Hedge funds in France A new esprit de corps

April 2008

Hedge funds in France A new esprit de corps

special report

FRANCE CONTENTS/INTRODUCTION

Contents 4

OVERVIEW

A robust platform for future growth 10

FUNDS OF HEDGE FUNDS

Funds of funds start to gather momentum 20

SINGLE MANAGER HEDGE FUNDS

New faces spice up single strategy space This report was researched and written by Philip Moore

28

HEDGE FUND START-UPS

Entrepreneurs battle on despite downturn Published by HedgeFund Intelligence, Nestor House, Playhouse Yard, London EC4V 5EX, UK Email [email protected] Telephone +44 (0) 20 7779 7330 Fax +44 (0) 20 7779 7331 Website www.hedgefundintelligence.com

32

INVESTORS IN HEDGE FUNDS

Building the investor base 36

SPONSOR PROFILES

Special reports editor Barry Cohen [email protected] Editorial director Neil Wilson [email protected] Editor, EuroHedge Nick Evans [email protected]

Introduction

Editor, InvestHedge Niki Natarajan [email protected]

It is two years since we published our first special report on hedge

Production editor Kim Lankshear

funds in France – analysing the growth and development of

Group publisher John Willis [email protected] Chief operating officer Peter Highland [email protected] Customer service UK Gary Charalambides [email protected] US Lisa Saljanin [email protected] Database and directory sales UK Ian Sanderson [email protected] US Gee Spiller [email protected] Subscription sales UK Jamie Austin [email protected] + 44 (0) 20 7779 8041 US Susanne Kerekes/Zach Ktsanes [email protected] [email protected] + 1 212 224 3570 For reprints please contact Jamie Austin, [email protected] Disclaimer: This publication is for information purposes only. It is not investment advice and any mention of a fund is in no way an offer to sell or a solicitation to buy the fund. Any information in this publication should not be the basis for an investment decision. HedgefundIntelligence does not guarantee and takes no responsibility for the accuracy of the information or the statistics contained in this document. Subscribers should not circulate this publication to members of the public, as sales of the products mentioned may not be eligible or suitable for general sale in some countries. Copyright in this document is owned by HedgeFund Intelligence Limited and any unauthorised copying, distribution, selling or lending of this document is prohibited. All rights reserved.

2 SPECIAL REPORT APRIL 2008

Europe’s second largest hedge fund centre after the UK. Much has changed since then and there is even more evidence that the building blocks are in place for the rapid further development of this increasingly broad and robustly-based marketplace. So we felt the time was ripe for a second report – covering the increasingly flexible and constructive regulatory framework, the growth of the leading fund of funds and single-manager hedge fund groups, the development of the local and international investor base and the environment for new start-ups. The sub-title of this report – A New Esprit de Corps – encapsulates the spirit of common purpose that now seems to unite regulators, fund managers and service providers in their desire to push the industry forward. For all participants in the industry – from the financial giants that have traditionally dominated the French hedge fund landscape to the increasing number of smaller and more entrepreneurial firms – this is a time of great opportunity and challenge. We hope that this report will contribute to an understanding of the key trends that are driving the industry forward in France – and of the key characteristics that differentiate it from its counterparts elsewhere in Europe and the rest of the world. Nick Evans Editor, EuroHedge ©EuroHedge

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© Photo : Tristan Paviot

Alain Dubois Chairman

FRANCE OVERVIEW

A robust platform for future growth

Hedge funds are thriving in France, due not least to a positive approach by the regulatory authorities. The Autorité des Marchés Financiers, created by the merger of several regulators, is praised both publicly and privately by French managers

Ian Rogers, Simmons & Simmons, Paris

It is unusual in any area of the financial services in-

that the French investor base was insufficiently fa-

dustry – and almost unheard of in the hedge fund

miliar with alternative investments to support a

world – to find market participants speaking with

new risk arbitrage-based hedge fund and, second,

virtually one voice about anything, let alone doing

because they were uncertain about the regulatory

so positively about a market regulator. But it

environment prevailing at the time.

seems that hedge fund managers in France have

Seven years later – by which time the team had

nothing but praise, both publicly and in private, for

opened operations in New York and Singapore and

the Autorité des Marchés Financiers (AMF).

was managing a highly successful merger arbi-

Established in 2003, following the merger of the

trage fund worth $1 billion – the environment for a

Commission des Opérations de Bourse (COB),

new kid on France’s hedge fund block had

the Conseil des Marchés Financiers (CMF) and

changed beyond recognition.

the Conseil de Discipline de la Gestion Financière

Robbe, Lenfant and two other colleagues left

(CDGF), the AMF is responsible, inter alia, for the

CIC in April 2007 and, by the end of the year, they

regulation, authorisation and supervision of collec-

had launched the Laffitte Risk Arbitrage Fund.

tive investment products.

“We were very impressed by how ready the AMF

Ian Rogers, a solicitor in the hedge funds prac-

was to promote alternative funds,” recalls Lenfant,

tice at Simmons & Simmons in Paris, says that,

Laffitte Capital Management’s managing partner.

following the 2003 merger, the mentality of the

“In 2000, it would have taken us between six

more private sector-oriented CMF probably pre-

months and a year to get the approval we would

vailed over the more austere approach of its

have needed to set up a new hedge fund. In 2007,

former state-owned partners. And it shows.

the whole process took no more than about two

Scores of Paris-based hedge fund managers testify to how supportive the AMF has been in the

months. We have an extremely positive relationship with the AMF.”

development of the industry. But the recollections

4 SPECIAL REPORT APRIL 2008

of Eric Robbe and David Lenfant are especially

Mixed praise

telling, because they put the evolution of that sup-

True, Paris-based hedge fund managers are not

port into its historical context.

quite so fulsome in their praise for other regula-

Back in 2000, 10 years after they set up the bas-

tors in the French financial services industry. “The

ket trading desk at CIC’s equity derivatives

main difficulty we have in France is that we still

subsidiary, they started to think about using their

don’t have a single regulator responsible for over-

experience to create their own hedge fund.

seeing the whole market,” says Xavier Lépine,

However, they decided against branching out on

chairman of the management board at Groupe

their own for two reasons. First, because they felt

UFG, the multi-specialist asset management sub©HedgeFund Intelligence

OVERVIEW FRANCE sidiary of Crédit Mutuel Nord Europe. “While the

site. Especially in France, hedge funds have less

AMF regulates the fund managers, institutional

leverage, less of a long bias and fewer liquidity

clients may be regulated either by the AMF, or by

problems because they have learned from previ-

the regulator y bodies responsible for insurance

ous mistakes and established longer lock-up

companies or the retirement system. From a port-

periods.”

folio management point of view, that means we have to create different types of product for dif-

Evolution of regulation

ferent clients.”

True enough. But it is also very clear that regula-

That particular bottleneck does not, however, ap-

tor y support was playing a vital role in

pear to have stymied the expansion of the French

underpinning the growth of the French hedge fund

hedge fund universe. Of course, a highly volatile

industry long before the sub-prime crisis began to

global capital market has helped the industry to

tighten its ghastly global grip.

flourish, as long as they are not leveraged up to the eyeballs – which French hedge funds are not.

The most important steps in the evolution of that regulator y support were taken in 2003 and 2004,

“Clearly, the market environment today – with

when regulation came into force governing funds

more volatility, more dispersion, more uncertainty

of hedge funds (OPCVM de fonds alternatifs) and a

and more inefficiencies – is positive for hedge

range of other alternative funds under the ARIA

funds, which is why we have seen more inflows

label. This refers to funds à regles d’investissement

over the last year or so,” says Fabrice Cuchet,

allégées (funds subject to more flexible investment

global head of alternative asset management at

rules), and covers unleveraged single-manager

Dexia Asset Management in Paris, which has just

funds (Aria SEL – or simples), funds using leverage

over €9.5 billion of alternative assets under man-

of up to 400% (Aria EL – or those using ef fet de

agement. “In France, if you look back to 2007,

levier) and funds of funds (also known as Aria 3).

according to the AMF the hedge fund business

The regulations of 2004 also cover fonds con-

was one of the rare areas that posted growth in as-

tractuels – in general, bilaterally negotiated funds

sets under management, even though inflows were

with free investment rules and a high minimum

flat in the second half of the year.”

investment.

Others agree that the generally robust perform-

It was the publication of these regulations in

ance of French hedge funds in 2007 has been very

November 2004 that has been the main impetus

helpful in underpinning their credentials as pre-

behind the recent growth of the French hedge

ser vers of value, rather than sharp-shooting and

fund industr y. Figures on the market’s total size

highly speculative destroyers of value.

tend to var y, partly because of definitional com-

“One of the effects of the crisis has been to

plications. As Alain Dubois, chairman of the

prove the robustness of alternative investments

board at L yxor, says, the worlds of conventional

once again,” says Jean-François Valicon, chief ex-

and alternative asset management are increasingly

ecutive officer of Barep Asset Management, the

converging.

diversified alternatives asset manager wholly

“Products like 130/30 funds and some of the

owned by Société Générale Asset Management

cash-enhanced vehicles are what I would call soft

(SGAM). “With a well-managed, diversified port-

hedge funds,” says Dubois. “But we are also seeing

folio, last year investors could achieve typical

convergence from a regulatory standpoint. For ex-

returns of 8% to 10% with pretty low volatility levels

ample, stocks can now be shorted in UCITS funds,

of 4% or 5%. To me, that represents a very good re-

so they can be constructed in such a way that they

sult in a year when we lived through such a severe

are very close to hedge funds.”

liquidity crisis.”

Arié Assayag, head of hedge funds at Société

To Valicon, it also represents a big step forward

Générale Asset Management (SGAM), agrees that

compared with other crisis years, which is a meas-

the distinction between genuine hedge funds and

ure of how much the industr y has matured. “In

other products can sometimes appear blurred in

1998, banks suffered a lot but recovered ver y

France. “It is true that a lot of managers include

quickly,” he says. “But for hedge funds, 1998 was a

exchange-traded funds (ETFs) and money market-

nightmare. Their performance was horrible and as

type funds in their hedge fund operations, which

many as 20% disappeared. In 2007, it was the oppo-

can be very confusing,” he says.

©HedgeFund Intelligence

Alain Dubois, chairman of the board, Lyxor

Arié Assayag, head of hedge funds, Société Générale Asset Management SPECIAL REPORT APRIL 2008 5

FRANCE OVERVIEW

The challenges facing compilers of statistical

institutional investors. That remains the main im-

data on the French hedge fund market are con-

pediment to the growth of the hedge fund industry

firmed by Sophie van Straelen, managing director

in France.”

of the research and advisor y firm, Asterias. She

In practice, a number of hedge fund managers

points out, for example, that data collected by the

have ignored these non-solicitation rules by – for

AMF on the size of the industry includes dedicated

example – issuing back-dated documentation certi-

mandates, whereas the figures published by

fying that funds have been sold in response to

Asterias refer only to funds open to investment.

unsolicited demand from clients.

Inevitably, the results are very different.

Sophie van Straelen, managing director, Asterias

Nevertheless, Rogers and others believe that, as

“The AMF data says that assets in funds of funds

and when the regulations on local marketing are

are up 30% in 2007, which is strictly speaking cor-

lifted, the French hedge fund industry has the po-

rect,” she says. “But our figures on funds open to

tential to see turbo-charged growth.

investment show the market to be flat.” Specifically, Asterias puts the size of the entire

Optimistic for the future

French hedge fund industr y (including offshore

Those who believe accelerated liberalisation is

and French regulated funds) at a little over €90 bil-

only a matter of time have no shortage of grounds

lion in September 2007. That is very slightly down

for optimism. After all, French hedge funds have

on the total in September 2006, but the lion’s share

for the most part performed resiliently during the

of the decline is accounted for by enhanced cash

recent global downturn and, with leverage levels

“We were very impressed at how ready the AMF was to promote alternative funds. In 2000, it would have taken us between six months and a year to get the approval we needed to set up a new hedge fund. In 2007, the whole process took no more than about two months” David Lenfant, managing partner, Laffitte Capital Management

generally low or non-existent in the local hedge fund community, there have (to date) been no French equivalents of the recent upheavals at Peloton, Focus Capital and elsewhere. Additionally, leaving aside one or two sideswipes from President Sarkozy motivated principally by political expediency, there has been little in the way of enflamed public opposition to the concept of hedge funds – with managers generally not portrayed by the popular French press, as in some

single-manager funds (down by more than quar-

6 SPECIAL REPORT APRIL 2008

other European countries, as the source of all evil.

ter) and enhanced cash funds of funds. While

Nor have the regulatory authorities sought to in-

growth in ‘pure’ cash funds of funds was flat, pure

sulate even modestly well-heeled retail investors

single-manager funds were up by more than 32%.

from the hedge fund industr y, as many of their

That is not bad for a countr y in which, ostensi-

European counterparts have. The minimum legal

bly, there has been some political hostility towards

subscription to hedge funds in France of just

the hedge fund industr y which has been as unin-

€10,000 is low by European standards.

formed as it has been vocal, with some newspaper

Sympathetic regulation in isolation would not, of

headlines in 2007 suggesting that President

course, be enough to sustain the continued

Sarkozy was preparing to “declare war” on hedge

strengthening of Paris’s standing as a centre for

funds. Nor is it bad for a regime in which, strictly

hedge fund management. But, as local managers

speaking, the law continues to impose fairly dra-

point out, the city has plenty of other attractions.

conian limitations on what hedge fund managers

And the proof is that a number of managers with a

can and cannot do.

very international orientation are still happy to re-

“Although the AMF has moved in the right di-

tain Paris as the hub of their global operations.

rection with steps such as the authorisation of

Take, as an example, a player like Société

funds of funds, the main issue in France today is

Générale’s subsidiary Lyxor, which manages some

the marketing of hedge funds,” says Rogers at

$40 billion in alternative assets.

Simmons & Simmons. “The fact is that true hedge

“In truth, we’re not very French,” says Dubois.

funds, or offshore vehicles with no legal or regula-

“Although we’ve been in the hedge fund business

tory constraints on the contents of their portfolios,

since we were set up in 1998, we have many more

still can’t be marketed in France – even to qualified

end-investors in Switzerland than we do in France, ©HedgeFund Intelligence

FRANCE OVERVIEW

and our main institutional clients are in the UK,

with the scientific community, which have helped

the Netherlands and Japan.”

us to attract top-quality people whom we can teach to become excellent quants who know how to be-

Close to its roots

come efficient alpha generators,” says Aguilar.

