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(Bloomberg Opinion) -- Yves Perrier, the chief executive officer of Amundi SA, has said for several years that his aim is to make Asia a second domestic market for his firm. In 2019, the business started to deliver on that promise — which could pave the way for Perrier, who’s spent the past decade building Amundi into Europe’s biggest fund manager, to depart on a high.Amundi, which oversees more than 1.6 trillion euros ($1.8 trillion), doubled its Asian business last year to 300 billion euros, figures released on Wednesday show, with the region contributing almost a fifth of the firm’s assets under management. And while the Paris-based firm still depends on its domestic market for 54% of its assets, that share is down from more than 60% in early 2017.Big wins in India, where two new pension fund mandates contributed 74 billion euros of inflows, helped Amundi swell its total assets under management by 16% last year.But it’s China that offers the greatest potential. Amundi already has a 33% stake in a joint venture with Agricultural Bank of China in fund management that has almost 68 billion euros of assets. The French firm reckons that the total Chinese market, worth 7 trillion euros, is growing at an annual rate of between 10% and 15%.In December, Amundi became the first foreign firm authorized to take majority control of a joint venture in wealth management, after Chinese regulators loosened the rules last year. It’s teaming up with Bank of China, the country’s fourth-largest bank with 500 million retail customers and 11,000 branches. That gives Amundi a fantastic platform to market its investment products, which cover the gamut including active, passive and alternative strategies, to China’s growing middle class.But there’s an oddly valedictory feel to Wednesday’s results presentation, with several references to Amundi’s performance since 2010, the year Perrier formed the company by merging the asset management businesses of Credit Agricole SA and Societe Generale SA. I couldn’t find any similar long-term references in last year’s results submission.Perrier, who is 66, has consistently dodged questions about a possible successor, although he did say in December 2018 that he’d like the next boss of his firm to be a woman. With Amundi making good on its stated ambition to be “the European leader with global ambitions,” he’d be well within his rights to decide 2020 is the year to ride off into the sunset.To contact the author of this story: Mark Gilbert at email@example.comTo contact the editor responsible for this story: Melissa Pozsgay at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- A key slice of the U.S. yield curve inverted on Thursday for the first time since October, reviving memories of growth fears that plagued investors last year and signaling doubts that the Federal Reserve will succeed in reviving inflation.The gap between the yield on three-month and 10-year Treasuries at one point slipped to as low as minus 2 basis points on Thursday. The spread -- seen by some as a warning signal because it has inverted before each of the past seven U.S. recessions -- last reached those levels as economic conditions deteriorated at the height of the trade war.With the coronavirus outbreak threatening to disrupt the Chinese economy, concerns about the business cycle are undoubtedly a factor. But more important still are emerging doubts over the ability and commitment of policy makers to shore up growth and spur inflation.The inversion has deepened since Chairman Jerome Powell and colleagues kept rates unchanged this week and signaled they would pull out all the stops to combat a global disinflationary downdraft.Following his press conference Wednesday, fed funds futures showed increased conviction by traders that a cut is coming this year, although they continue to price in just one quarter-point reduction. Meanwhile, inflation-linked debt markets are expressing doubts that price pressures will increase, with so-called breakeven rates slipping in the wake of Powell’s comments.“The bond market is basically telling the Fed that it hasn’t done enough and will be called back to do more and that the longer they wait the more they will have to do,” said Michael Darda, market strategist at MKM Partners. “If the bond market thought Powell’s comments on wanting higher inflation were credible in his press conference, you wouldn’t have seen break-even inflation rates falling as they did.”A measure of core U.S. inflation released Thursday showed price pressures slowed to an annualized 1.3% in the fourth quarter from 2.1%, a weaker figure than analysts had expected.Derailed OptimismThe yield curve has historically reflected the market’s sense of the economy, particularly about inflation. Investors who think inflation will increase typically demand higher yields to offset its effect. Because price growth usually comes from a strong economy, an upward-sloping curve generally means that investors have upbeat expectations.The spread of the deadly virus from China has derailed new-year optimism among investors and thrown a spotlight on the ability of policy makers to handle a downturn. Merian Global Investors reckons the market is screaming for more easing. Societe Generale SA expects a 100-basis-point drop in the policy rate this year.