A new survey shows that the French hedge funds market has grown by 63% in the past two years to over EUR 54 billion in assets under management.
The new survey produced by Asterias is entitled "France Hedge Fund Outlook 2004". It is published this week as a 190+-page, in-depth research report on hedge fund investments in France.
Total assets under management: France ranks second after Luxemburg in terms of retail assets under management with EUR 982 billion and is one of the countries with the most diversified range of products. France has traditionally had one of the highest saving rates in Europe.
Share of hedge funds: Hedge fund products listed in the report (excluding advisory mandates and guarantee products) represent EUR 54 billion at the end of June 2004 and 7% of the total retail asset management in France. The new onshore category of funds of funds listed under "OPCVM de fonds alternatifs" and created in 2003 represents 1% of the total retail asset management.
Growth: Compared to EUR 33 billion registered in the last Asterias report in March 2002, assets in hedge fund products have increased by 63%. Most managers experienced an average growth of 40% to 60% in the same period. Lyxor AM, Société Générale's subsidiary which specializes in managed accounts dominates the market with assets exceeding EUR 40 billion (including structured products).
In general, banks control the market, managing and distributing 70% of the products listed in the report.
Type of products: Compared to 2002, the number of funds of funds has increased significantly. Three strategies dominate the market: fixed income arbitrage, convertible arbitrage and managed futures representing 80% of the assets managed in single manager funds.
These strategies represent the core skill of the French fund managers who have a fixed income investment culture (19% of the retail assets managed in France) with a strong background in quantitative trading. One particularity of the French market is the prevalence of cash enhanced products with 70% invested in cash and up to 30% invested in listed hedge funds. Those funds are difficult to categorize and track as they may appear in various hedge fund strategy listings. In the Asterias report they represent 20% of the sample and one third of the assets registered under single managers.
Concentration of players: 16 firms with assets above EUR 1 billion represent EUR 61 billion out of the report's global sample of EUR 77 billion (80% of the Asterias sample). Five players dominate the market (four banks and one independent firm) managing 53% of the total assets.
Foreign players: Foreign groups have tempted to operate in niche activities, targeting mainly high net worth investors or offering advisory services to package products for distributors. Since 2002, the Swiss private banks have been active, opening local representative offices and obtaining the AMF approval for product management.
Product development: The French retail shop Carrefour has been one of the pioneers in Europe offering retail type of hedge funds products in 2001. In 2004, two industry leaders have launched retail products: Natexis Asset Square (Natexis Banque Populaire Asset Management Group) launched a fund of hedge funds series with various ranges of risk/returns and Lyxor AM launched MSCI hedge fund indexed linked products.
New regulations: The local regulatory body (AMF-Autorités des Marchés Financiers) has created a new category of funds to include the growing numbers of hedge funds type of products registered under the category "OPCVM à procédures allégées" (funds with a lighter approval process).
The AMF has worked with the local financial industry to set up a range of funds with various levels of regulation constraints based on the degree of risks and type of investments. The Astérias report lists the 100 funds now registered in the new fund of funds category "OPCVM de fonds alternatifs". The AMF is currently working on defining the status for single manager hedge funds under the new category of "OPCVM ARIA - à régles d'investissement allégées" with a view to respond to institutional needs as well as to retain trading talents locally.
Outlook: Compared to 2002, Asterias has seen a significant increase in the number of single fund managers which shows a desire by the French authorities to retain trading talents domestically.
It states: "The market is dominated by fixed income products and we foresee more demand towards equity type of strategies. The market place is largely dominated by the French banks; however we see the emergence of small active investment boutiques with expertise in asset allocation and fund selection."
"The constraints imposed by the regulation in terms of liquidity, risks and type of investment, creates a highly competitive environment in France. The development of the new category "OPCVM de fonds contractuels" should allow the launch of more flexible types of products. Finally, the real issue of asset growth in the French market hinges around the ability for the insurance companies and the retirement plans (two key categories of institutional investors in France) to invest in hedge fund products, and ARIA products to be validated as acceptable investment vehicles."