L yxor has, however, remained true to its Paris

“Second, we are very firm believers in the develop-

roots, for a number of reasons. Aside from keeping

ment of a structure and a culture where people

the firm close to the engine room of Société

exchange ideas and cross-fertilise rather than

Générale’s derivatives department, the efficiency

compete with one another. To do that, we need a

of Eurostar means that central London is a little

lot of stability and a low staff turnover level, which

over two hours away – which, as Dubois remarks,

we have achieved by paying people in line with in-

makes Paris a pleasant suburb of London. He also

dustry standards and promoting values which they

says that it is generally easier to retain good peo-

share. I’m not sure that we would be able to main-

ple in Paris, while a number of French-based

tain that culture if we hired people from Wall

managers add that the higher educational system

Street or the City.”

in France is in many ways more conducive to

Whether or not France will be able to leverage

preparing young graduates for a quantitative ca-

attractions such as its much friendlier regulatory

reer in finance than it is anywhere else.

environment, low staff turnover and quality of

That has made France an attractive recruiting ground for a firm like Capital Fund Management (CFM), which was established by Jean-Pierre Aguilar in 1991 and has built a reputation for encouraging a highly scientific-based approach to its well-regarded research. That emphasis on research is perhaps best illustrated in the CV of its chairman and chief scientist, Jean-Philippe Bouchaud – one of 28 PhDs now at

quant experts to encourage some of the top

“In France, if you look back to 2007, according to the AMF the hedge fund business was one of the rare areas that posted growth in assets under management, even though inflows were flat in the second half of the year” Fabrice Cuchet, global head of alternative asset management, Dexia Asset Management

the firm. Among his various achievements, Bouchaud won the IBM Young Scientist prize in 1990, teaches statistical mechanics and finance at

London-based French hedge fund managers to re-

various grandes écoles and is the co-author (along-

turn to Paris is open to debate. The main

side CFM’s managing director of research, Marc

determinant of where talented hedge fund man-

Potters) of the Theory of Financial Risk and

agers choose to locate, say many Paris-based

Derivatives Pricing, published in December 2003

observers, has more to do with tax considerations

by Cambridge University Press.

and personal preference than with regulation or market trends.

A scientific approach But is not just the capacity of France’s grandes

Two-way street

écoles and other educational establishments to pro-

And, while a number of French managers have

duce a deep reser voir of mathematical geniuses

chosen to base themselves in London rather than

that has been so attractive to firms like CFM. Just

Paris, the traffic has not been all one-way. Albion

as important has been the tendency of French-edu-

Asset Management, for example, looks like a small

cated, Paris-based scientists-turned-financiers to

enclave of the UK hedge fund industr y in the

flit from one position to the next much less fre-

swankiest Paris arondissement. Albion was estab-

quently than their counterparts in financial centres

lished in 2005 by Sean Hurst, who in 1998 had

such as London and New York.

established the closed-end fund arbitrage desk at

When EuroHedge inter viewed Aguilar in 2006,

BNP Paribas, and co-founder Hannah Rossiter,

he explained that he made a point of never hiring

who qualified as a solicitor at Clifford Chance be-

from Wall Street or the City of London and, in

fore moving to ABN Amro.

2008, he sees no reason to abandon that policy, for two reasons. “First of all, we have ver y close relationships 8 SPECIAL REPORT APRIL 2008

Albion’s

flagship

product,

launched

in

September 2005, is the Albion Fund, an offshore 100% market-neutral, closed-end fund arbitrage ©HedgeFund Intelligence

OVERVIEW FRANCE

fund. But, given that closed-end funds are some-

when they come we are on their list of people to

thing of a closed book to the French financial

visit,” she says.

community, Paris seems an odd location for the

She adds: “When we did the budgeting, we re-

fund. Even stranger, at first glance, is Albion’s

alised Paris would be considerably cheaper than

choice of premises in Rue de la Paix, more or less

London.” Managers’ salaries, she says, are consider-

midway between Cartier’s flagship store in Paris

ably lower in Paris than in London, although many of

and Place Vendôme, a prestigious address even by

those savings are eroded by much higher social se-

the standards of French hedge funds.

curity costs.

Rossiter says that Albion is based in Paris largely

External compliance costs, however, are also

for personal reasons, and that the firm was one of

much lower in France than in the UK: while audit

the first to benefit from the new regulatory regime

fees for modestly-sized asset management compa-

designed to attract managers of offshore funds to

nies can reach £75,000 or £80,000 per year in

Paris. She says that there have been obvious pros

London, Albion has been able to secure the equiva-

and cons associated with being based there.

lent ser vice in France for €5,000. “With the

“We are slightly more removed from what’s

exception of social security costs I would say that it

going in the market than we would be if we were in

is easier to manage your overheads in Paris than in

London, but there are a sufficient number of hedge

London as long as you’re running a fairly small and

funds based here to justify client visits to Paris, and

efficient team,” says Rossiter.

SEARCHING FOR NEW HORIZONS Both at the single-manager and the fund of funds level, French hedge fund managers have been clocking up their frequent-flyer accounts in recent months. Early this year, for example, a delegation from the leading independent French hedge fund group, ADI, visited China where, in October 2006, it had lodged an application for a QFII (Qualified Foreign Institutional Investor) licence. According to Philippe Paquet, ADI’s executive vice president for business and strategic development, ADI expects to have its status approved by this summer, adding its name to a small inner circle of four French firms that were recognised as QFIIs at the start of 2007 – BNP Paribas, Société Générale, Crédit Agricole and Edmond de Rothschild Asset Management. For ADI, a QFII licence would reinforce a commitment to emerging markets that has been increasingly in evidence over the last year or so. In February, it launched a multi-strategy Asian fund combining long/short and relative value strategies, which is managed by a team of four, including two Chinese fund managers and one from India. “China is a very important market for us,” says Paquet. “It has developed considerably in terms of liquidity and sophistication, and a futures market is due to open this year. But our team has also established very good relationships with local players in markets like mainland China, Hong Kong and Taiwan where we are seeing improved information flows and have increasingly good market access.” ADI is one of a number of French hedge fund managers – with HDF and AAAM other prominent examples – that are planning to open a new office in Asia this

©HedgeFund Intelligence

year, which in ADI’s case will be a research-oriented operation in Hong Kong. Another Paris-based fund of hedge funds manager who has been on the road recently is Julien Coulouarn, head of alternative investments at Natixis Multimanager. He was in Brazil in March, and he recalls that on a previous visit he was struck by how actively Brazilian banks are marketing hedge funds via their retail networks. A fund of funds manager looking for international diversification slightly closer to home is ERAAM, which in September 2007 launched the Europanel Emerging Europe fund offering exposure to funds focused on central and eastern Europe, the former Soviet Union and Turkey. Cyril Julliard, ERAAM’s president and co-founder, says that this long/short equity fund has performance and volatility targets of up to 20% and around 10%, respectively, which are high by French standards. By the end of 2007, the new fund had attracted inflows of some €35 million and had returned 5.5%, although much of that advance was reversed in the early weeks of 2008. “French investors have tended to favour multi-strategy funds, but we think they will increasingly look to the opportunities provided by thematic products, which is one of the reasons we launched the eastern European fund,” says Julliard. “We also believe that the future growth in Europe will come from the east rather than the west. But, with some of the central European markets looking overvalued, a long-only fund might be seen as too risky – which is why hedge funds are probably the best way to benefit from the potential of the region.”

Julien Coulouarn, head of alternative investments, Natixis Multimanager SPECIAL REPORT APRIL 2008 9

FRANCE FUNDS OF HEDGE FUNDS

Funds of funds start to gather momentum

The French hedge fund market, while it has expanded in recent years, is smaller than it could be, according to the regulator. A new report recommends scrapping one of the most onerous requirements for funds of hedge funds, which could offer a needed boost

Marc Landeau, chief executive officer and founder, Olympia Capital Management

Although funds of hedge funds (FoHFs) – OPCVM

has been welcomed warmly by the hedge fund in-

de fonds alternatifs – have clearly spearheaded the

dustry in Paris, chiefly because it recognises that

expansion of the French hedge fund market in re-

managers are responsible adults who neither de-

cent years, their growth since the passage of the

serve nor need to have highly prescriptive and

regulatory framework in 2003 has not been enough

bureaucratic regulations stuffed down their collec-

to satisfy all market participants.

tive throat.

“Despite [their] sustained growth, the working

The removal of a layer of red tape, widely re-

group found that total assets managed by regulated

garded as wholly unnecessary, will have been

alternative investment vehicles still accounted for a

especially well received by smaller firms. “We have

disappointing 1% or so of the total assets of AMF-

somebody who spends all his time studying fund

authorised funds.” So said the AMF in its landmark

prospectuses through his 13-criteria glasses,” says

report, On the assessment of the French regulatory

Marc Landeau, the well-regarded veteran of the

framework for funds of hedge funds and on possible

French hedge fund market who founded Olympia

areas of improvement, published in September 2007

Capital Management in 1989. “Our size means we

by a working group chaired by Philippe Adhémar, a

can afford to do that. But for smaller companies, it’s

member of the AMF board.

a luxury.”

Although managers say that there has been a con-

Now that Article 411-34 has been consigned to the

spicuous increase in exposure to FoHFs since the

dustbin and replaced with a more digestible limit of

estimates published in the AMF report – in part

four requirements, Olympia’s 13-criteria specialist

driven by deregulation allowing caisses de retraite

will be deployed elsewhere in the firm and man-

(retirement funds) to put 10% of their assets in

agers throughout the FoHF community will heave a

FoHFs – one manager describes overall French in-

collective sigh of relief.

vestors’ allocations as “ridiculously low”.

“The proposals in the Adhémar report are very intelligent because they transfer more and more

Scrapping criteria

responsibility to the management company, with the

The key recommendation of the Adhémar report is

regulator retaining the right to intervene if neces-

the scrapping of the 13 regulatory criteria that were

sary,” says Landeau. “That is how it should be,

painstakingly drawn up in 2005 governing the eligi-

because this is essentially an entrepreneurial busi-

bility of underlying funds (Article 411-34). In truth,

ness that needs to be regulated, but managed in an

most of those criteria could scarcely be described

entrepreneurial way.”

as onerous or unreasonable and were, in the words of one Paris manager, “easy enough to live with”. Nevertheless, the proposal to do away with them 10 SPECIAL REPORT APRIL 2008

Other specialist FoHF managers also welcome the AMF’s recommendations, but add that they either expect or would like to see further easing of ©HedgeFund Intelligence

FUNDS OF HEDGE FUNDS FRANCE

regulation. “The regulatory environment is cer-

“We are very positive about the outlook for asset-

tainly moving in the right direction,” says

raising among French institutions in 2008 because it

Christophe Chouard, managing director and head

is clear that FoHFs are viewed as the best way for

of sales at HDF Finance, which was established in

them to access the market for alternative asset man-

1986 by Gilles du Fretay, and is widely regarded as

agement,” says Julliard.

having been a pioneer in the development of FoHFs

Certainly, the inflows reported by the leading

in France. “For example, we are hopeful that the

French FoHF managers in 2007 – as well as in pre-

AMF may accept the concept of redemption gates.”

vious years – suggest that the sector has been

There are other weaknesses in the market that

gathering an impressive head of steam. It also indi-

Chouard hopes will be addressed soon by the

cates that the largest players are increasing their

AMF. “We still believe that the AMF’s reporting

stranglehold in what is already a fairly concen-

standards aren’t transparent enough because all

trated market.

FoHFs are put into the same category, when it is

In terms of pure FoHF management, they don’t

very clear that there are so many different

come any larger than Allianz Alternative Asset

strategies and varying risk/reward profiles in the

Management (AAAM), which was originally estab-

FoHF universe,” he says.

lished as AGF AAM in 1997, but was fully integrated

“For the investors’ sake, we would like to see the

into the global Allianz Group in 2007. Today, accord-

AMF building a segmented regulatory environ-

ing to Karim Valimamode, a director at AAAM, the

ment for FoHFs, just as it did for long-only funds.

company has a total of about €8.5 billion under man-

That would make the performance of FoHFs much

agement, principally in FoHFs. “The top five FoHF

more comparable and therefore mean that rank-

managers represent about 64% of the market, and we

ings make more sense.”

are the largest and one of the fastest growing, having

In a similar vein, Chouard says that he would also

posted cumulative asset growth of 54% between 2000

like to see a clearer distinction made between FoHFs

and 2007, while the industry as a whole grew by

with absolute-return objectives and those that aim to

32%,” says Valimamode.

outperform equity benchmarks – for example, by

2007 was, however, very much a year of two

mixing long-only and long/short equity funds,

halves for AAAM. In the first half of the year alone, it

which three of HDF’s FoHFs do. “Those products

saw inflows of more than €1 billion, but those were

are still put in the same basket as absolute return

eroded sharply in the second half of the year, chiefly

funds, when they are really competing with long-

through redemptions in AAAM’s Multi-Alternative

only funds,” says Chouard.

Fund. With 75% invested in alternative strategies and

Karim Valimamode, director, Allianz Alternative Asset Management

the balance in money market funds, and with no

Predicting a surge

penalties for redemptions, the €1.2 billion Multi-

Nevertheless, the constructive suggestions made by

Alternative product – which is the third-largest

the AMF are one reason many Paris-based man-

FoHF on the market – has proved to be highly attrac-

agers predict a surge in demand for FoHFs.

tive to private banks.