“People are looking for some form of safety and buying Treasuries out the curve is really the only way to do it,”said Nick Maroutsos, co-head of global bonds at Janus Henderson Group Plc. “The Fed has been adamant about pumping as much liquidity into the market as possible. And you could see the Fed try to pump even more in over time if this risk-off scenario continues -- to try to normalize the curve a little bit and bring front-end rates down.”Falling yields also triggered other market dynamics which are exacerbating the move. Convexity hedging -- when mortgage portfolio managers buy or sell bonds to manage their duration exposure -- is back in play. As yields fall, they make purchases. The yield on 10-year Treasuries dipped as low as 1.53% on Thursday, the lowest since October.The sequence of a swift drop in yields and curve flattening unleashing convexity-linked forces that re-starts the cycle is a recurring feature of the Treasury market .A massive wave of convexity-related hedging in the swaps market in March helped send 10-year yields to levels then not seen since 2017. That came after the Fed took an abrupt shift away from policy tightening they had been doing in 2018. The Fed went on to cut rates three times over all of 2019.Other factors may be at work now as well. Structural demand for long-dated Treasuries -- linked to liability-driven investment and hedging from foreign investors including Taiwanese insurers -- has helped to drive the curve flatter, according to Citigroup Inc.Pascal Blanque, the chief investment officer at Amundi SA, said the market shouldn’t read too much into the latest yield-curve inversion.“We don’t see these recent movements as indicators of a global or U.S. recession, but as an overreaction of financial markets that usually happens under these circumstances,” he said. The Fed’s decision Wednesday suggests that “despite the warning sign, there is no immediate need for further stimulus,” he said.Still, the death toll from the coronavirus is climbing, and it means investors are likely to remain cautious. The risk of reduced economic activity is raising a chance of rate cuts, according to ING Bank NV.The inversion “highlights broader market fears that the virus and its human and economic threat could spread,” wrote James Knightley, chief international economist at the bank. “The more that it does, the more likely it starts to alter consumer and corporate behavior, thereby promoting policy action to mitigate the dangers.”(Adds fund manager comment)\--With assistance from Stephen Spratt.To contact the reporters on this story: Anchalee Worrachate in London at email@example.com;Liz Capo McCormick in New York at firstname.lastname@example.orgTo contact the editors responsible for this story: Sam Potter at email@example.com, Benjamin Purvis, Elizabeth StantonFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- What a difference a year makes.This time in 2019, all of the numbers at DWS Group GmbH were heading in the wrong direction. Four consecutive quarters of outflows in 2018 drove assets under management to their lowest in at least two years, revenue declined, and the firm’s cost to income ratio rose. The German fund manager was far from alone in feeling the squeeze bedeviling its industry.So the turnaround reported by DWS on Thursday augurs well for its European peers — at least those able to offer clients the cheap passive investment products that are all the rage.Chief Executive Officer Asoka Woehrmann, who took charge in late 2018, has been buoyed by a rising tide of market gains last year that has reinvigorated investor appetite for socking cash away with money managers. DWS’s fellow fund managers are likely to have enjoyed a similar rebound in flows, particularly in the fourth quarter.The firm, still 80% owned by Deutsche Bank AG, attracted net inflows of 13.2 billion euros ($14.5 billion) in the final three months of last year, double what it achieved in the prior quarter and topping off a stellar year for growing assets under management.More than 19 billion euros of 2019’s inflows came into passive products, with DWS making the most of its position as Europe’s second-biggest provider of exchange-traded funds to capitalize on investor enthusiasm for index trackers. By contrast, the firm’s active funds suffered net outflows of more than 3 billion euros last year. Active management, it seems, still has an image problem.Woehrmann has proven more successful than his