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The view from Paris: the future of multi-management

The view from Paris: the future of multi-management

Bernard Aybran has had a lot of arguments, but that’s a good thing. ‘Fund management is disagreement,’ says the Frenchman, ‘it’s about working towards something that makes sense and if we all agree at the start, it’s a problem.’

Aybran, who is deputy CEO and head of multi-management at Invesco Asset Management, has been a fund selector in the financial industry for almost 20 years and has seen a lot of things worth arguing over.

‘I started managing my first fund in March 2000 which was a high point to start in the business, as it was the all-time top of markets in Europe, and in the US for a while.

'We are now reflecting on almost 18 years of work and over the past few years we have seen a sea-change in the way investors think and in the regulatory framework.’

One of the biggest changes Aybran has seen is the knock-on effect of the global financial crisis, an event he lived through as a multi-manager that has shaped his approach to markets over the past decade.

‘We are “celebrating” the 10th anniversary of the financial crisis, and at that time very complex strategies were all the rage, with the hedge funds – in Ucits versions or not – were really popular.

‘Now we have returned to more straight-forward strategies. The exception is what we as multi-managers encounter in the area broadly labelled “multi-asset”, or even “multi-strategy”, which can look a bit like the older-style hedge funds.

‘A huge aversion to complex strategies and hedge funds grew in the aftermath of the 2008 crisis. This trend developed quickly after the crisis but declining interest rates have now forced investors further out of their comfort zones in the hunt for yield.’

The current low interest rate environment is a new challenge even for a man as experienced as Aybran. When asked if he has encountered anything like this over the past two decades, he says: ‘Well, speaking as a dinosaur, I would say one of the mass extinctions I have seen over the past 20 years is due to the interest rates.

‘For example, you cannot manage a portfolio as you used to, when money market funds provided a safety net and a back-up stream of income.

‘Sitting on your hands with tonnes of cash on the sidelines or invested in money market funds in your portfolio won’t do. Long-term holdings in cash are a thing of the past. We now have to be more proactive and more fully invested than we were 10 years ago.

‘Higher-yielding strategies have been growing as a result of the interest rate background. That is a key feature for all kinds of clients, whether pension, institutional or retail, as everyone needs some kind of income,’ he says.

Getting the goods

CV - Bernard Aybran, Invesco

  • 1998-1999 – product development, Société Générale
  • 1999-2008 – fund manager, LCF Rothschild
  • 2008-present – deputy CEO and head of multi-management, Invesco

So how are Aybran and his four-strong team meeting this need? ‘That is a tough question,’ he says. ‘We never have enough yield but it is always a case of balancing the yield with the risk you are willing to take.

'The most yield-hungry investors tend to also be the most risk-averse investors which creates a conundrum and a difficult conversation with such a client.

'So, we can say – yes there is yield to grab out there in local currency debt or oil-producing listed companies, for example, but that comes with a level of risk that needs to be kept in mind. You can find yield out there but over the past decade it has become more difficult to match the demand for yield with the amount of risk the investor is willing to take.

'It also affects the way portfolios are built. We are therefore trying to get more clarity on where to take risk or not as risk management improves.’

This is where Aybran believes the ability to argue can prove pivotal. His team, which comprises himself, Pierre Bellot, Claudia Raoul and Luca Tobagi, are not only being forced to overhaul entrenched ways of thinking to come up with new ideas, but also to challenge each other.

‘It is not about arguing for the sake of it, we have to explain why we disagree and how we are making our decisions,’ he says. ‘But we have two extremes in the market and both bring challenges in how asset managers are approaching market analysis and asset allocation.

‘We have these giant firms with a top-down idea or matrix and a firm view that they implement as consensus and on the other side there are several top-performing one-man shows. As multi-managers we are dealing with both and each has drawbacks.

‘For example, there is a danger that those operating on their own are not challenged, so we have to test that thinking. We tend to say a fund manager alone is always in bad company because you need balance and you need discord.

‘Therefore, when it comes to selection, it is still tough to find the right balance of managers. We are fortunate that we don’t have a bias or an overarching house view in that regard.

'During my time at Rothschild, for example, we were under pressure to supply a buy list by a certain deadline. We aren’t under those sorts of restrictions now, so we can afford to disagree and be very productive.’

Aybran says these discussions bleed into the wider Invesco organisation and he cites global equity CIO Nick Mustoe and famed bond duo Paul Causer and Paul Read as key investors to bounce ideas off.

‘It is always great exchanging views about the markets. We might disagree but it is interesting and important to have their views. Being based away from London in Henley means that the Perpetual investment centre can be well beyond consensus and away from benchmarks.

‘That is very helpful. I am regularly challenged by Nick Mustoe and all the other people in Henley and the key to that is we are allowed to disagree,’ he says.