One manager looking confidently forward to the

Redemptions in this fund saw total net inflows for

expected growth in the market is Cyril Julliard, pres-

2007 reduced to €600 million, according to

ident and joint founder of Europanel Research and

Valimamode, with institutional support for AAAM’s

Alternative Asset Management (ERAAM), which

broad range of funds remaining stable. “Our portfolio

has some €1 billion under management and focuses

of FoHFs is one of the industry’s most diversified in

exclusively on European funds of funds.

terms of risk/reward profiles, with products ranging

Julliard points to the findings of a recent poll, pub-

from those targeting a return on EONIA plus 100bp

lished by the local Gestions Alternatives magazine,

through to our long/short equity FoHF which has a

which found that French institutional investors plan

performance target of 10% to 12%,” he says.

to double their allocation to alternative assets in

Comfortably the largest fund both in France and

2008. Granted, they will be increasing their exposure

in the AAAM range, however, is Phénix Alternative

from a very low base of around 3% of their total as-

fund, which has an eight-year track record and has

sets, which as Julliard says is well below the typical

developed impressive momentum since 2004, when it

allocation made to alternatives by institutions in the

had total assets of €700 million and returned 6.45%,

UK or the US.

which was in line with its target return of between 6%

©HedgeFund Intelligence

Cyril Julliard, president and joint founder, Europanel Research and Alternative Asset Management (ERAAM) SPECIAL REPORT APRIL 2008 11

FRANCE FUNDS OF HEDGE FUNDS

and 8%, with a maximum target volatility rate of 5%. By the end of 2005, according to Valimamode,

not least, we eliminated the leverage at the fund of funds level.”

Phénix’s assets had risen to €1.3 billion (with a re-

Christophe Chouard, managing director and head of sales, HDF Finance

turn for the year of 7.75%); in 2006, they

Top of its class

mushroomed to €2.6 billion (7.32%) and, by July

In terms of performance, however, according to a

2007, they had expanded to €3.7 billion (returning

ranking published by Asterias, the star performer

7.74%). By year-end, total assets had eased back to

in 2007 was the Multi-Alternatif Select fund man-

€3.6 billion with a performance for the year of 6.2%.

aged by Edmond de Rothschild Management

Valimamode says that Phénix’s size is demonstra-

(EdRMM), which returned 18.33% last year.

bly an asset rather than a liability. “The size of Phénix

Launched in March 2003, Multi-Alternatif Select

is a competitive advantage because it enables us to

had assets under management of €486 million at the

capture all the dynamic trends in the industry,” he

end of 2007, and has consistently outperformed its

says. “It also allows us to be much more selective be-

objective of delivering a minimum return of 8% with

cause of the strong relationships we have been able to

a volatility limit of less than 10%.

forge with our underlying managers.” In total, says

An opportunistic multi-strategy product with expo-

Valimamode, Phénix has exposure to between 110

sure to a concentrated universe of between 25 and 30

and 120 managers, and its average exposure to each

managers, Multi-Alternatif Select is one of a quartet

is no more than 70bp.

of funds within the EdRMM Multi-Alternatif range

A number of the other independent FoHF players had a very satisfactory year in 2007. Several of the

which between them had assets under management of €2.7 billion as of December 2007.

year’s best-performing funds were products man-

The largest of the four funds is the €616 million

aged by Olympia Capital Management, which was

Multi-Alternatif Equilibre Euro, targeting low volatil-

founded by Landeau in 1989, and has some $6 bil-

ity and drawdowns and a return of EONIA plus

lion under management with around 150 external

300bp, while the €594 million Multi Alternatif

managers using market-related and absolute-return

Explorer vehicle is an unusual way of providing in-

strategies.

vestors with a low-volatility route into the mercurial

“I think what continues to differentiate us from

commodities market. Launched in September 2004,

others is the combination of our process with our

Explorer is a fund of long-only commodity funds that

top-down and bottom-up expertise,” says Landeau.

has had an average annual volatility of 11.2%, com-

More specifically, he points to five reasons explain-

pared with 28% for the MSCI metals & mining index.

ing Olympia’s outperformance in 2007.

The last of the quartet, the Multi-Alternatif Equity

“First, we read the sub-prime market correctly,”

product, was launched in December 2006 and has as-

says Landeau. “Second, we brought down the beta in

sets of €19 million and, with a further €1.3 billion in its

our overall portfolio. Third, we reduced our expo-

Multigest long-only funds of funds, EdRMM had €4

sure to event-driven strategies. Fourth, we increased

billion under management in Paris out of a pan-

our exposure to global macro. And last, but certainly

European total of €11 billion. Among the other specialist, wholly-independent

LARGEST FUNDS OF FUNDS IN FRANCE

FoHF managers, HDF Finance posted net inflows of AUM 31/12/07 Total $1bn

AUM 01/01/07 Total $bn

Growth $ billion

% Growth

Crédit Agricole Asset Management Alt. Inv.

26.38

20.26

6.13

30.25%

Lyxor Asset Management

25.90

20.30

5.60

27.59%

Allianz Alternative Asset Management#

12.53

8.89

3.64

40.90%

SG Asset Management

11.49

8.40

3.09

36.79%

HDF’s largest funds are its multi-strategy fund,

5.68

4.80

0.87

18.17%

HDF Multi-Alternatives, and its long/short inter-

HDF Finance

5.60

3.85

1.75

45.45%

national equity fund, HDF Global Opportunities,

UFG Alteram

5.21

2.84

2.37

83.51%

both of which delivered returns in 2007 that were

Crédit Agricole Structured Asset Management*

2.70

2.70

0.00

0.00%

in line with their historical annualised averages.

Rothschild Alternative Investment Division

2.40

1.69

0.71

42.22%

But an especially popular HDF product in 2007,

Loze & Associes

1.50

1.22

0.28

22.95%

ERAAM

1.36

1.18

0.17

14.53%

100.75

76.13

24.61

32.33%

Fund of hedge funds

Olympia Capital Management

Total *estimate

#

Formerly AGF Alternative Asset Management

12 SPECIAL REPORT APRIL 2008

Source: InvestHedge Billion Dollar Club Survey

about €800 million in 2007. That healthy rise, twinned with continued inflows in the early weeks of this year, had increased total assets to close to €3.8 billion by the end of February 2008.

says Chouard, was its multi-strategy fixed-income fund, HDF Optimix, which returned just over 5% last year and offers ver y low correlation both to ©HedgeFund Intelligence

Sometimes, Words are Useless. Excellence, at a Glance.

HDF Eurovest* leads the way. #1 - Best Return Over 5 Years #1 - Best Sharpe Ratio Over 5 Years 320

Source: InvestHedge, November 2007 Issue

300 280

HDF Eurovest + 123%

260 240 220 200 180 160 140 120 100

MSCI Europe EUR with Dividends + 12%

80 60 40

01/00

01/01

01/02

01/03

01/04

01/05

01/06

01/07

01/08

Inception of HDF Eurovest: 1 December 1999

HDF, the Excellence in Funds of Hedge Funds HDF provides superior investment solutions to institutional, corporate and private clients. It is one of the first established independent asset managers in France and is regulated by the French financial markets regulator AMF. Since its creation in 1986, HDF’s sole activity has been the management of alternative and long only multi-manager funds. The Funds of Hedge Funds managed by HDF are either multi-strategy or single-strategy funds covering all asset classes and regions. HDF currently manages US$6 billion**, and operates 5 offices, Paris, Brussels, Geneva, New York and Singapore.

For more information, please contact Christophe Chouard +33 1 44 17 12 65 or visit www.hdf-finance.com * S&P AA-rated ** as of 29/02/2008 Past performance is not necessarily indicative of future results.

FRANCE FUNDS OF HEDGE FUNDS

“The proposals in the Adhémar report are very intelligent because they transfer more and more responsibility to the management company, with the regulator retaining the right to intervene if necessary” Mark Landeau, chief executive officer and founder, Olympia Capital Management

bonds and equities.

order to support the extension of its research capa-

“We have demonstrated very clearly that our

bilities to include a broader range of US hedge

multi-strategy FoHFs have consistently provided di-

funds. Also in the pipeline is a new office in

versification and decorrelation over a long-term

Singapore to strengthen client distribution and

horizon, although not on a weekly basis,” says

manager research in Asia.

Chouard. “But, in the volatile environment of 2007,

Chouard is eager to stress, however, that one of

we said that investors who have an issue with weekly

the lessons learned from the intense volatility of

correlation should switch to a product like Optimix

2008 is that caution needs to remain the watchword

which has no correlation either to equities or to

as far as growth strategies are concerned. “One way

fixed income, which is why investors love the

to grow very quickly is to offer better redemption

Optimix product.”

terms to your clients than those offered by the un-

Chouard says that HDF’s objective is to grow, but

derlying hedge funds,” he says. “But, as some FoHF

never at the expense of returns. He adds that an an-

managers found last summer, the danger is that you

nual growth of up to 30% is in line with this objective,

risk facing massive redemptions when there’s a cri-

and will be achieved through a combination of devel-

sis. That is not a risk that we are prepared to take.”

oping new products and broadening the distribution of existing FoHFs.

Strong growth in assets under management is also reported by another FoHF specialist, Géa

The most recent addition to its product suite,

(Gestion Equilibrée Alternative), which was set up

launched at the end of last year, is the HDF

in December 2004 by France’s ADI (which holds

Alternative Long Term Fund, which by the end of

49.99% of the equity) and Lombard Odier Darier

February this year had gathered some €20 million of

Hentsch of Switzerland (with the remaining 50.01%).

assets under management.

“The idea behind the creation of Géa was to com-

“Our view was that there are some attractive re-

bine the very strong client relations that ADI had

turns to be generated for a product with a notice

developed – mainly with French institutions – and

period some way between conventional funds of

the manager selection skills that Lombard Odier

funds and private equity,” recalls Chouard. “Last

had built up since the early 1990s,” explains Nicolas

summer’s crisis was a reminder that you can’t have

Gomart, deputy chief executive of ADI and chair-

good liquidity, high returns and controlled risks at

man of Géa. “In a little over three years, assets

the same time. So, by launching a product which

under management have reached almost €700

sacrifices some liquidity by having a two-year re-

million, meaning that Géa has grown into an

demption period, we believe we will still be able to

autonomous company that has established a

offer annual returns of somewhere between 15% and

successful brand name.”

20% on average.” Within the HDF Alternative Long Term Fund,

Géa now manages a quartet of musically-named FoHFs. The most recent of these, launched last year,

says Chouard, HDF will be investing in four princi-

Andante, is a so-called contractuel vehicle in the

pal strategies: distressed or dislocated markets; new

form of a fund of funds of funds (F3). This was cre-

or niche markets; individual distressed corporate sit-

ated for a very specific group of investors with a

uations; and long-term long/short equity. The

requirement to cap volatility at a very low 2% and a

common theme running through these strategies,

performance target of EONIA plus 100bp.

he says, is that in each case the fund manager needs

The other three are described by Gomart as more

time to convert opportunities into returns. “In this

classical hedge funds, with Moderato and Allegro

fund, we won’t be looking at hedge funds that see so

both being multi-strategy products launched in

much new money flowing in that they can tighten

2005. As its name suggests, Moderato is the less ag-

their redemption terms,” he adds. “Instead, the

gressive of the two, aiming to return between 5% and

focus will be on exploring new strategies that need

7% with a volatility of around 3%. Allegro aims at

time for opportunities to be turned into return.”

brisker returns of 8% to 10%, with volatility not exceeding 6%.

Two-pronged strategy

14 SPECIAL REPORT APRIL 2008

In 2007, the beat quickened when Géa added

The other prong to HDF’s strategy for growth in

Presto to its FoHF ensemble. Gomart explains that

2008 is geographical expansion. In the coming

Presto is a long/short equity FoHF designed as a

months, HDF plans to open an office in New York in

substitute for equity exposure with reduced volatil©HedgeFund Intelligence

FUNDS OF HEDGE FUNDS FRANCE

ity. “The official target is to outperform 50% of the

“It’s a bit like the wine market. If you want to get

MSCI World Index in euros but, unofficially, we are

your hands on a few bottles of vintage Chateau

aiming to access two-thirds of the upside movement

Petrus, you need to have the right relationships with

in global equities with exposure to only a third of the

producers.”

downside,” says Gomart. “This is what we have de-

Géa is looking to add more products to its suite,

livered to date. In fact, we have outperformed the

with the aim of increasing its assets under manage-

MSCI stock index by a significant margin. The other

ment to €1 billion, including one with a longer

two funds were also within their performance tar-

lock-up period that is able to respond to longer-term

gets at the end of 2007.”

opportunities (as HDF’s recent addition has), and

As of the start of March 2008, Allegro had assets of

another with fewer liquidity restraints for investors.

about €330 million, with €230 million in Moderato

“For regulatory reasons, there is a big potential in

and approximately €50 million in each of Presto and

the life insurance market for products with redemp-

Andante. Generally, says Gomart, Géa’s FoHFs will

tion periods of fewer than 30 days,” says Gomart.

“It’s a bit like the wine market. If you want to get your hands on a few bottles of vintage Chateau Petrus, you need to have the right relationships with producers” Nicolas Gomart, deputy chief executive, ADI; chairman, Géa

be invested in between 80 and 90 funds, with between 300 and 400 monitored on an ongoing basis.

Best year ever

But, as he adds, monitoring hedge funds and manag-

Rising local demand for FoHFs has been an espe-

ing relationships with managers is more of an art

cially welcome trend for the broadly diversified,

than a science.

investment management subsidiaries of several lead-

“Maintaining an open and trustful dialogue with

ing French banks. “We had our best year ever in

hedge fund managers is part of the story as it allows

2007,” says Xavier Lépine, chairman of the manage-

you to capitalise on good opportunities,” he says.

ment board at Groupe UFG, the subsidiary of Crédit

Systeia Capital Management 43 - 47 Avenue de la Grande Armée 75116 Paris Tél. : +33 1 58 44 12 50 Fax : +33 1 58 44 12 69

w w w . s y s t e i a . c o m ©HedgeFund Intelligence

SPECIAL REPORT APRIL 2008 15

FRANCE FUNDS OF HEDGE FUNDS

Mutuel Nord Europe.

Oliver Ramé, head portfolio manager, UFG Alteram

our flagship FoHFs are extremely diversified.”

In total, Groupe UFG had assets under manage-

Liquidity is also very important. “When we do

ment at the end of 2007 of over €21 billion. Some 42%

due diligence on hedge funds we make absolutely

of that total is categorised as being in alternative as-

certain that they maintain a balance between the

sets, of which real estate investment accounts for

liquidity of their assets and liabilities,” says Ramé.