predecessor Nicolas Moreau at aligning expenses with revenue, with the company’s cost-income ratio dropping to 67.6% last year from 70.9% in 2018, putting next year’s goal of a 65% ratio in sight.With assets under management climbing to 767 billion euros ($844 billion), an increase of 105 billion euros in the year, DWS remains short of qualifying for the $1 trillion club that all of the world’s big fund managers aspire to join. Woehrmann has made growth through acquisitions a “personal ambition,” but Chief Financial Officer Claire Peel told Bloomberg Television on Thursday that the firm is “not in a hurry” to do deals.Maybe it should be. Amundi SA, Europe’s biggest fund manager, is adding almost 22 billion euros to its 1.6 trillion euros of assets after agreeing earlier this month to buy Banco de Sabadell SA’s business. The acquisition will make the French firm one of the biggest fund managers in Spain.It’s the kind of deal Woehrmann should be competing for if he’s to challenge Amundi’s growing dominance in Europe. Negotiations to combine DWS with UBS Group AG’s fund management unit failed to produce an agreement last year; if Deutsche Bank is committed to growing DWS into one of the world’s top 10 asset managers, as it has said, Woehrmann will have to make good on his pledge to play an “active role” in industry consolidation.To contact the author of this story: Mark Gilbert at firstname.lastname@example.orgTo contact the editor responsible for this story: James Boxell at email@example.comThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- It’s showtime for Keith Skeoch. Almost three years since he and Martin Gilbert agreed to create Standard Life Aberdeen Plc, he’s now flying solo as chief executive officer of the U.K.’s biggest standalone asset manager. For the fund behemoth to be valued by investors and analysts at more than the sum of its parts, it needs to either consistently outperform its benchmarks, or unlock the value of its captive assets — or, better yet, both. It won’t be easy. The storm engulfing the fund management industry has strengthened since Gilbert’s Aberdeen Asset Management and Skeoch’s Standard Life merged — and the difficulties of combining two different cultures have arguably deterred rivals from seeking similar tie-ups. Customers have withdrawn money in every single quarter since the merger was completed in August 2017, reducing assets under management to 577.5 billion pounds ($753 billion) at the mid-year point, from 670 billion pounds when the deal was completed .While Skeoch insists that doing the deal was still the right move, the company he oversees is now worth about 7.7 billion pounds, down from 13 billion pounds at the time of the merger.To be fair, the entire asset-management industry faces tough conditions. The relentless downward pressure on fees for managing other people’s money shows no signs of abating, while the need to invest in information technology has led to an expensive arms race. It’s so dire, according to PGIM CEO David Hunt, that as many as 80% of the industry’s players will become “zombie firms” as the disparity between winners and losers widens. Standard Life Aberdeen’s shares have rallied 28% this year. But that lags the gains of more than 50% posted by France’s Amundi SA, Europe’s biggest fund manager with 1.6 trillion euros ($1.8 trillion) of assets, and the 33% from Germany’s DWS Group GmbH, which oversees about 750 billion euros.With U.K. financial assets out of favor with investors for much of this year and domestic investors pulling money out of the stock market, the U.K. firm has fared worse than its competitors in Europe. But its lack of an exchange-traded funds business — DWS ranks second in Europe for ETFs, while Amundi lies fifth — has left Standard Life Aberdeen dependent on active management at a time when customers are shifting more and more money into low-cost passive investment products. It’s probably too late to build a passive business, while Skeoch’s view that the margins on those products are too low to be attractive makes buying a rival’s unit unlikely. So the firm remains a non-player in originating business in a market that Bloomberg Intelligence estimates has grown by more than 30% this year, reaching 884 billion euros in assets. Nevertheless, analysts see value in Standard Life Aberdeen, with nine saying its shares are worth buying, nine rating it a hold, with a single sell recommendation.For one thing, it has an unusually large number of stakes in other companies, certainly compared with its asset manager peers. It owns about 20% of Phoenix Group Holdings Plc after selling its insurance business in February 2018, as well as about 15% of HDFC Life Insurance Co. and 27% of HDFC Asset Management, both based in India. In total, those stakes are worth about 5 billion pounds.Analysts at UBS AG reckon a useful way to value those shareholdings is by calculating how much