Prior to that, he was an assistant portfolio manager at Montpensier Finance.
He started his career in 2004 as an assistant of the Long/Short Equity desk in the hedge funds relations & risk analysis team at Lyxor Asset Management.
This article was first published in the September issue of InvestmentEurope.