58%, FoHFs for 39% and private equity for 3%.

“We have seen that funds without redemption

Of those three business lines, FoHFs have been

gates, clearly defined notice periods or low-fre-

comfortably the fastest growing, with assets under

quency redemption schedules are at risk from

management growing by €1.5 billion, or 60% in 2007,

investors rushing for the exit in times of stress.

which made UFG Alteram one of the five largest

And, in all market crises without exception in re-

beneficiaries of inflows into the French fund of

cent years, it has been the illiquid strategies that

funds market.

have been most hurt.”

UFG Alteram’s product range has been con-

Robust demand for FoHFs has been very wel-

structed around a well-diversified stable of absolute

come to those diversified managers, which saw a

return and directional single-strategy and multi-

notable hike in redemptions for their enhanced

strategy funds. Volatility targets range from a very

money market (cash plus) funds in 2007. Société

low 1% in its enhanced money market funds through

Générale Asset Management (SGAM), for example,

to racier target bands of between 3% and 10% in its

had a total of €357.7 billion under management at the

long/short equity fund, benchmarked against the

end of 2007, of which 18% was accounted for by alter-

MSCI World Index, and to between 5% and 12% in

native investments – a category that includes hedge

the Alteram Asia product. In general, however, the

funds, private equity, real estate, index fund manage-

priority at UFG Alteram has been on delivering con-

ment and active structured asset management, of

servative returns.

which dynamic or enhanced money market funds

“It’s important to emphasise that our products

are a component part.

have been designed to fit the needs of our French in-

It was redemptions from those instruments that

stitutional investor base, not those of private banks

eroded the year’s inflows for SGAM as a whole,

or high-net-worth individuals, who tend to look for

which totalled €11.3 billion. In the last quarter of

very high returns through hedge funds,” says Oliver

2007, however, outflows reached €8.2 billion, of

Ramé, UFG Alteram’s head portfolio manager. “Our

which €6.3 billion was accounted for by redemptions

products are well diversified both in terms of strate-

from dynamic money market funds.

gies and the number of underlying funds, ranging from long/short equity to risk arbitrage and CTAs.

Strongest growth area

Our main strength is that, in very uncertain mar-

Arié Assayag, head of hedge funds at SGAM, says

kets, we have been delivering exactly what we have

that the FoHF business, which SGAM first entered in

promised. Rather than promise returns of 12% or

2000, is now probably the strongest growth area

15% a year we aim to deliver closer to 5% to 8%, or

within its broader hedge fund franchise, which em-

EONIA plus 100bp to 500bp. We don’t claim these

ploys just over 130 professionals in New York,

are the most exciting products, but they do consis-

Tokyo, Hong Kong, London and Singapore, as well

tently offer low volatility and low drawdowns.”

as at its headquarters in Paris. In total, Assayag’s group has assets under management of approxi-

Conservative style

mately €8.7 billion, of which €5.5 billion is in FoHFs,

UFG Alteram’s conservative management style is

with €1 billion in single strategies, €1.2 billion in

reflected in a number of ways. As Ramé says, diversi-

long-only funds and €1 billion in portable alpha.

fication is key. “We could probably provide juicier

“We have a large product range, but the common

returns if our funds were more concentrated,” he

theme throughout our products is that we are

says. “But our policy is generally to limit the maxi-

always looking to add alpha, which can mean

mum weight of any single manager within any FoHF

sourcing alpha through our FoHF programme,

to a fairly low level of 4% or 5%. Although some of the

separating alpha from beta in our volatility pro-

more specialised products such as the long/short

gramme or creating alpha through product

European equity or the event-driven funds have be-

structuring,” explains Assayag.

tween 25 and 28 managers, which is relatively low, 16 SPECIAL REPORT APRIL 2008

To Assayag, one of SGAM’s principal strengths is ©HedgeFund Intelligence

FRANCE FUNDS OF HEDGE FUNDS

in identifying opportunities in new hedge funds at an

10.3% in 2007 and benefits from all the expertise we

early stage in their development, and in accessing

have built in the FoHF arena, but with the short liq-

top quality funds earlier than others. It was SGAM’s

uidity terms imposed by the French law.”

confidence in its ability to identify rising stars in the

More recent additions to the SGAM repertoire

sector that was behind the launch in 2005 of Starway,

have focused on thematic opportunities. At the start

the incubator that was set up as a Cayman-registered

of January 2007, it launched Optimum Asia, which is

master-feeder fund of funds. “We were an early

managed in Tokyo and invests in Asia-based man-

mover with Starway, which has been extremely

agers, rather than in those trading Asian assets from

successful, with assets now amounting to almost

the US and Europe.

$500 million,” says Assayag.

At the start of 2007, SGAM also launched

At the other extreme of the SGAM portfolio is

Premium Value, which is even more concentrated

Premium, the FoHF that focuses on accessing

than Premium itself, focusing on around 15 deep

the world’s most prestigious funds. “Premium

value managers, and which aims at delivering a

invests in funds that are difficult to access,”

return of 15%. “Premium Value has been very suc-

Assayag explains. “We have built a ver y strong

cessful,” says Assayag. “It has returned about 22%

network enabling us to access these funds

since inception with low volatility of about 4.5%.”

because our portfolio managers are former invest-

Another area where SGAM claims strong com-

ment bankers who are able to benefit from close

mitment and expertise is in volatility trading –

ties and relationships they have developed with

given the group’s experience in this area since 2001

the world’s best hedge fund managers.”

and the depth of its derivatives research over the years. “We are ready to offer our investors highly

Exposure to 20 managers

sophisticated strategies based on volatility,” says

Premium, says Assayag, has exposure to around 20

Assayag – pointing to the Global Volatility Fund, a

managers – with its current line-up including leading

multi-asset class volatility arbitrage fund launched

players such as Tudor, Moore, Caxton, Brevan

in 2005, and to the more recently launched Short

Howard, Millennium and Highbridge. Premium also

Bias Fund, which is described as “an equity beta-

has a performance objective of Libor plus 800bp with

reducer for investors that have a natural equity

volatility of less than 6%, and leverage of up to 200%.

exposure in their portfolio.”

By January 2008, its total assets under management had reached $1.74 billion.

ment groups, within the larger Société Générale

With assets of $787 million, SGAM’s Optimum is a

empire, can be challenging. Indeed, it is telling that in

fund of around 30 managers, 50% of which are the

the asset management supplement to its fourth-

same as the managers in Premium. Its performance

quarter results presentation for the group as a

target is Libor plus 700bp, with a maximum volatility

whole, Société Générale adds a note emphasising

of 6% and leverage of no more than 150%. Next in

that its total breakdown of assets under management

terms of size is Equilibrium, a fund of about 50 man-

excludes the €72.6 billion managed by Lyxor at the

agers with $466 million of assets, maximum volatility

end of December 2007.

of 3% and no leverage.

18 SPECIAL REPORT APRIL 2008

Filtering through the various hedge fund manage-

It is easy to see why. Lyxor’s three flagship FoHFs

Those three flagship products, says Assayag, an-

are the Lyxor Diversified Fund (LDF), the Lyxor

swer to a wide range of investor preferences. “If

Global Alternative Fund (LGA) – both of which are

clients need more flexible liquidity terms, Optimum

FoHFs based on Lyxor’s managed account platform

and Equilibrium, which have monthly redemption

of 170 funds – and the multi-strategy Turquoise

periods with 30 days, are more flexible than

Fund, a FoHF which invests in external hedge funds.

Premium, which is quarterly with 45 days,” says

The L yxor managed account platform has been

Assayag. “Similarly, if clients are looking for more

the centrepiece of its hedge fund business since it

diversification and no leverage, we will guide them

was created in 1998, offering access to the broad-

towards Equilibrium.”

est range of alternative investment strategies.

He adds: “Our products can also fit with onshore

“We strongly believe that the managed account

regulation. Typically, we serve our natural French

platform is the best way of providing exposure to

client base with AMF-regulated funds, like SGAM

the world’s best asset managers in a highly trans-

Alternatif, which has returned 10.46% in 2006 and

parent

environment,”

says

Alain

Dubois,

©HedgeFund Intelligence

FUNDS OF HEDGE FUNDS FRANCE

chairman of the board at L yxor. “About two-

turns capable of performing in a number of different

thirds of the managers on the platform are from

markets,” says Fabrice Cuchet, Dexia AM’s global

the US and include clear market leaders such as

head of alternative asset management.

Paulson, which has been on the platform since

In the last 12 to 18 months, Dexia AM’s octet of

2001. Ever ybody and his sister wants to build a

FoHFs has continued to be an important part of its

managed account platform, but I think they

product range, led by the Luxembourg-registered

would find it ver y hard to replicate the quality

World Alternative Alphamax, which was launched in

and the track record that we’ve built up at

2001 and had assets of €2.2 billion at the end of 2007.

L yxor.”

The flagship fund, Dexia World Alphamax, returned

Lyxor’s most recent initiative building on that

9.26% in 2007 with volatility of 2.62% – comfortably

track record has been the launch of 14 indices based

within its return targets of 8% to 10% with a maxi-

on all the strategies in the platform, together with a

mum volatility of 5%.

composite index representing the entire hedge fund

A smaller but fast-growing player in the FoHF

universe. “The managed account platform is the per-

market is Natixis Multimanager, which was formed

fect universe from which to construct indices,” says

in July 2007, following the merger of Ixis Private

Dubois. “We know that there is very strong demand

Capital Management and Natixis Asset Square, and

for indices from funds that want to build passive

had more than €6.3 billion under management at the

allocations, and new regulations now allow

end of 2007. Of that total, about €1 billion is in a

European-coordinated UCITS to invest in hedge

range of multi-strategy FoHFs, with a further €1.2

fund indices.”

billion in cash-plus funds and the balance in long-

The other hedge fund manager in the Société

only products.

Générale group is Barep Asset Management,

According to Julien Coulouarn, head of alterna-

which is 100% owned by SGAM. Barep was estab-

tive investment, the merger that created Natixis

lished in 1990 and has total assets under

Multimanager has brought clear synergies that will

management of a little over €7 billion. This total in-

provide a good launchpad for future growth. “The

cludes structured products and money market and

merger has certainly helped because we had a very

enhanced money market funds, as well as FoHFs

complementary range of funds,” he says. “Bringing

and single-strategy funds that encompass trend-fol-

us together has doubled our analytical capacity to

lowing and arbitrage strategies, emerging markets

look at investment opportunities, so it has increased

and high yield, event-driven and long/short equity

the number as well as the diversity of hedge funds

and global macro management.

that we follow.”

Boosting marketing in Asia

panded to include a wider range of funds in the US,

According to Barep’s CEO, Jean-François Valicon,

Latin America and Asia and, later this year, Natixis

between 60% and 65% of its client base is French, al-

Multimanager plans to add more capacity by in-

though the international share of that base has been

creasing its head count – both on the research and on

rising, reflecting the effort that the group has put

the operational due diligence side.

That universe, says Coulouarn, is now being ex-

into stepping up its marketing in Asia and elsewhere in Europe.

With the French FoHF market continuing to show such strong growth, will there be room for

Diversification across a broad range of strategies is

newcomers? Landeau at Olympia has reservations.

pivotal for asset management subsidiaries of other

“Of course, you can sit in your bathtub with a

large financial services groups, such as Dexia Asset

Blackberry and build a FoHF portfolio, but that

Management. Group-wide, Dexia AM had just over

isn’t likely to be very successful with French insti-

€105 billion under management in January 2008, of

tutional clients,” he says. “To do your due diligence

which alternatives and structured products ac-

properly, you need access to the single managers,

counted for about 14.5%, with its hedge fund menu

and unless they’ve known you for a long time or you

split over a range of single-strategy funds and

have a lot of money to invest, they won’t see you.

FoHFs.

That’s not because they’re disagreeable, but be-

“A consistent theme in our strategy has always

cause they have a limited amount of time. So I don’t

been to build a diversified range of funds to ensure

see every Tom, Dick and Harry coming into the

that we can offer the optimum profile of risks and re-

French FoHF business.”

©HedgeFund Intelligence

SPECIAL REPORT APRIL 2008 19

FRANCE SINGLE MANAGER HEDGE FUNDS

New faces spice up single strategy space The single manager fund has been lagging behind in France in recent years. However, a range of small, new, boutique hedge funds may find a way of shining in a market dominated by institutional operators It is generally recognised that, while the expansion of

The client base is chiefly French institutional in-

French funds of hedge funds (FoHFs) in recent

vestors, although ADI has also been growing its

years has been very encouraging, the same cannot

assets under management in Spain, Italy and

yet be said of the market for single-manager funds.

Scandinavia.

“One of the reasons single-manager funds have

Although it has been a leader in the local hedge

been less successful than funds of funds is that

fund industry for a decade, ADI’s future looked un-

French institutions, such as insurance funds, are not

certain

permitted to put more than 10% of their assets into

management, which had been growing steadily

alternatives, although in practice most are well

since 1998, suffered a sharp reversal, falling from

below that limit,” explains Nicholas Gomart. “Given

close to €5 billion to around €3.6 billion.

in

2005

when

total

assets

under

that limit, institutions prefer funds of funds because

As Fitch Ratings explains in a recent briefing:

they don’t have the resources to monitor funds or to

“Until 2005, much of the AUM was invested in en-

do the necessary due diligence.”

hanced money market funds and relied on

Gomart is deputy chief executive of ADI

convertible bond arbitrage. In 2004-2005 the fall in

Alternative Investments, which was established in

implied volatility and convertible issues hit perform-

1998 by Erich Bonnet and Christophe Bourret as a

ance hard and led to a sharp decline in assets,

specialist in single-manager products. Since then,

threatening the company’s business model.”

ADI has flourished and grown into one of France’s

ADI responded decisively, setting up subsidiaries

largest managers of single-strategy hedge funds,

in hedge fund incubation (New Alpha) and fund of

with assets under management of €5.3 billion and

funds management (Géa), both of which have

125 employees at the end of 2007. Just over 60% of

grown rapidly since their establishment in 2005. In

ADI is still owned by its founders and staff, with the

its core single-fund management franchise, mean-

French insurance company Matmut holding 33.7%.

while, ADI reinvented its business model, as Philippe Paquet, the firm’s executive vice president

TOP 10 SINGLE MANAGER HEDGE FUND FIRMS IN FRANCE Ranking Firm name

and head of business and strategic development,

AUM 1/1/08 $bn

City

Country

explains.