cash they have the potential to generate, which gives a lower value but still suggests that investors are undervaluing Standard Life Aberdeen’s core competency.The market capitalization numbers for Standard Life Aberdeen and the three companies it owns chunks of have moved a bit since UBS published that report last month. And, earlier this month, the company proposed raising as much as $380 million by reducing its stake in HDFC AM, as Skeoch makes good on his August promise to “unlock the value of the assets on the balance sheet.”But the basic premise remains true: The market is assigning a minimal value to Standard Life Aberdeen’s core business.The pace of asset sales has increased since the arrival of Douglas Flint, who’s been chairman since the start of this year. He was also instrumental in resolving the dual CEO structure: Gilbert told the Daily Mail that he decided to step down to avoid having Flint “tap me on the shoulder and say `come on, it’s time to go.’” He’ll quit the firm altogether next year.There may be worse to come on the assets front for Skeoch. Analysts at Numis Securities Ltd. estimate that net outflows for this year will approach 80 billion pounds with a further 38 billion pounds set to depart next year, leaving assets under management at 515 billion pounds by the end of 2020 — a far cry from the $1 trillion club that Gilbert was so keen to join. The key to retaining existing investor funds and luring more customers lies in generating outsize returns. On that front, the merger seems to have been a distraction. In 2018, only half of the firm’s funds were ahead of their benchmarks on a three-year basis. While that had improved to 65% by the middle of this year, just 53% outperformed on a one-year calculation, with 40% lagging their benchmarks over a five-year horizon. Skeoch, an economist by training, lacks the razzmatazz that Gilbert brought to the party. But his main priority in the coming year will be to galvanize his sales force to stanch those outflows and his portfolio managers to focus on beating the markets — otherwise he, too, may start to fear a tap on the shoulder.\--With assistance from Elaine He.To contact the author of this story: Mark Gilbert at firstname.lastname@example.orgTo contact the editor responsible for this story: Melissa Pozsgay at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg Opinion) -- The clock is ticking for Frederic Oudea. After more than 11 years running Societe Generale SA, the French bank is searching for an eventual successor. A new leader may bring a change of course, but undoing the lender’s strategic missteps will require some fancy footwork.SocGen wants a replacement to succeed the 56-year-old Frenchman once his term expires in three years, Bloomberg News reported this week. That a search is underway shows SocGen knows it needs to look beyond the obvious contenders, Oudea’s deputies — an acknowledgment that succession planning hasn’t gone well.And Oudea might be replaced before his term expires, according to Bloomberg. That the bank should be open to finding a new chief executive officer just months after reconfirming Oudea signals a lack of confidence in his restructuring plan, the bank’s biggest in years.SocGen’s shares value it at less than half of its tangible book; that’s well below its big domestic peers. BNP Paribas SA and Credit Agricole SA trade at more than 77% and 87% of book, respectively. No wonder the board is concerned.After failing to meet revenue, cost to income and profitability targets in his previous three-year plan, Oudea is cutting another 2,000 jobs, retreating from parts of fixed-income trading and selling some smaller foreign offshoots to improve capital. The moves are helping somewhat. The bank’s CET1 ratio — a measure of its ability to absorb potential losses — rose almost 50 basis points to 12.5% at the end of the third quarter, ahead of its own 2020 target.The trouble is that SocGen is far too exposed to a cut-throat, low-margin French consumer banking business, and a volatile investment bank. The two units made up a combined 60% or so of group revenue in the third quarter, and 50% of operating income. Revenue was flat in the retail business and fell in investment banking. Income from equities plunged, a reminder that even the bank’s areas of traditional strength cannot be relied upon when markets turn against them.While there were higher returns in the company’s insurance, car leasing and international businesses, SocGen’s exit from asset management has left it less diversified than peers. While the need to bolster capital didn’t give Oudea much choice but to sell Amundi SA, the strategy is hurting.With capital buffers just about where they need to be, Oudea or a potential successor are somewhat constrained. Dipping back into fund management now might be costly.Unless the outlook for interest rates improves, or there’s a sustained rebound in