Guided goals

Aybran and his wider team certainly have plenty to discuss at present. The looming imposition of MiFID II raises several questions about how fund selection – and specifically multi-management – will respond to the challenges of increased transparency and cost pressures.

In response, several firms have already moved from an explicitly open architecture approach to one that is more guided.

Despite the likes of HSBC Private Bank shifting significantly this way and many more expected to change approach, Aybran is sceptical that the whole asset management industry will be forced into more narrow channels. However, he is prepared to be pragmatic.

‘Whenever we start a relationship with clients, it is key to always clarify at the very beginning the extent of the investment universe. It could be any fund available, a limited number of providers or just in-house Invesco funds.

‘Guided – or protected – architecture has been growing a lot recently, and much of this is driven by fee considerations. Even in traditional open architecture, producers and clients are now more willing to fish from a smaller pool of providers if that means better pricing and better transparency on portfolios.

‘There might be a reduction in the openness of the architecture and we can expect some more when the new directive comes into force. Will it change dramatically what we do? I don’t think so. We have seen the bifurcation of markets growing over the past few years with heavyweight players coming to the fore, but we don’t believe the number of boutiques is declining.’

Speaking to Citywire Selector in 2007 while at LCF Rothschild, Aybran said he had always held a soft-spot for boutiques and independent operators but was mindful of how managers also running their own businesses faced added pressures. Nevertheless, even in the brave new world we now face, he believes these smaller firms still have a part to play.

‘Boutiques have been blossoming across the board in Europe and in many different countries and we have seen huge asset managers growing to trillions of assets under management. Both types have flourished, so, for the moment, we can’t see a clear one-size-fits-all model, so no big change there,’ he says.

Accepting that not every active manager deserves their fee, Aybran remains upbeat.

‘The good news is that there is a pool of talent in terms of actively-managed funds, so we have plenty to pick from in European equity, as well Asia and Pacific equity markets.

‘This talent seems to come with different markets at different times but we have seen an increase in the number of star managers and some new fund managers coming to market.’

Here he name-checks Eric Bendahan of Eleva Capital. Having tracked the now Paris-based investor since his time with Swiss group Syz Asset Management, Aybran says Bendahan’s rapid accumulation of assets is a strong reflection of his solid outperformance.

At the other end of the scale, Aybran also likes JP Morgan’s Europe Equity Plus fund, managed by the Citywire-rated team of Ben Stapley (AA-rated), Nicholas Horne (+ rated) and Michael Barakos (A-rated).

‘These two examples show the divergence of opportunities. Eleva is not totally a one-man show but is arguably close to it, while JPM is a very wide organisation.

'You can have two very different types of portfolios and that shows how wide the investment universe is for us. Whereas on the US side, we have to focus on niche areas to find that same alpha,’ Aybran says.

Ready or not

Having lived through the first iteration of MiFID, Aybran is now gearing up for a busy start to 2018 with the new regulations coming into force from 3 January. Back in 2007, he cited the huge impact Ucits III was having and 10 years on he welcomes further moves towards transparency and investor safety.

‘It is obviously about transparency for the end clients again but also about the overall level of fees levied on portfolios. We want more transparency and it is excellent practice to get that on fees and portfolios in general and on the different layers of fees.’

Aybran highlights parallels between MiFID II and the Retail Distribution Review, which came into effect in late 2012, as both are designed with the end client in mind. However, he says quantifying whether new rules are effective is not the black-and-white task many people envisage.

‘We can only really assess its impact maybe one year later or even the year after. Looking at that parallel between MiFID II and RDR, as I understand it, the outcomes of RDR have been quite mixed for the end clients, so we will have to keep an open mind about how we assess MiFID II going forward.’

"Factor investing will dramatically affect the way portfolios are built and could change the very nature of the underlying markets"

Whether it is regulatory demands or client expectations, Aybran has learned to evolve. From developing products to selecting managers, he has covered a lot of ground in the industry in the past 20 years, so where does he see the future of fund selection? Put simply, multi-factor will be a force to be reckoned with.

‘The next big thing is factor investing and questions around how we slice and dice portfolios. Will portfolios be steered by geographical split or sector split, or will the factor element become more mainstream?

‘It is still not mainstream but the approach is likely to grow. This will dramatically change the way portfolios are built worldwide and could change the very nature of the underlying markets.

'For example, it may be the case that selectors look at the flows and see that one specific factor is driving those flows – be it momentum or value or whatever – at a particular moment. We are spending a lot of time working on that.’

While clients are not yet asking for specific splits based on factors, Aybran believes selection models may soon have to shift to take this into account. ‘Using factors which are less correlated with the regions could be a valuable way to manage a portfolio’s risk profile.

‘Many investment management companies are promoting this approach but we are still at the very beginning of this shift.’

This article originally appeared in the December-January edition of Citywire Selector magazine.

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