1

Dexia

6.20

Paris

France

“Up to 2005, our strategies and the positioning of

2

Sinopia

4.00

Paris

France

our funds had been highly defensive and based prin-

3

Capital Fund Management

3.10

Paris

France

cipally on volatility and convexity,” he says. “When

4

Boussard & Gavaudan Asset Management

3.00

Paris/London

France/UK

5

Exane Asset Management

2.45

Paris

France

the market environment changed, even though we

6

SRM

1.30

Monaco

France

had been delivering good returns there was a shift

7

Systeia Capital Management

1.02

Paris

France

in investor preference towards more directional

8

Sycomore Asset Manamement

0.95

Paris

France

strategies. So we strengthened our market position

9

SG Asset Management

0.81

Paris

France

in terms of our research capabilities, launched new

10

Barep Asset Management

0.60

Paris

France

strategies and inaugurated a presence in new areas

Source: EuroHedge Database and surveys

20 SPECIAL REPORT APRIL 2008

such as long/short equity and fixed income. ©HedgeFund Intelligence

SINGLE MANAGER HEDGE FUNDS FRANCE Basically, we moved away from an arbitrage and

taken advantage of heightened volatility and ineffi-

trading culture and towards a more research-driven

ciency in the market,” says Fabrice Cuchet, the

investment culture. We also became much more di-

firm’s global head of alternative asset management.

versified as a group with the establishment of New

“As we launched at the very start of 2007, our

Alpha and Géa.”

Volatility Opportunities Fund was obviously a big

The impact is probably best illustrated in the migration away from short-term exposure in ADI’s

beneficiary of the market environment we saw in 2007.”

overall assets under management. “In 2003, as much

Cuchet believes that Dexia AM’s focus on market-

as 60% of our assets were in short-term products,”

neutral strategies was the key element in its

says Paquet. “That share had fallen to 27% in 2006

approach in 2007 and will continue to underpin its in-

and to 22% in 2007. That is an important part of our

vestment philosophy for the foreseeable future. “If

strategy because, by their nature, short-term assets

you look at our long/short products, ranging from

generate less in terms of management fees.”

European equities to emerging market debt, our ap-

In addition to a solid increase in assets under man-

proach has been consistently market-neutral, which

agement in 2007, ADI posted a rise in income of

has provided more value-added for clients in the last

about 20%, to €60 million, and the recent or imminent

year,” he says.

launch of a number of new funds is expected to bolster further growth this year.

hedge fund industry are in long/short funds and, as those funds have an average bias of 50%, in order to

two new credit-oriented products, aimed at capitalis-

perform the industry needs positive equity markets.

ing on opportunities such as those provided by the

In European equities, our average net bias in 2007

volatility of the basis between cash bonds and CDS

was minus 1% and, since last summer, the perform-

referencing the same underlying credit, and the

ance of our European long/short fund has been

dispersion between credit indices and their

close to 10% with volatility of 3%. This was clearly

components.

very attractive for our clients who have been asking for more diversification and decorrelation.”

financial groups, Dexia AM has a larger share of as-

According to Cuchet, since its launch in 1996,

sets under management in single-strategy funds

Dexia AM has aimed to launch roughly one new

than in FoHFs. Of total assets amounting to €9.542

fund every 12 to 18 months, and he believes that

billion at the end of December 2007, €3.251 billion

policy will be maintained going forward. Over the

were in single-strategy hedge funds, with €2.17 bil-

next year or so, he says, Dexia AM plans to look at

lion in FoHFs. Of the balance, cash-enhanced

the potential of a product based on event-driven

products accounted for €3.68 billion while dedicated

strategies for commodities, a new long/short equity

institutional mandates amounted to €440 million.

fund and to explore opportunities in what he de-

Since its entry into the alternatives market in

scribes as “synthetic portfolios”. He says: “The idea

1996, Dexia AM has staked a consistent claim to

there will be to mix different risk premiums to cre-

being a pioneer in a number of single-manager

ate specific portfolio targets.”

strategies, having launched one of Europe’s first con-

Another area that Cuchet thinks will provide in-

vertible arbitrage funds in 1996 and being among the

creasingly compelling opportunities in the coming

first to extend its product suite into high-yield and

months is the credit market, with pricing disloca-

risk arbitrage strategies in 1999. More recent

tions in the leveraged loans market, in particular,

launches have included the Dexia Long Short

offering considerable potential for managers able to

Emerging Markets fund in 2004, a hedge fund vehi-

optimise the timing of their entry into the market.

cle specialising in leveraged loans, the Dexia Long

“Launching a credit-based fund with a two- to three-

Short US Equity fund in 2005 and the Dexia Global

year horizon and a reasonable lock-up period is

Event Fund in 2006.

something we may look more closely at,” he says.

The highlight of 2006/2007, meanwhile, was the

As Cuchet explains, cash-enhanced funds play a

timely launch of its Volatility Opportunities Fund at

key role in the broader diversity of the Dexia AM al-

the beginning of 2007. “Since last year, most of our

ternative product range, and he insists that,

top-performing funds have been volatility arbitrage

although products variously known as cash-plus or

products and market-neutral equity funds that have

dynamic money market funds have had a rotten

©HedgeFund Intelligence

Jean-Pierre Aguilar, founder and chief executive officer, Capital Fund Management

“Forty per cent of the assets managed by the

For example, in the autumn of 2007, ADI launched

Among the subsidiaries of the broadly diversified

“For some reason, this sector never enjoyed much success in France and, after about 17 years of existence, had only attracted about €2 billion in assets”

SPECIAL REPORT APRIL 2008 21

FRANCE SINGLE MANAGER HEDGE FUNDS

Emmanuel Martin, chief investment officer, Acropole Asset Management

press in France in the last 12 months, it is a mistake to

CFM’s clients are domestic, with about 55% ac-

tar all these products with the same brush.

counted for by the US and the remainder made up of

“The French cash-enhanced market has been

UK or Switzerland-based institutions. That client

very diversified in recent years and, if you look back

base has been attracted by consistently strong re-

to their performance since last summer, most of the

turns, generated by trading strategies based on a

problems that have occurred within the sector have

research-intensive quantitative approach, that has

been in cash-enhanced funds based on credit

rightly earned CFM a reputation for being a house

strategies,” says Cuchet. “Within Dexia AM, we

staffed by rocket scientists par excellence.

have many cash-enhanced products – including a

“If we have no research, we have no business,”

market-neutral approach to equities, another based

says Aguilar, a computer science graduate who leads

on volatility and another which is an index

a team of 75 people, more than a third of whom

arbitrage fund.

are PhDs. “It is incredible to see how many oppor-

“These last three funds have performed quite well

tunities are still left on the table. But because the

over the past 12 months and have attracted positive

entry price to the market is now higher than ever, we

net inflows over the last six months. So although the

believe you need more and more proprietary re-

negative press I read about cash-enhanced funds is

search in order to identify those opportunities and to

true for the industry as a whole, those funds that

create value.”

have used their alternatives bucket to capture mar-

Given the intensity of its research effort, there is a

ket inefficiencies without leverage, as ours have, are

certain irony that CFM was a victim of perhaps the

continuing to perform well and are even attracting

biggest blow-up to hit the French hedge fund indus-

new money. It’s certainly not the end of the road for

try in recent years, through its $400 million

cash-enhanced funds, which is what some of the pa-

exposure to a cash management programme run by

pers have been saying.”

Sentinel, a Chicago-based company that filed for

Although it is becoming increasingly well-popu-

Given that it is now sub judice, Aguilar is unable to

French single-manager universe is still dwarfed by

say much about the Sentinel case, although he ap-

the fund of funds market. The single-manager mar-

pears

ket is also one that, for a number of cultural and

considerably more satisfactory than was initially

regulatory reasons, has in many cases looked over-

feared. “From our perspective, although it was very

seas rather than to the local investor base for the

unfortunate, Sentinel is no longer a crisis, but a busi-

bulk of its clientele – in spite of the burgeoning mar-

ness to be managed,” says Aguilar. “Several legal

ket for French FoHFs which is underpinning an

actions are ongoing at the moment and we are confi-

expansion in demand from domestic managers.

dent that the chances of a high recovery rate are

One of the most striking examples of a Paris-based

confident

that

the

outcome

will

be

good.”

manager that has generated most of its business out-

In the meantime, Aguilar says it has been a case of

side France is Capital Fund Management (CFM),

business as usual, and that for the most part the

which was set up in 1991, focusing initially on pub-

firm’s client base has remained loyal to CFM

licly-offered, managed futures funds.

throughout its Sentinel mishap. “We are fortunate to

“For some reason, this sector never really enjoyed

have an investor base behind us that has been able

much success in France and, after about 17 years of

to distinguish between the Sentinel situation and our

existence, had only attracted about €2 billion in as-

value as a consistent alpha generator,” says Aguilar.

sets,” says Jean-Pierre Aguilar, founder and chief

“We suffered some redemptions, but they were

executive officer of CFM. Today, CFM’s investment

much lower than they could have been. In fact, we

range is divided into three programmes and a multi-

started 2007 with $2.8 billion under management

strategy fund (Stratus) providing what it describes

and ended the year with $3.2 billion. So, on balance, it

as “an optimal blend” of its three existing pro-

was a good year for us.”

grammes. These three are an exchange-traded

That level of performance leaves Aguilar upbeat

managed futures programme (Discus), a long/short

about CFM’s prospects for 2008, in which he hopes

equity statistical arbitrage programme (Ventus) and

that assets under management can continue grow-

an equity volatility programme (Nimbus).

ing towards the $5 billion mark, and for the

According to Aguilar, no more than about 10% of 22 SPECIAL REPORT APRIL 2008

bankruptcy last year.

lated by a range of new, small boutique players, the

expansion to the firm’s repertoire that is in the ©HedgeFund Intelligence

FRANCE SINGLE MANAGER HEDGE FUNDS

pipeline. Aguilar says that those plans include

portunities in 2006 (Acropole Convertibles Europe

launching a new 170/70 equity-based product

and Acropole Convertibles Monde), Acropole set up

named after the high-level cloud type Cirrus, which

its inaugural hedge fund, Acropole Convertibles

will be marketed through the firm’s existing outlets

Arbitrage, in July 2007. Established as an ARIA EL,

in Europe and New York, as well as via the Asian op-

the fund aims to generate an absolute performance

eration that CFM is planning to open in 2008 or 2009.

by capturing opportunities linked to movements in

“We are also looking at trading some more vanilla

implied volatility. According to Martin, the fund had

OTC products, because we believe that, if we want to

returned about 4% between inception and the start of

manage $10 billion in a pure alpha-based pro-

March, 2008 – compared with a decline of around 4%

gramme, we need to tap as many sources of liquidity

for the sector as a whole.

as possible,” says Aguilar.

Jacques Joakimides, joint founder, Acropole Asset Management

complemented by a second hedge fund, Acropole

number of other new firms launched with the ex-

Convertibles Alpha, a long/short product launched

plicit goal of plugging perceived gaps in the market.

in January, which aims to capture two sources of

For example, when Jacques Joakimides, Emmanuel

alpha, from stock-picking and convexity, which are

Martin and Nathalie Sabathier joined forces in June

relatively uncorrelated. “In very volatile markets,

2006 to create Acropole AM, they positioned them-

long/short convertible positions tend not to per-

selves as France’s first asset manager dedicated

form very well, but the fact that we are long

exclusively to convertible bonds. The founding part-

convexity in that fund is helping us a lot,” says

ners own 51% of the company, with the balance split

Martin.

between Cheyne Capital Management (with 33.5%),

The Convertibles Alpha product was launched in

UFG (14.5%) and the French insurance company,

mid-January, just as news of the scandal at Société

Matmut (1%).

Générale was about to break, and the spike in volatil-

The trio of Joakimides, Martin and Sabathier rep-

ity immediately thereafter had helped the fund to

resents the reunion of the team that developed a

return about 3.5% by early March, according to

successful convertible arbitrage management strat-

Martin. The return on both hedge funds is therefore

egy at Fortis Investments. “We launched Acropole

comfortably in line with their annualised targets.

because we were convinced by the beauty of con-

By the end of February 2008, according to

vertibles as an asset class,” says Joakimides. “But

Joakimides, Acropole was managing just under €700

we were also totally convinced that we could attract

million, roughly two-thirds of which was accounted

substantial assets by using our expertise to manage

for by the long-only products, with the balance in the

long-only and hedge funds using the same tool,

two hedge funds. Aside from the four funds,

namely convertible bonds.”

Acropole runs two dedicated accounts for pension

Martin, Acropole’s chief investment officer, explains the rationale behind putting hedge fund and long-only expertise together long before the establishment of Acropole.

funds. Joakimides says that funds of hedge funds make up about 20% of Acropole’s client base, with insur-

“The idea came about at a time when the market

ance companies, banks, pension funds and mutual funds accounting for the balance, with approxi-

were rising, which made it difficult to find interesting

mately 85% of Acropole’s assets under management

equity stories in the right sector,” says Martin. “So

in France. That share will probably diminish as

we needed to find other sources of convexity to play

Acropole steps up its international marketing.

the underlying market. In order to do that, we

Cheyne Capital, says Joakimides, will help with the

needed to get to know the options market very well,

marketing push in the UK, while in other regions he

and the best way to achieve that is to manage a hedge

says he sees no reason why Acropole should not sell

fund. Very soon we noticed that we had access to a

its products to Japan and the US.

flow than we would have had as a long-only player.”