investment banking, it’s hard to see an alternative to finding more cuts, reducing risk and quitting non-core businesses. Making SocGen palatable to a potential buyer isn’t very aspirational but it’s better than standing still.To contact the author of this story: Elisa Martinuzzi at firstname.lastname@example.orgTo contact the editor responsible for this story: James Boxell at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg Opinion) -- It’s becoming increasingly apparent that the negative interest rates introduced in several countries in the wake of the global financial crisis are trashing bank profitability. Less obvious, though perhaps more crucial for society as a whole, are their debilitating impact on pension plans. And that’s why the days of sub-zero borrowing costs may be drawing to a close.Later this week, Sweden’s central bank is poised to abandon the negative interest rate policy it’s pursued for half a decade by increasing its key policy rate to zero even though inflation is expected to remain stubbornly below target for years to come.Riksbank Governor Stefan Ingves has said negative rates were always meant to be “a temporary measure,” and that the central bank would “most probably” raise borrowing costs when it meets on Thursday. There’s been some pretty stern criticism of the likely move, with former central banker Lars E.O. Svensson condemning the plan for being based on an “irrational fear” of negative rates.There’s nothing irrational, however, in fearing the economic consequences of keeping borrowing costs below zero for a sustained period of time. The emergency measures introduced to resuscitate growth, including central banks expanding their balance sheets by embarking on quantitative easing, were supposed to be transient. Instead, they’ve become fixtures of the economic firmament.It’s been disastrous for pension plans. A 1% decline in interest rates increases calculated pension liabilities by about 20%. It reduces the funding ratio, which measures a pension provider’s ability to meet its future commitments, by about 10%. Those estimates come from a survey of 153 European pension providers with 1.9 trillion euros ($2.1 trillion) of assets sponsored by Amundi SA, Europe’s biggest asset manager, and published by Create-Research earlier this month.As a group, European pension plans are in more trouble than ever before. Almost a quarter have funding levels of 90% or below, with fewer than a third enjoying more than 100% cover of their future liabilities, according to the survey. Moreover, 40% are suffering negative net cash flows, compared with 33% enjoying positive flows. They blame a lot of their woes on the actions of central bankers, with 62% of respondents agreeing that “QE has overinflated pension liabilities.” Half said they felt that “QE has undermined the longer-term financial viability of pension plans.” That’s quite something, especially given that the bulk of respondents reckon the bond-buying policies pursued by many central banks have become ineffective.With about $11.7 trillion of the world’s debt yielding less than zero, the funds that run pension plans are anticipating meager returns from the assets they manage.Those low returns store up trouble for the future. It’s especially worrying as responsibility for putting aside retirement cash is increasingly transferred to individuals and away from companies and governments. Danish central bank Governor Lars Rhode went so far as to call the burden unacceptable: “The task of bolstering the pension system to withstand pressures from lower rates and higher dependency ratios cannot be delegated to the individual pension saver,” he said earlier this month.At the moment, a halt to the extraordinary policy measures introduced in the wake of the global financial crisis may not seem imminent, with the Federal Reserve having backtracked on its efforts to normalize borrowing costs and the European Central Bank restarting its QE program earlier this year. But doubts about the ongoing usefulness of such extreme monetary actions are growing. Pacific Investment Management Co. joined the chorus last month, with Nicola Mai and Peder Beck-Friis saying in a report that sub-zero rates “create significant challenges” for the pensions industry. They argued that the prevailing “negative rate policy does not have much further room to run” as the unintended consequences become more and more apparent.If the Swedish central bank’s newfound skepticism about the efficacy of negative rates becomes as widespread as its previous enthusiasm for sub-zero borrowing costs, relief could be in sight for pension providers — and the workers depending on their nest eggs to fund a comfortable retirement.To contact the author of this story: Mark Gilbert at firstname.lastname@example.orgTo contact the editor responsible for this story: Melissa Pozsgay at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.