The insurer method
Julien Moutier (pictured), senior portfolio manager and analyst at Groupama Asset Management, details the company’s fund selection process.
In France, Groupama positions itself as key player in the insurance sector. Its advertising character Cerise has even become a public figure.
In asset management, Groupama claimed €92.1bn of assets as at end September 2015. Here, the multi-management division of Groupama AM led by Henri Chabadel and Servane Duforest manages around €1.7bn of assets over a range of 10 funds.
Some €1.4bn are invested in seven flexible absolute return funds, €250m in an emerging debt total return fund of funds, and the remaining assets in an emerging equities fund and a high yield global fund.
Supporting the multi-management is a fund selection process that relies on internal expertise to seek out asset classes. The three members of the selection unit each follow some 100 managers and analyse 50 funds annually to propose a final buy list of 40 funds in which ETFs remain a rarity.
The unit applies the constant proportion portfolio insurance method to determine the allocation to both risk and “risk free” assets. By setting a floor below which the value of the portfolio must not fall – to guarantee capital – a “cushion” value is obtained by the subtraction of the portfolio and the floor values.
The team then applies a multiplier to the cushion value that will set the portfolio exposure to different assets.
The more the underlying risk asset performs, the higher is the multiplier and the more assets are allocated to it, and vice-versa.
Both quantitative and qualitative analysis are conducted. However, an operational due diligence only applies to boutiques.
“We do not run database screenings as a starting point for our fund selection process. We rely on our respective knowledge in order to include fund managers we already know within small peer groups,” explains Moutier.
“We perhaps miss a very good manager, but we avoid lots of serial underperformers as well. Being a team of three, we cannot analyse 2,000 funds a year,” he adds.
The team invests in a fund for at least a full market cycle and remains faithful to managers it knows even though doors are not closed for new ones.