24 SPECIAL REPORT APRIL 2008

funds, which invest in both the long-only and hedge

cap of convertibles was shrinking and valuations

much higher quality of research data and a better

Bruno de Pampelonne, chief executive officer, Tikehau Capital Partners

Acropole Convertibles Arbitrage has since been

Recent years have seen the establishment of a

“We will be positioning convertibles as a low-risk, low-volatility way for non-European investors to gain

Acropole’s franchise has developed in line with

access to the European equity market, which ought

Joakimides’ expectations. Having launched two

to be attractive for Japanese and US investors,” he

long-only funds focused on European and global op-

says. “In terms of assets under management, we are ©HedgeFund Intelligence

SINGLE MANAGER HEDGE FUNDS FRANCE

slightly ahead of schedule. Our original intention was

Tikehau’s two other funds are both onshore vehi-

to reach €800 million by the end of 2008 and €1 billion

cles described by Pampelonne as more classical

by the end of 2009.”

funds: the Tikehau Credit Fund is a FCP investing in

That pace of growth will be supported by the addi-

credit, while TIM Mezzanine focuses on the mezza-

tion of a dedicated long-only Asian convertible fund,

nine debt of small and medium-sized companies,

planned for June, and by another hedge fund, details

chiefly in France.

of which the firm is keeping under wraps for the time being.

In common with the rest of the French hedge fund industry, leverage plays no more than a minor role in

Acropole believes its principal competitors are the

Tikehau’s strategy. “We’ve always chosen to be

international convertible arbitrage funds rather than

lightly leveraged, with none of our funds leveraged by

any of the Paris-based managers. “There are plenty of

more than three times,” says Pampelonne. “We

long-only convertible funds here, but it’s hard to find

thought a year ago that the asset class was becoming

small boutiques in France doing convertible arbi-

too leveraged, and although we would like to have

trage,” says Martin. “If they do so, it’s within

been proved wrong, it is clear that this was true.”

multi-strategy funds. So we think we are the biggest convertible arbitrage fund manager in France.”

Given the continued and unprecedented turmoil in the global credit market, some may regard the

Another relative newcomer to the single-manager

timing of Tikehau’s launch either as exquisitely

market, which reckons it has spotted a gap in the

brave or as downright reckless. Unsurprisingly,

market that needed filling, is Tikehau Investment

Pampelonne is excited about the prospects for

Management, which was established in September

credit as an asset class.

2006 and is focused purely on opportunities in the fixed-income market.

“We believe this is a great time for investors to get into the credit market,” he says. “The market

Ownership is split 50/50 between Tikehau Capital

has been indiscriminately sold, with pricing levels

Partners and the firm’s management, which is led by

reflecting supply and demand flows rather than the

chief executive officer Bruno de Pampelonne, who

real economy. The market will continue to be volatile,

since 2003 had been the country head for France at

but for investors prepared to look out over a two- to

Merrill Lynch.

three-year time horizon, there are tremendous

“Although Paris is a big centre for fixed-income

opportunities.”

fund management, the market is dominated by the

A long-term horizon is clearly a prerequisite for

larger banks,” says Pampelonne. “But there are no in-

credit managers in the current market environment.

dependent fixed-income managers. When we

“There are plenty of assets available, but liquidity

launched our first fund in February last year, it was

is appalling at the moment,” says Pampelonne.

with the aim of building up a range of funds covering

“However, we are mid-term investors rather than ac-

the whole fixed spectrum, ranging from relatively se-

tive traders and, in any case, some of our funds have

cure to much more dynamic funds.”

long lock-up periods, so the liquidity issue is not

Tikehau’s team of 14 now manages a suite of four

much of a concern to us.”

credit-related funds, which brought total assets

Pampelonne’s faith in the opportunities now em-

under management up from €30 million in February

bedded in the credit market explains why, for the

2007 to €210 million by March 2008. The first product

time being at least, Tikehau has no new products in

was the Tikehau Credit Opportunities Fund, a

the pipeline and no immediate plans to expand into

Cayman Islands-domiciled long/short credit fund

other areas of the fixed-income universe. “I think we

focusing chiefly on bonds, loans, CDS and swaps in

are already covering a relatively good range of

the eurozone and targeting annual returns of 10% to

risk/reward profiles and, frankly, we could triple our

15%. By December 2007, it had assets under man-

assets under management with our existing funds,”

agement of €50 million.

he says. “In these market conditions, it is difficult to

Its other Cayman-registered hedge fund, with assets of €115 million at the same date, is TSS, a credit

set targets for assets under management, but we definitely won’t be staying at €210 million.”

and structured products opportunistic fund which

Elsewhere in the single-manager world of the

was launched in November 2007, has a performance

French hedge fund universe, it is perhaps surprising

target of 15% to 20% and extends the range of eligible

that so few firms have turned their hand to operating

credit instruments to CDOs, CLOs, MBS and RMBS.

exclusively in the long/short equity arena. However,

©HedgeFund Intelligence

Keith Ney, fund manager, Carmignac Gestion

Philippe Sanlaville, chief executive officer, Exane Asset Management SPECIAL REPORT APRIL 2008 25

FRANCE SINGLE MANAGER HEDGE FUNDS

SYSTEIA ENTERS TRANSITION PHASE One of the more significant players on the French hedge fund scene in recent years has been Systeia Capital Management, a part of the Crédit Agricole/Calyon financial group. Systeia was initially founded in 2001 by former Barep senior executives Jean-Louis Juchault and David Obert with backing from the Credit Lyonnais group – which later merged with Crédit Agricole. Over the years, the firm’s total assets under management have grown to about $1 billion, and only this February Juchault and Obert finally sold out their minority stake to the bank and left the firm. The new CEO is Andrew Watson, a veteran of Crédit Agricole Asset Management (CAAM) and Calyon, and who was already previously on the Systeia board. The non-executive chairman is now Pascal Blenquet, CIO of CAAM. Systeia, as the name suggests, has been best known historically for systematic trading strategies – including managed futures and quantitative equity market-neutral funds. Last year, all of the firm’s main strategies – Systeia Futures, Systeia Equity Quant and Systeia Global Macro – performed comfortably above the EuroHedge medians – and all have made a solid start to the year again in 2008.

26 SPECIAL REPORT APRIL 2008

a notable exception to that rule is Exane Asset

more anchored in fixed income. “French institutions

Management, which was set up in 2001 and, at the

are very conservative and I think they are right to

end of 2007, managed €1.7 billion in pure

be,” says Sanlaville. “But an understanding is grow-

long/short equity funds.

ing that a long/short equity strategy managed

According to Exane Asset Management’s chief

properly is actually a very conservative approach.”

executive officer, Philippe Sanlaville, assets under

Another manager that obviously sees strong po-

management have doubled each year in the last

tential in long/short equity is Carmignac Gestion.

three years, from €400 million at the end of 2005

Set up in 1989, it has established a solid reputation

through €800 million at the end of 2006. But, as

as a strongly fundamental, research-based long-

Sanlaville concedes, gathering fresh assets in 2008

only equity manager, which by early 2008 had

will probably be considerably more challenging than

some €13 billion under management. In December

it was in any of the previous three years.

2006, it launched its first global long/short

Sanlaville says that Exane distinguishes itself

equity fund, which was seeded internally with €80

from other long/short equity managers in a num-

million, but was not offered to external investors

ber of ways. “One of our features is that all our

until early 2008.

funds are quite defensive,” says Sanlaville. “They

Keith Ney, manager of the new fund, says it is a

maintain a net exposure to the market of between

market-neutral vehicle with a portfolio construction

plus 35% and minus 10%, and we do not pretend to

discipline that keeps its net exposure within a 20%

be pure market neutral.”

band, with an annualised performance target of be-

A second way in which Exane differs from other managers, especially in France, is in its thematic

tween 10% and 12% and a volatility target of between 4% and 6% – targets that were achieved in 2007.

range of funds. In addition to two generalist funds,

Ney explains that, although Carmignac is known

Exane offers a selection of funds covering a range of

as a long-only manager, adding the long/short prod-

industrial sectors, the most popular of which in re-

uct was a perfectly logical step. “Especially over the

cent months has been the Templiers fund, a

past five years, the philosophy that has been

long/short vehicle covering financial stocks.

ingrained across all the funds in the group has been

Launched in 2005, by early 2008 Templiers’ assets

one of absolute return-driven investing,” he says.

under management had reached €460 million which,

“So we’re not benchmarked at all, but put our money

as Sanlaville says, is an impressive result for a sec-

behind the themes and companies that we most

tor-based product. That makes the Templiers fund

favour. Additionally, across all our funds, depending

second in size only to Exane’s flagship Gulliver fund,

on their mandate, we have the ability to hedge port-

a generalist long/short product created in 2001 with

folios and reduce exposure to markets when we are

assets under management of €680 million and a his-

uncomfortable with them. In our largest fund, for ex-

torical volatility of 3%, which compares with volatility

ample, Carmignac Patrimoine, which is a balanced

targets of up to 6% for the sector-based funds.

equity and fixed-income product, we have the flexibil-

In addition to its seven single manager funds,

ity to reduce the equity exposure to zero.”

Exane offers three internal funds of funds, named

Including a long/short fund to the Carmignac

Pleiade 2, 5 and 8, with volatility targets of 2%, 5% and

range was therefore seen as a natural extension of

8%, the most successful of which – Pleiade 5 – has

its absolute return UCITS IIII product line, but with

assets under management of €500 million even

the added ability to short individual stocks. “With

though it has a history of less than two years.

the new fund, we wanted to continue to use our

“January provided something of a stress test for the

stock-picking expertise but to take directionality out

Pleiade products,” says Sanlaville. “However, even in

and reduce volatility,” says Ney.

a short, 12-month period, the volatility of all three

In terms of its future size, Carmignac has no spe-

funds remains well below their targets, so we have

cific target in mind. But Ney admits that anything

been very comfortable with our volatility levels in

between €500 million and €1 billion would probably

the Pleiade range.”

be a realistic objective. “I’m not worried about any

Sanlaville explains the relative shortage of dedi-

size constraints given the global equity universe,” he

cated long/short equity players in France by saying

says. “In the long-only area, we already manage two

that the culture among French institutions – which

€2 billion funds, so we have plenty of experience in

make up about 85% of Exane’s client base – remains

managing large funds.” ©HedgeFund Intelligence

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Active. Investing.

FRANCE HEDGE FUND START-UPS

Entrepreneurs battle on despite downturn

Although it is much easier to start up in other countries, groups of French entrepreneurs are setting up their investment boutiques and trying to win the hearts and minds of investors – despite the recent slumps in the market and regulatory barriers It was US President George Bush who was credited

abandoned the relative security of life within a large

– quite wrongly, as it turned out – with saying that

institution? Far from it.

“the problem with the French is that they have no word for entrepreneur”.

Joel Benarroch, chief executive officer and chief investment officer, B PHI Capital

ised with a silo approach, with one desk looking at

Try telling that to people like Rémy Pierre and

credit, one focused on convertibles, one on volatility

the other former members of the Ixis equity-linked

and so on, and it’s the same structure at the big

department who established the 100% independ-

hedge funds,” says Pierre. “We were convinced that

ently-owned Anakena Finance in May 2006. Five

there was great value to be derived from building a

months later, Anakena launched its first hedge fund

team that is able to trade across asset classes and,

– the Cayman-registered multi-strategy Maximus

although we may have made some mistakes in

Fund, which returned 3.57% between the start of

January, we still believe we will be able to generate

October 2006 and the end of the year, and a further

profits for our investors in any kind of market envi-

10.44% in 2007.

ronment. After all, our team was profitable for nine

Unfortunately, much of that stellar performance was eroded in January, which after a stable start be-

years in a row, and that was in good as well as bad markets.”

came something of a horror story for Anakena (as it

Like the Anakena team, Eric Robbe, Arnaud

did for many funds), somewhat undermining the

Yvinec, Gabriel Teodorescu and David Lenfant had

derivation of the manager’s name. Anakena is one of

highly impressive track records as prop traders

the beaches on Easter Island and is famous for 900

when, early in 2007, they decided to use the experi-

‘Maoi’ basalt statues which, according to the man-

ence they had gained since 1990 on the equity desk

ager’s website, have withstood “nearly 3,000 years

at CIC to set up Laffitte Capital Management.

of weathering and remain today as symbols of solidity, serenity and continuity”.

28 SPECIAL REPORT APRIL 2008

“When you’re in a big institution you are organ-

Laffitte’s inaugural fund, a merger arbitrage product, was launched in mid-December last year, which

Pierre says that, by 18 January, Maximus was flat

Robbe and Lenfant see as the first in a family of

for the month. Then, a combination of extraordi-

funds offering exposure to a complete selection of

nary events, including the Société Générale ‘rogue

single strategies, including event-driven, distressed

trader’ crisis and the unprecedented intra-meeting

situations and long/short equity as well as convert-

75bp rate cut by the US Federal Reserve, led to may-

ible bonds.

hem in volatility levels on either side of the Atlantic.

The risk arbitrage fund, which had assets under

The upshot was that, in the second half of January

management of below €10 million as of February

alone, Maximus lost almost 7% of its value.

2008 – which Robbe and Lenfant believe will soon

So did Pierre and his team look back during those

be seeded to take it to at least €50 million – is fo-

turbulent late January days, wishing they had never

cused principally on announced merger deals in ©HedgeFund Intelligence

HEDGE FUND START-UPS FRANCE Europe and the US, and draws from a historical data-

been much more open to new ideas than would be

base of more than 500 M&A-related transaction

suggested by their conservative image. “The asset

strategies.

managers we have met in France have been very

Robbe reports that the fund has made a promis-

happy to meet new hedge fund managers,” he says.

ing start, delivering a return of 2% in February in

“Their view is: why invest in hedge funds in London

very challenging market conditions. He believes the

and New York when a local manager can provide

timing of the fund’s launch is auspicious, given the

similar returns and volatility?”

potential for M&A activity on either side of the

Another wholly independent, recent new entrant

Atlantic. “The M&A market tends to be very active at

to the market that believes it will be able to exploit

the beginning and the end of economic cycles, and

shifting investor preferences is B PHI Capital, which

we are expecting the same pattern to be followed

received its regulatory approval from the AMF in

this year,” he says.

