The development that some large banks in Europe are closing their doors to open architecture and internalising asset management is good for their margins in the short term but could create a long-term problem. That is what Carmignac UK CEO Maxime Carmignac said. “Asset management is a different profession, with a different culture and dynamics. We are already seeing that this is starting to work against some banks.”
Maxime Carmignac was ten years old when her father Edouard Carmignac started an asset management firm, she said in an interview with Investment Officer about having a family business in asset management. The interview took place in her office in the Carmignac headquarters on the famous, octagonal Place Vendôme in Paris.
Young Maxime already loved numbers, she asked her father plenty of questions about his work when he came home. The love for financial markets arose and at the age of 26 she joined the family business.
Do you work with your father on a daily basis?
“No, but we are close. Carmignac has a general management committee of four people: my father; Christophe Peronin, head of France and operations; commercial director Rose Ouahba; and myself. We meet at least once a month in Paris.
My dad and I talk to each other for one to two hours every Friday, and on some days five times a day, when we have an important decision to make or when we visit a client. I learn from him every day. It’s a privilege to have access to someone so successful.”
Do you notice in daily practice that you work in a family business?
“Absolutely. Once every couple of years we go away together for a company weekend, this year it was Italy. We went hiking and sailing. On Saturday evening there was a big party. At one point I saw people leaving the dance floor and thought: why are they leaving already? It turned out to be four o’clock in the morning. We had so much fun.
It feels like an extended family here every day. There are many mutual ties.”
Carmignac is partly family-owned and partly employee-owned. Why was this structure chosen?
“My father has always been convinced of a principle that I fully agree with: common interest. When the company is in the hands of family and employees, everyone wants Carmignac to perform well. There is no competition between employees or teams. Every day at nine o’clock we pass on the NAVs of each fund, highlighting the results of the funds from the day before.. At nine o’clock you see the whole company stop for a moment. The receptionist, people from product, IT, back office, fund management: everyone wants to see the performance of the funds. Because we are all in the same boat.”
How is the distribution?
“About 80–20: 80 percent family, 20 percent employees. That varies over time, especially if you have portfolio managers with larger stakes. The share price has risen considerably..
Currently, about half of Carmignac’s employees own shares or stock options, which are awarded annually on the basis of performance.”
Why do you see relatively few family businesses in asset management in Europe, while you see them more often in the US?
“In Europe, there is a lot of polarisation between very large and very small, which has pushed out many medium-sized players. Many family businesses were in that middle segment. Sometimes there is no second generation, or the children do not want to take over the company. We would like to have more independent competitors. Together we are stronger against the giants, also in terms of lobbying and regulation.”
How do you view the changing landscape in asset management in Europe, with all those consolidations?
“For us, that’s an opportunity. The bigger a Blackrock gets, the more the world needs a Carmignac. Investors want beta exposure through ETFs. But they also know that you can add value if you choose the right portfolio manager. ETFs do not compete with fixed income, nor do they compete with flexible allocation or alternatives. But for equities, an ETF is the elephant in the room.
With the growth of ETFs, we either need to create products that don’t compete with ETFs, such as alternatives, or – in the case of equities – be extremely good and have the very best team. Otherwise, it’s better to close your fund, you don’t want to be eaten up by ETFs. If you look at last year’s performance, for example of our technology fund or our global equity fund, it was excellent.”
Is it difficult to find good people now that parties are growing through consolidation and may be able to offer more?
“No, not really. Because frankly - and sorry to say it this way - consolidation usually doesn’t work very well in our industry. Blackrock’s acquisition of iShares was a fantastic move, as was the acquisition of Global Infrastructure Partners. That fits well within their broader strategy.
But mergers between equals usually work poorly. In the beginning, people say: we are going to save costs. And that is what happens. But you also lose clients, because some funds are already with both parties and may invest in two similar funds. Other clients know that such a merger will cause a lot of disruption, and that talent will leave.
The race to consolidation means that talented people who are disappointed by M&A, or who know that their company is for sale, are open to joining a party like Carmignac.”
Would it be of interest to Carmignac to acquire an asset manager?
“No, it doesn’t. We still have a lot of room to grow organically. In addition, we have a very strong culture. Integration following a takeover is not easy.
Nevertheless, we did look at external growth in private equity. We knew what we wanted to offer our clients, but we didn’t have the performance engine in-house. For the first time in 35 years, we decided to enter into a strategic investment partnership with an external party: Clipway, founded by former Ardian employees (formerly AXA Private Equity, ed.). We became anchor investors in their first fund.”
You also see a lot of consolidation among asset owners, for example at private banks.
“It is cyclical. We are now in a difficult phase: interest rates are no longer so high, and banks earn less from interest income. Some large private banks - not all of them - say: we want more margin. And to increase that margin, they internalize asset management. That leads to a closed-architecture model, with the doors shut to open architecture.
In the short term, this is good for their margin, but in the long term, it is bad for their clients, because they will only have access to internal funds. We see this especially in Italy and Spain. This is a big challenge for assetmanagers at the moment.”
In the Netherlands, Rabobank is setting up its own asset manager.
“I’m curious about that, but to be honest, many parties underestimate how difficult that is. Consultants then say: increase your margin by internalizing asset management. On paper, that seems logical, but asset management is a different profession. It’s a different culture and a different dynamic. And we are already seeing that this is starting to work against some banks. Clients are dissatisfied with the offer, and some banks that went fully towards internalization are now seeing the limitations and are starting to reopen their architecture.
Internalization seems like an easy solution, but it is not a sustainable solution.”
Private banks are also increasingly looking beyond borders: to Belgium, to Germany. Spain is often mentioned as an interesting market. How do you look at that?
“Spain is extremely consolidated. Ten years ago, we spoke to about eighty parties. Now there are only twenty. The ten largest banks in the country own more than 85 percent of the market, the five largest more than 70 percent. The country has developed from one of the most fragmented markets in Europe, with more than 55 banks in 2005, to one of the most concentrated.”
Why are Italy and Spain so attractive?
“People often think that France is our largest country in terms of clients, but that’s Italy. This is because we are strong in fixed income, and Italy likes fixed income. Bonds are a great success story for us there. And don’t forget, Italy has the highest savings rate in the world after Japan. It is a very prosperous country. It is a huge asset management market in Europe, not only for Carmignac, but for many players. Spain is also a strong market, and just like Italy, a strong fixed income market, which fits well with Carmignac.”
Maxime Carmignac
Maxime Carmignac began her career at Morgan Stanley and later Lazard, where she was an M&A analyst. She then switched to McKinsey, to learn to think analytically, process huge amounts of data and see the big picture. Her first role at Carmignac followed at the age of 26, as a buy-side analyst. She then took a two-year period to continue her education in New York, after which she returned in a management role, responsible for business strategy and product development, and later became CEO of Carmignac’s UK division.
“I found investing extremely stressful. In addition, I didn’t envision managing money as well as leading the company in the future. I can add more value by selecting the right portfolio managers, organizing teams and identifying what products our clients will need in the future.”