Early September, AXA announced that AXA Wealth had been selected to shelter all group’s European multimanagement activities, forming therefore a single hub led by Hans Georgeson.
The operation aimed to reunite AXA’s own UK-based multimanagement business, Architas, with the private management businesses in France and Belgium as well as the AXA Investment Managers multi-manager business. AXA’s assets under management for the multimanagement business amount to roughly £30bn (€43bn).
When AXA Private Management launched multimanagement services in France in 2010, it started with €5m of AUM. The target set by the firm was to multiplying the figure by a thousand (€5bn) by 2020. Current AUM stand at €2.2bn.
The investment universe is split among five managers within the fund selection team : CIO Rémi Lambert (alternatives), co-CIO Antoine Machado (global and thematic equities), Pierre-Jean Marcon (fixed income), Hai-Ho A-Haja (flexible, diversified and global macro funds) and Makis Agoros (European equities).
The unit works closely with Architas and runs a short-list incLuding 80 to 100 external funds and 60 AXA group funds.
AXA Private Management targets primarily retail and high net-worth individuals (HWNI) from AXA France. Most discretionary mandates and dedicated funds of the firm serve AXA’s life insurance contracts.
Minimum investment was initially €300,000 as high net-worth individuals’ assets were first targeted for multimanagement services then the firm progressively developed a range of discretionary mandates for mass affluent that are less flexible and less tailored than for HNWI.
If several surveys have shown retail investors’ yield expectations are high for 2015, Axa Private Management’s co-CIO Antoine Machado (pictured) explains that most of the firm’s clients target an average 5% annual net return but he warns they must be conscious yield is likely to stand under that cap over the coming years.
The fund selection team builds its convictions from the analysis of AXA’s group chief economist Eric Chaney. “Funds we select match our management convictions. It is not only a fund that has shown the best track record since five or ten years,” says Machado.
AXA Private Management’s selection process relies on traditional quantitative and qualitative analysis. Drawdowns are particularly monitored.
“Drawdowns remain the most relevant indicator in our view. We look at relative drawdowns for benchmarked funds and absolute drawdowns for alternative strategies such as long/short equity funds,” Machado specifies.
“When a fund faces a 10-15% drawdown in a short period, clients worry about it. A few of them ask for explanations on our fund selection. We have to explain them the principles of asset allocation over a long-term period. The investment horizon is set for eight to ten years in life insurance contracts. However, the absolute performance analysis’ horizon of our clients is not as long. It becomes ever shorter. It forms one of the management and multimanagment’s challenges,” he expounds.
“When a portfolio manager leaves its asset management company , either we remove the fund of the buy-list or we monitor it testing the new portfolio manager. It depends if the fund belongs to a big or small asset management company and the ability of the company to maintain the investment process as robust as it was. ”
In an average balanced portfolio, AXA Private Management’s selectors include fixed income, equities as well as an alternatives’ bucket. Equities can rise up to 70% from 20% even though equities’ exposure is comprised between 30% and 65%.
Positions on Asian emerging equities markets have all been cut last summer.
“Our moves on the emerging markets’ spectrum are very tactical. Last January, we had invested in Asia’s emerging markets through an AllianceBernstein equity fund. In our opinion, Asia was the region that was going to benefit the most from the slump in oil prices. Due to China’s stock exchange troubles and the Grexit case, we reduced the risk in portfolios back to early July.
“At that time, our balanced portfolios were exposed at 30% to equities. Then we have sold all our Asian emerging markets’ positions. With the volatility taking over markets, keeping Asian equities was becoming more and more risky. However, we have kept an investment in emerging debt in hard currency hedged to euro. It is right to say performance remains disappointing so far but yields are interesting,” Machado explains.
Regarding alternatives, Machado outlines the team does not identify much strategies being compliant with Ucits IV regulation and providing sufficient liquidity. AXA Private Management’s selectors also assess that in the alternative space, “10% are smart managers and the remaining 90% are just marketing.”
Besides, the co-CIO of the company stresses technical issues in the selection of alternative funds : “We mainly have long/short equity funds and global macro funds. For instance, we have picked up the JP Morgan’s long short Europe Equity Absolute Alpha fund which now is hard closed and Sycomore L/S Opportunités fund. Our investment possibilities in this segment are often limited. On the long short credit side, we identified opportunities but the funds closed quickly. When a fund is soft closed, we exit it from our mandates for purpose of fairness between all of our clients.”
ETFs are used periodically for mutual funds the team manages. AXA Private Management’s co-CIO emphasises ETFs are sometimes not as liquid as expected.
“Sometimes clients ask us to buy only ETFs for their dedicated mandate in order to have intraday liquidity. But ETFs’ permanent liquidity remains unproven. When markets faced high volatility like last August, some ETFs were not liquid. We have experienced it ourselves.
“Every time we buy an ETF, we have two in three chances to face delays in the settlement system. Being short over two days does not cost anything for market makers. On a longer period, it is. We have recently ordered one ETF from a well-known provider but the shares were only delivered ten days after the payment. Other companies have met the same issue. It has become the norm. With a traditional Ucits fund, we have not faced that since the financial crisis,” Machado relates.
He points out the maximal share of ETFs the firm has ever had in a mutual fund accounted for 25% of the portfolio. “We favour active managers even though 80% of them currently reach difficulties to outperform benchmarks. It is our added value as multimanagers to search for and pick consistent active managers,” Machado recalls.