June 2007. B PHI’s CEO and chief investment officer

Perhaps the most intriguing element of the

is Joel Benarroch (hence the ‘B’ in the firm’s name)

Laffitte story is in the positioning of its product with

who has over 20 years’ experience of fundamental

investors because the merger arbitrage is effectively

research, analysis and portfolio modelling, 15 of

a US-style fund that is offering something new to a

them spent at Dean Witter Reynolds and Jefferies.

client base that is mainly French. “We want to bring

He explains that the B PHI investment philosophy

something genuinely new to the Paris market,” ex-

is based on four simple convictions. “First, we be-

plains Lenfant. “A lot of the hedge funds in the

lieve that the equity product is the best way to

French market are cash-enhanced products, and we

participate in economic growth,” he says. “Second,

wish to offer investors a pure hedge fund based on a

we like stock exchanges and favour listed compa-

single strategy and the sort of transparent processes

nies over OTC or unlisted ones. Third, we don’t like

you find in the US.”

leverage, which we think can be a very dangerous

How, then, to tailor the fund’s prospective returns

tool when you’re talking about investment. And

and volatility targets to cater to a more conservative

fourth, we see volatility as an impediment to long-

French investor base, while also ensuring that the

term performance.”

product could appeal to a broader international audience?

And he notes: “Our idea was to develop a product our investment universe, which is mid- to large-cap

in the region of 6% to 8%, but we realised when we

equities listed in the Eurozone, while minimising

started to meet investors in London that they were

volatility,” says Benarroch. “How will we do that?

expecting to see something like 15%, and did not

By combining a fundamental value-based approach

seem to worry if volatility levels were as high as 7% or

on the stocks in our universe with a derivatives

8%, which is the opposite of what French investors

approach.”

would expect,” says Lenfant. Hence, Laffitte’s deci-

B PHI’s Value Square Euro Fund was authorised

sion to position its funds between the two worlds,

by the AMF in July 2007, with Benarroch reporting

with a performance target of about 12% and a maxi-

that the product has a target of delivering returns of

mum volatility level of 5%.

between 6% and 9% with one third of the volatility of the underlying markets.

could be a sweet spot that attracts international as

“We started to invest in mid-September and were

well as local investors, or a blind spot that falls be-

fully operational by the start of October,” says

tween two stools and attracts neither. To date,

Benarroch. “Between inception and the end of

however, Lenfant believes that it is clearly doing the

February, our fund was down by about 2% compared

former.

with a decline in the market of 16%. So we have al-

“It is true that, before last summer’s turmoil, this target may not have been aggressive enough for US

ready achieved one of our objectives, which is a much lower volatility level.”

or Swiss investors,” he says. “But, following the

Benarroch is convinced that the market has

credit crunch and bearing in mind that our leverage

undergone a fundamental change over the past 12

is about two times, we now match international stan-

months and that this metamorphosis has dovetailed

dards much more closely.”

very neatly with the B PHI philosophy in at least

As for French investors, Lenfant says they have ©HedgeFund Intelligence

David Lenfant, managing partner, Laffitte Capital Management

that would achieve the long-term performance of

“The average return of French alternative funds is

That, of course, could work in one of two ways: it

“The asset managers we have met in France have been very happy to meet new hedge fund managers. Their view is: why invest in hedge funds in London and New York when a local manager can provide similar returns and volatility?”

two ways. SPECIAL REPORT APRIL 2008 29

FRANCE HEDGE FUND START-UPS

are not very prepared to bet on small firms like ours and to provide the same flow of very early stage investment that you see in Anglo-Saxon countries.” Other new entrants to the market echo the view that seeding is surprisingly hard to come by in France. Saturne Capital was set up in early 2006 and, at the start of March this year, launched its first fund, the Saturne Capital Cayman-registered Global Macro VAR 10. This vehicle aims to use futures and

From left – Gabriel Teodorescu, David Lenfant, Arnaud Yvinec and Eric Robbe, Laffitte Capital Management

options on stock indices, interest rates, currencies and commodities to deliver an annual absolute return of 15% with a maximum volatility of 8%.

The first is the change in attitudes to leverage.

That obviously makes the fund much too new to

“The prime brokers we saw when we were setting up

draw any conclusions about the effectiveness of its

asked us how we could call ourselves an alternative

management style, but the CVs of its founders sug-

fund if we had no leverage,” says Benarroch. “Today,

gests that there will be no shortage of experience in

I think most people would agree that the market

the Saturne team. Its CEO, Georges Fezenko, led a

would not be in the predicament it is in if people had

team of proprietary traders at Credit Lyonnais (and

had less appetite for leverage a few months ago.”

then at Calyon) in Paris, London and Frankfurt,

The second development playing into the hands

while its other partners, Frédéric Demonchy and

of B PHI, according to Benarroch, has been the

Thomas Iriart, were previously on the trading

blow-up in the OTC derivative markets and the de-

desks of Credit Lyonnais and Société Générale

bate over mark-to-model versus mark-to-market

Asset Management.

pricing mechanisms. “A clear preference has

Saturne’s COO, meanwhile, is Roland Voirin,

emerged demonstrating the importance of liquidity

who spent 32 years at Citibank in Paris, latterly as

and pricing transparency when you’re managing in-

CEO, before joining the Deutsche Bank team that

stitutional money,” he says.

managed the Banque Worms liquidation process.

Fair enough. But how does a newcomer like B

When Voirin was approached with an offer to join

PHI, which is completely independent and has no

Saturne, he jumped at the chance; as he says, it is

track record, set about raising the assets under

much more fulfilling to be involved in launching a

management that it will need to achieve anything

new company than liquidating an old one.

like critical mass?

for Saturne, the process of raising assets from in-

Although Benarroch says that he has soft commit-

vestors appears to have been a casualty of sub-prime

ments for an additional €10 million from a client

jitters. Saturne’s initial approaches to institutions in

base made up chiefly of French and continental

the first half of 2007 went well enough, says Vorin,

European institutions, he concedes that this is

with investors advising the new fund to opt for an

hardly a felicitous time for fund-raising, for a num-

offshore rather than an onshore structure.

ber of reasons.

30 SPECIAL REPORT APRIL 2008

Fulfilling, perhaps. But also challenging because,

To date, B PHI has gathered about €7 million.

Those same investors, however, cooled after

Quite apart from wanting to see a demonstrable

August, with some previously promising prospects

track record, institutions looking at a small player

telling Saturne that they were putting all allocation

like B PHI have the added problem of internal limits

decisions on hold until further notice. Potential

for direct investment which prevent them from tak-

seeders, meanwhile, also gave Saturne an unenthu-

ing more than 5% or 10% of an individual fund.

siastic response. “We were only looking for seed

Another complication for smaller newcomers,

funding of between €10 million and €30 million,”

says Benarroch, is the relative dearth of seed fund-

says Voirin. “But even for that amount, the seeders

ing in the French market. “We have had no seeders

we spoke to said they wanted a six- to 12-month

– not necessarily by choice,” he says. “There are

track record.”

perhaps five or 10 incubators in France, but they

Faced with an apparently unanswerable chicken-

are very different from those that you see in mar-

and-egg conundrum as far as raising external fund

kets like the US or the UK. It’s very clear that they

raising was concerned, Saturne’s founders will be ©HedgeFund Intelligence

HEDGE FUND START-UPS FRANCE

relying on their own investment as they build a

fund – while the sixth is an emerging markets multi-

track record for their inaugural fund. While he

strategy fund located in London and Prague.

acknowledges there are clearly risks associated

Globally, Alpha has not had any shortage of can-

with this approach, Voirin is confident about

didates for seeding. According to Rolland, it sees

Saturne’s longer-term prospects.

an average of 150 potential projects a year, meaning

“We were never expecting anybody to put in €100

that it has evaluated more than 500 since its incep-

million on day one, but we have a number of in-

tion. However, he says that French opportunities

vestors who are looking to participate in the future,”

are still relatively thin on the ground compared to

says Voirin. “I wouldn’t describe these investors as

those in other markets, and that it has been at-

having made commitments, but they have indicated

tracted to funds outside France – as well as in a

that they intend to put in at least €25 million by year-

range of different strategies – for diversification

end. Of course it’s a risk, but we are certain that the

reasons.

risk is small, given that we will be showing good

“A trend we like is that, as markets become more regulated in emerging economies, it becomes

absolute returns on a monthly basis.” Not all the newcomers to the market tell a simi-

possible to deploy more strategies and to find more

larly downbeat story about the availability of

talented local managers,” says Rolland. “That is

seeding for players, without a track record, as inde-

why we have looked to eastern Europe and

pendent operators. Robbe and Lenfant at Laffitte

Singapore for new opportunities.”

report that deals with seeding partners in France

Whether all the 100% independent newcomers to

and overseas are in progress, helping to bring as-

the French hedge fund industry will be able to sur-

sets under management at their new merger

vive and prosper in an increasingly competitive

arbitrage fund to €50 million.

market is open to debate. At Asterias, Sophie van

Nevertheless, it would appear that some of the

Straelen says that she admires the bravery of the

most active hedge fund incubators in the market

start-ups, but she also says that she is surprised

have been identifying more opportunities outside

that so many boutiques have sprung up at a time

France than they have locally. Take as an example

when fund-raising among institutional investors is

the portfolio of incubations that have been made in

more difficult than it may have been two or three

recent years by New Alpha Advisers, the specialist

years ago.

incubator established in September 2003 by the in-

One highly experienced manager, in the form of

dependent alternative investment management

Jean-Pierre Aguilar, the CEO of CFM, sounds a

group ADI.

warning when he says that, to be a successful

Antoine Rolland, the CEO of New Alpha, says

quant manager, a newcomer would probably need

that none of the six companies in which the incuba-

to invest in the vicinity of €20 million to €25 million

tor has assets of €155 million (as of the end of 2007)

on a strong and credible research capability along

is in France. Two are long/short equity funds, one

with a range of other overheads. “That means you

based in Singapore and one in New York, while New

probably need to have about €1 billion of assets

Alpha’s largest commitment is to an asset-backed

under management before you start making

lending fund in Geneva. Of the others, two are

money,” says Aguilar. “Maintaining a competitive

based in London – one of which is an India-focused

business with €200 million or so of assets is proba-

long/short equity fund and the other a commodity

bly doable, but very challenging.”

“Of course it’s a risk, but we are certain that the risk is small, given that we will be showing good absolute returns on a monthly basis” Roland Voirin, chief operating officer, Saturne Capital

ASTERIAS SURVEY FRANCE THE HEDGE FUND DIRECTORY FRANCE www.asterias.com

YOUR ACCESS TO THE FRENCH MANAGERS sponsored by :

©HedgeFund Intelligence

SPECIAL REPORT APRIL 2008 31

FRANCE INVESTORS IN HEDGE FUNDS

Building the investor base

French investors have been strangely reluctant to invest in their home-grown funds, even while international buyers have flocked in. The industry, however, has plans to encourage local investment and hopes the tide is turning in its favour

“What is interesting is that all the dedicated mandates we have won in the past three years have been from international clients. We have been awarded mandates from well-known US, Swiss and South African investors, but none from French institutions. That is strange, given our location and the fact that we share the same culture” Cyril Julliard, president and co-founder, ERAAM 32 SPECIAL REPORT APRIL 2008

It was just the sort of imprimatur French hedge fund

and South African investors, but none from French

management needed to underscore its global com-

institutions. That is strange, given our location and

petitiveness. In September 2006, the California Public

the fact that we share the same culture.”

Employees’ Retirement System (CalPERS), which

Julliard is hopeful that this curious imbalance will

manages total assets of close to $250 billion, awarded

be redressed in the future. “I think French investors

a $75 million dedicated investment mandate to

are moving in the right direction,” he says. “Step one

ERAAM as part of its strategy for expanding into

in the diversification of their portfolios was struc-

European alternative assets. In addition, CalPERS

tured products, and step two was a move into funds of

has awarded similar mandates to UBS’s Alternative

hedge funds. We think step three will be dedicated al-

Investment Solutions (AIS) subsidiary and Ermitage,

ternative investment mandates. For ERAAM, French

meaning that ERAAM is the only continental

institutional investors are going to be the key in

European manager in the programme.

terms of marketing in 2008 and 2009.”

CalPERS has clearly been more than satisfied with

Others detect an ongoing change in the attitudes

ERAAM’s performance, which has been based on

of French investors to the opportunities provided by

standard long/short equity, fixed-income arbitrage,

hedge funds. Marc Landeau, CEO and founder of

event-driven and discretionary macro styles – be-

Olympia Capital Management, has been at the fore-

cause early this year the US pension fund doubled

front of the development of the French hedge fund

the size of the ERAAM mandate.

industry for the last 20 years, and has watched the

ERAAM’s president and co-founder, Cyril Julliard, is naturally very proud of the CalPERS mandate –

investor base for funds of funds change beyond recognition in that time.

given that the Californian pension giant carried out

“When I started in this industry in the 1980s, it was

exhaustive due diligence over a 12-month period on a

designed purely for high net worth individuals who

number of alternative asset managers before award-

were sick of having their money badly managed by

ing the mandates. But he confesses to a degree of

banks,” says Landeau. “There were no institutions in

mystification about why it is that ERAAM, which has

the market at all and, 15 or 20 years ago, most of the

a well-established track record, has not been able to

clients we see today would have had their security

match the success it has enjoyed with an institution

guards throw us out.”

as demanding and sought-after as CalPERS with similar mandates in the domestic market.

That’s the good news. The less positive news, says one manager, is that the French institutional investor

“What is interesting is that all the dedicated man-

base is relatively immature – with many investors still

dates we have won in the past three years have been

insisting on fee rebates, irrespective of performance.

from international clients,” says Julliard. “We have

Others say that, although the investor base is in-

been awarded mandates from well-known US, Swiss

creasingly knowledgeable and sophisticated, it is still ©HedgeFund Intelligence

2008

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FRANCE INVESTORS IN HEDGE FUNDS

highly conservative compared with institutions else-

UFG Alteram, for example, has so far focused ex-

where in continental Europe, let alone those in the

clusively on the domestic institutional investor base

US. That conservative approach continues to shape

– but has recently been analysing the possibility of

the strategy of many France-based hedge funds.

stepping up the marketing of its successful ensemble

At Acropole, a relative newcomer to the market that is focusing exclusively on convertibles through

Xavier Lépine, chairman of management board, Groupe UFG

vestor community.

long-only as well as hedge funds, chief investment

“We recently did a survey to see how competitive

officer Emmanuel Martin says that its relatively

our funds would be in the international market,” says

modest performance target of 7% reflects the conser-

Xavier Lépine, the chairman of Groupe UFG’s man-

vative preference of the domestic investor base.

agement board. “We noticed very clearly that while

“In an environment where everything is going

we were towards the bottom of the second quartile in

wrong, we tend to outperform our competitors, as we

terms of performance, we moved up to the first quar-

did in 2005 when we were at Fortis Investments,”

tile when we looked at measures like volatility,

says Martin. “If the market trends strongly upwards

drawdowns and performance relative to drawdowns.”

on the credit side, we will lag behind the competition, but that is understood and accepted by our clients.”

