Paris-based advisory firm Insti7, advising a number of institutional clients since 2007, has recently strengthened its team with the hire of former Vega Investment Managers’ head of Fund Advisory Céline Kalfa as head of Fund Research and Analysis.
Insti7’s co-founder and CEO Benoit Boru (pictured, credit C.Boulze) occupied the role before Kalfa joins the firm.
Boru argues that institutional investors need ever more an external eye such as Insti7 to conduct independent due diligence on funds or strategies they are looking.
In France he says, institutional investors have currently a large focus on illiquid assets such as private equity, real estate, infrastructure, private debt.
“Strategies are different depending of the clients we advise. Investors tend to mostly use France-domiciled vehicles in that space rather than foreign funds. The AIFM regulation perfectly fits the needs of our clients. For our clients, knowing who holds their assets and where, remains crucial,” Boru adds.
Institutional investors shall address two issues nowadays: yield and cash management, he sums up.
“Taking risk on credit, duration and liquidity remains the main solution to get better yield because 70% of European bonds currently face negative rates. We have to select maturities that do not last too long and to lower credit quality in order to find better returns.
“For institutional clients that are able to take illiquid risk, they can experience returns comprised between 3.5% and 5% in the private debt sector.
“As for the treasury management issue, we can select some French alternative Ucits strategies which are market neutral and have low volatility. We do prefer French expertises over that segment rather than anglo-saxon ones as they usually have higher market exposures and levels of volatility (2-3% of annualised volatility for France against 5-6% for UK),” Insti7’s CEO exposes.
Nevertheless, Boru acknowledges that delivering alpha on a long term basis over a few asset classes such as US equities can remain difficult.
“It makes no sense to give a manager eight months to 2 years to outperform a benchmark as he will not deliver alpha. Over a short time period, either we select a manager that has underperformed a bit as we believe there will be a rebound or we go the passive way,” he says.
But as the fixed income bucket remains very large in French institutional investors’ portfolios, Boru explains that the question they have to ask themselves at the moment dwells in whether they want their fixed income management to be benchmarked or not.
Insti7’s CEO underlines: “Also their portfolios should really be tailored and shall match their liabilities, their risk budget or their appetite for credit risk. Selecting a fixed income retail fund does not make any sense for institutional investors.”