France’s Carmignac eyes UK expansion

French asset managers Carmignac Gestion has announced its intention
to expand into the UK market this year. Caroline Allen reports

Carmignac Gestion, founded by Edouard Carmignac in 1989, has grown to become one of France’s most successful asset managers, with some €55bn assets under management at end December 2010.

In its annual meeting with investors and advisers, Carmignac said the time was ripe now to tackle the UK, having established the public limited company in its home market of France, as well as expanding into Luxembourg (1999), Italy (2002), Switzerland (2003), Germany (2004), Spain (2005), Netherlands (2006), Austria (2009) and both Sweden and Singapore (2010).

The Paris-based company has some 160 employees, including 13 fund managers and eight analysts. Its capital is fully owned by staff. Among the latest hires is Marco Fiorini, boosting Carmignac Gestion’s presence in Switzerland, and reporting to Davide Fregonese, head of Professional Clients Europe. Before joining the company, Fiorini was at Clariden Leu Asset Management. He started his career in 1998 at Julius Baer Investment Funds.

Carmignac himself acknowledged that the UK market was one of the most competitive in the world for mutual funds in the retail sector, but said it is not afraid of competition. “We feel mature enough to venture into this market now,” said managing director Eric Helderlé. “It has a strong equity philosophy we feel at ease with, and distribution is geared to independent financial advisers.”

Acknowledging the “cultural specificity of each European market”, he said the firm is also looking to Northern Europe, where open architecture offers some potential. There is already a subsidiary in Luxembourg and two representative offices, in Madrid and Milan.

Carmignac Gestion now boasts one million investors, 85% of whom are not French. Globally, institutional clients form only a small portion (11%) of its investor base. More than one third (37%) are independent advisers and a further 27% are network advisers. Banks and other networks account for 22%, while private clients comprise just 3%.

From the start of the financial crisis in 2007, the firm has managed to grow assets under management. “We did not see any outflows at all, and that is not just a market effect, it has to do with performance,” said Helderlé.

Carmignac Gestion offers a relatively compact range of 18 global, specialised or profiled funds, as well as a mandate management offering. The Carmignac Patrimoine Fund, launched in 1989, is now one of the largest mutual funds in Europe, at €27bn. It has returned 114.18% since 2002 against a benchmark return of just 20.34%. The Carmignac Investissement Fund is up 197.40% since 2001, against its index of 8.58%.

The firm intends to launch an emerging markets fund in the near future, aimed at capturing emerging markets growth and returns, but limiting downside where possible. “It is for those investors who are interested in emerging markets, but also a bit cautious at the same time,” explained Carmignac himself, addressing advisers attending the company’s annual open day in Paris.

He said the firm would stay faithful to its opportunist, non-benchmarked investment process, with a tight asset management team to preserve efficiency and maintain the company’s culture. “We have to recruit, but not too quickly. The trick is to anticipate how the business will grow,” he said. It hired six managers and analysts in 2010

The company’s charismatic founder has developed one of Europe’s strongest asset management brands. With early childhood years in Peru, and later educated in the US and Europe, his career has included time with Blyth, Eastman Dillon & Co. in New York City and BNP Paribas in Paris. In 1984, he joined stockbrokers Hamant & Cie and played an instrumental role in the creation of the firm’s fund management subsidiary, Pyramide Gestion.

Carmignac is famously keen on polo and art, among other interests. In the top floor offices in Paris’ Place Vendome, along with paintings by Andy Warhol, Roy Lichtenstein and Keith Haring, hangs one in Helderlé’s office of a young Carmignac, painted by Jean-Michel Basquiat. The Brooklyn graffiti artist developed iconic status in New York’s art community before his death in 1988 from a heroin overdose, age 27. His painting, design, music and fashion all carry strong social messages.

The Carmignac portrait is a challenging piece, with a red-faced, teeth-bared subject dominating an urban jungle of brown and black. It was painted in New York at the start of Carmignac’s career, and it was some years before Basquiat would sell him the work. But it portrays perfectly what many competitors have since observed about Carmignac and his company, where he is both CEO and CIO: “It’s 100% conviction. He is very gracious and elegant, but ferocious in business,” said one.

Other family members are associated with Carmignac Gestion. Following two hours of detailed portfolio analysis, French financial advisers at the company’s annual open day were entertained at Paris’ Théâtre Mogador by the country rock-performance band Moriarty, in which the young Charles Carmignac is a leading light.

Edouard’s daughter Maxime has had various attachments to blue chip investment firms since graduating Paris’ ESSEC business school. In 2006, she co-launched the Carmignac Market Neutral hedge fund, before stints at Visium Asset Management in New York and Cheyne Capital in London. She has recently returned to take charge of the same fund, now standing at $100m.

Carmignac Gestion considers itself a pure manufacturing house, but has not launched a new fund since 2007. “We tend to expand gradually,” Helderlé added. The existing range is underpinned by durable themes, and asset gathering has never been an end in itself.

“Performance and service may be incompatible with grow for growth’s sake,” he added. “We have achieved critical mass, which is pleasing.” He said the company aimed for “carefully controlled growth guided by the principles of anticipation, discipline and reactivity”.

The top-down, active management across all asset classes helped the firm through the crisis years in 2008 and 2009. Famously, in March 2009, when world markets hit a low point, Carmignac bought more than $6.8bn in stocks, the maximum it could invest under its charter. The spectacular bet paid off and money poured in. Last year, the Patrimoine Fund attracted some $14.2bn from investors, more than any fund except Bill Gross’ PIMCO Total Return, according to fund researcher Strategic Insight.

Helderlé acknowledges that Carmignac Gestion’s biggest fund accounts for nearly half the firm’s assets, but says flexible asset allocation protects it. “We are diversified and international, which gives more stability than a sector fund. We can adjust stock and bond allocations as necessary. It is a big fund, but PIMCO’s is ten times this size. It is manageable with the right strategy.”

As a percentage of assets under management, 55% is in equities, while 45% is invested in bonds. The firm also follows key long-term investment themes, notably emerging markets, gold and commodities, and interests in innovative technologies, the environment and health.

In emerging markets, managers are looking for growth stocks focused on domestic demand and rising standards of living, plus businesses that are well-adapted to the socio-economic reality of the countries or quality securities that aren’t particularly well-known among investors. In the energy sector the targets are oil and gas drilling and exploration companies benefiting from renewed spend after a virtual freeze for many years. Gold and gold mines are benefiting from the fact that central banks are looking to diversify their reserves to protect themselves against inflationary risks.

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