He adds: “It is on our agenda to sell more aggressively into international markets, especially in

The enduring conservatism of the French investor

Switzerland, Spain and Italy, and there are probably

base has certainly dictated the strategies of a number

two ways that we can tackle the market outside

of other newer players in the Paris hedge fund indus-

France. Either we can target the more defensive in-

try. Take Tikehau Investment Management, which

vestors, as we do in France, or we can leverage our

was founded in September 2006 and aims to capi-

products in order to bolster their return potential. If

talise on dislocations in the credit market.

we did that, we would lose a little bit of Sharpe ratio be-

For the time being, says Tikehau chief executive officer Bruno de Pampelonne, its client base is pre-

cause of the cost of financing, but we would still have the same underlying strategies and diversification.”

dominantly non-French. “We are making an effort to

One potential source of investment that has yet to

increase our domestic client base, but it is true that a

live up to its potential in France is the retail investor

weakness of the French marketplace is the shallow-

base. By European standards, France has a very low

ness of the institutional investor base, which

minimum investment level in hedge funds of just

probably makes it more difficult for a new asset man-

€10,000, although in practice many managers impose

agement company to set up in Paris than it would be in

their own limits that are much higher than the regula-

London,” says Pampelonne. “Dealing with French in-

tory minimum.

stitutional investors can be cumbersome, because

“When you think about it, alternatives are the ideal

they need long due diligence periods and require a

product for insurance,” says Landeau at Olympia

long track record from their managers.”

Capital Management. “Insurance is a product you

The conservative nature of the French investor

cash in when you die and, as we all know, you can’t

base has important ramifications for the strategies of

choose the date of your death. So if you happen to die

hedge funds, both at the single-manager and fund of

on a day like 20 October 1987, you’re in a lousy situa-

fund levels.

tion. First, because you’re dead. Second, because

One is that leverage among single managers tends

your equity-based insurance product is suddenly

to be very low by US or UK standards, with prime

worth much less than it was the previous day. We’re

brokers’ capacity seldom – if ever – tested by local

working on a smart way of building alternative invest-

hedge funds. It is that low leverage that leads Paris-

ment into insurance products and, if we succeed, this

based managers to say that it is highly unlikely that

will be a gigantic market.”

there will be a large-scale meltdown à la Peloton in the French market.

34 SPECIAL REPORT APRIL 2008

of funds of hedge funds to a more international in-

Groupe UFG’s Lépine agrees that the potential for retail investors to channel savings into low-volatility

Another impact is that fund of funds managers that

insurance products linked to hedge funds is im-

have hitherto focused exclusively, or principally, on

mense. “We won’t be selling our products directly to

the French market acknowledge that if they want to

retail investors,” he says. “But we certainly believe

diversify into other markets, they may need to tailor

there is room for a product that can use funds of

their products to meet the demands of a more ag-

hedge funds as a means of helping individuals to

gressive investor audience.

meet their asset-liability management requirements.” ©HedgeFund Intelligence

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Created in 1998, Lyxor AM currently manages €73.9 billion of assets. A whollyowned subsidiary of Société Générale Group, belonging to the corporate and investment banking arm of the group, the asset management company specialises in three businesses: • Alternative Investments (€26.5 billion). Lyxor AM offers a broad range of hedge funds, funds of hedge funds and absolute return funds, adhering to high riskmanagement standards and rigorous hedge fund manager selection guidelines. Lyxor AM gained its prominence with its hedge fund platform. This platform includes more than 170 hedge funds covering all principal strategies and represents a diversified investment universe benefiting from a high level of transparency, security and liquidity. • Structured Management (€20.5 billion). Lyxor AM offers investment solutions to its customers adapted to their risk profiles and return objectives. These solutions integrate the innovations of the group into this domain. Lyxor AM also holds the top global position regarding structured funds. • Index Tracking (€26.9 billion). Lyxor AM offers one of the most diversified and liquid range of ETFs (exchange-traded funds). The company is one of the top players in the European ETF industry. Lyxor ETFs are listed in Europe and Asia and reflect equity, bond and commodity markets. www.lyxoretf.com.

For further information contact: Lyxor Asset Management Tour Société Générale 17, cours Valmy 92987 Paris-La Défense Cedex email: [email protected] tel: +33 (0) 1 42 13 76 75 fax: +33 (0) 1 42 13 85 55 www.lyxor.com

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FRANCE SPONSOR PROFILES ADI, a truly independent and global player in alternative investments. Since its launch in 1998, ADI has positioned itself as a specialist alternative investment manager, For further information contact: Philippe Paquet Executive Vice President Business and strategic development tel: + 33 (0) 1 56 88 85 11 fax: + 33 (0) 1 56 88 85 05 email: [email protected]

active in sophisticated, high value-added strategies including convertible arbitrage, credit arbitrage,

• Hedge fund incubation – via the launch in 2003 of NewAlpha, a dedicated subsidiary, to detect and support tomorrow’s hedge fund talents. • Funds of hedge funds – via the launch in 2005 of Géa, to bring together the best hedge fund managers.

merger arbitrage, equity long/short and event

While at the forefront of alternative investment strate-

driven, fixed income and opportunistic Asia-specif-

gies, ADI has always strived to provide the prudence

ic strategies.

and

Beyond its core business of direct portfolio management, ADI has increased its presence in alternative investments by developing two complementary activities:

AAAM: a global player run by an experienced team. • AAAM’s expertise in the hedge fund area, its

transparency

demanded

by

institutional

investors. Today, ADI has over $8 billion of assets under management and 130 personnel, offering both open-ended and dedicated investment solutions across a full spectrum of risk/return profiles.

constructs portfolios designed to deliver stable returns – managing the downside risk over the long term – and has a well-diversified client base.

access to top-tier managers and its ability to idenFor further information contact: Béatrice Ducasse tel: +33 1.57.86.85.38 email : [email protected]

tify alpha have been important elements in deliver-

• Despite its strong asset growth, AAAM remains

ing quality products to clients.

an entrepreneurial, dynamic, and flexible organisation of 42 professionals, with offices in Paris and

• AAAM’s product range is unique in its liquidity

New York.

terms, offering a wide spectrum of liquidity conditions (daily, monthly and quarterly) depending on a client’s profile and liquidity needs.

For further information contact: Sylviane Castro tel: +44-02-7917-60-53 or +33-1-5560-2300 www.asterias.com

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• Supported by Allianz Global Investors, AAAM, adhering to the group’s principle of client centricity, is able to provide its investors with a high level of

• AAAM has a strong institutional approach and

service.

Asterias is an independent hedge fund consultancy

and training, all of which draw from its global

founded in London in 1999 by Sophie van Strae-

vision of the latest developments in the hedge fund

len. The company supports hedge funds and as-

industry. Asterias’ market analyses have become

set managers’ clients through three types of

standard references for investors, fund managers

services: distribution capability, market research,

and opinion leaders.

SPECIAL REPORT APRIL 2008 37

SPONSOR PROFILES FRANCE

For further information contact: Cyril Julliard ERAAM 49 – 51 avenue George V – 75008 Paris tel: 00 33 1 53 43 20 80

For further information contact: HDF Finance S.A. 40, rue La Pérouse 75116 Paris - France main: +33 1 44 17 12 34 fax: +33 1 44 17 12 35 www.hdf-finance.com

ERAAM (Europanel Research & Alternative Asset

The investment bank Quilvest acquired a 17% hold-

Management) is the only French multi-management

ing in ERAAM in June 2005. Quilvest, which has a

company dedicated exclusively to Europe-based

150-strong partner base, manages over €4.5 billion

hedge funds managers. Created in 1998 by Cyril

of assets, including €1.4 billion in alternative asset

Julliard and Bertrand Van Houtte, in 2002 ERAAM

management.

was one of the first alternative asset management

In 2007, ERAAM was awarded first prize in its cate-

companies to receive AMF accreditation. The com-

gory at the “Tremplin Innovation & Asset Manage-

pany offers single-strategy and multi-strategy funds

ment” organised by Multiratings, and was assigned

of funds through open-ended funds but also

an ‘IP2’ Investment Process rating for its alternative

dedicated mandates for institutional investors. As of

multi-management investment process. In 2008,

end of January 2007, ERAAM reached €923 million

ERAAM was nominated at the InvestHedge Fund of

under management on behalf of institutional and

Funds Awards 2007 in two categories: European

private investors.

Equity and European Multi-Strategy.

Created in 1986, HDF Finance (HDF) is one of the

appreciation by consistently applying a rigorous

first established independent asset managers in

investment process and strict risk control procedures.

France. HDF is registered and regulated by the

HDF targets medium-term returns higher than direc-

French financial markets regulator AMF. Since its

tional management styles but at lower levels of risk

creation, HDF’s sole activity has been the manage-

and volatility. The 27 funds managed by HDF are both

ment of alternative and long-only multi-manager

multi-strategy and single-strategy funds of hedge

funds.

funds, covering all asset classes and regions, and are

HDF provides superior investment solutions to institutional, corporate and private clients. HDF’s invest-

HDF currently manages $6 billion and operates

ment philosophy is based on two objectives: to

five offices: Paris, Brussels, Geneva, New York and

preserve the invested capital and generate capital

Singapore.

Natixis Multimanager is the multi-management

funds of hedge funds and our segregated

subsidiary

accounts demonstrate over three years of track

of

Natixis

Asset

Management.

With €6 billion of assets under management*, Natixis Multimanager is one of the main players in For further information contact: Client Service Natixis Multimanager 1-3 rue des Italiens 75009 Paris tel: +33 (0)1 78 40 32 81 [email protected]

registered either in France or in Luxembourg.

the French multi-management industry in both long-only and alternative strategies.

record. At Natixis Multimanager, we strive to be flexible and swiftly deploy our investment choices having performed exhaustive financial and operational

Natixis Multimanager benefits from more than 10

due diligence analysis for underlying hedge funds.

years of asset allocation and fund selection

Our investment team dynamically allocates among

experience and offers a conviction-based ap-

strategies to translate its strong macro views and

proach to money management. With assets under

has the ability to offer tailor-made portfolios for

management of over €1 billion*, our open-ended

client specific constraints.

*at the end of December 2007

38 SPECIAL REPORT APRIL 2008

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FRANCE SPONSOR PROFILES Founded in 1989, Olympia Capital Management is

and has one of the longest track records in the

an international investment management group

industry of over 17 years.

that manages more than $6 billion of assets in funds of hedge funds, investment funds and invest-

The group is one of the largest independent fund of

ment portfolios.

hedge funds managers in Europe, employing 80

Olympia Capital Management specialises in multi-

people, with operations in Paris, New York, London,

strategy and multi-manager funds of hedge funds

Zurich and Hong Kong.

For further information contact: France Jean-Luc Bianchi tel: +33 1 49 53 90 38 Switzerland Eleonora Rajmann tel: +41 44 242 02 22 United Kingdom Jon Amess tel: +44 207 389 99 02 www.olympiagroup.com

For further information contact: email: [email protected] www.sgam-ai.com

A subsidiary of the Société Générale Group, So-

strategy hedge funds with €8.7 billion AUM*. Head-

ciété Générale Asset Management (SGAM) is one

quartered in Paris, the division has 131 employees*

of the world’s leading asset managers, with €358

including offices in New York, London, Hong Kong

billion AUM*.

and Tokyo.

SGAM Alternative Investments (SGAM AI), 100%

Investment, trading and strong risk management

subsidiary of SGAM, manages €50.6 billion of

characterise SGAM AI Hedge Funds Group’s funds

assets* in the largest scope of alternative invest-

and services. Furthermore, the company prides

ments: hedge funds, structured products, private equity and real estate.

itself on its innovation and is a leader in the development of products such as funds of hedge funds,

SGAM AI Hedge Fund Group is a major provider of

single hedge funds, equity overlay, volatility, alpha

hedge funds of funds, multi-strategy and single

solutions and portable alpha.

*as at 31 December 2007

Systeia Capital Management was created in

Systeia Capital Management offers investment

December 2000 in order to provide a spectrum of

solutions to institutional investors, funds of funds,

alternative investment products.

family offices, banks and other professionals on a

Systeia Capital Management manages $1 billion in For further information contact: 43-47 avenue de la Grande Armée 75116 Paris tel: +33 (0)1.58.44.12.53 fax:+33 (0)1.58.44.12.09 www.systeia.com

©HedgeFund Intelligence

assets as of 28 December 2007. The firm devel-

long-term horizon (2-5 years) through investment strategies available in euros and in US dollars.

ops a range of hedge funds and managed

The firm is fully owned by Credit Agricole Asset

accounts which meet clients’ needs. Systeia is

Management. Systeia Capital Management is reg-

currently composed of more than 30 employees.

ulated by the French Authority AMF.

SPECIAL REPORT APRIL 2008 39

Christophe Baurand Head of Sales and Marketing Alternative Investments

Pauline Chatin Institutional Investor Relationships Switzerland and Luxembourg

Vincent Archimbaud Institutional Investor Relationships France

Edwige Novacq Institutional Investor Relationships France

AlternativeInvestments

Gain a sharper insight into

alternative investments

from our experts Over the last decade Lyxor has set the pace in alternative investments by offering unique hedge fund investment opportunities combining risk management, transparency, liquidity and performance. Lyxor’s renown and expertise are based on its hedge fund platform, a world leader in terms of number of funds and strategies covered. Lyxor’s experts offer an extensive selection of innovative alternative investments, from funds of funds harnessing the Lyxor platform’s advantages to arbitrage funds aiming to generate positive performance regardless of market conditions. Lyxor AM currently ranks in the top 10 alternative funds managers in the world, with assets under management in excess of EUR 26.5 billion. Meet our experts in alternative investments: +33.1.42.13.76.75 / [email protected]