Degroof Petercam AM eyes Scandinavia
Asset News : How did Degroof Petercam AM perform so far this year ?
Hugo Lasat : As of end March 2019, Degroof Petercam AM managed €34bn in assets in comparison with €31.7bn managed as at the end of 2018. Roughly €21bn are institutional assets and the remaining are private banking assets. Assets have been affected by a negative market effect though we faced our fourth consecutive year of growth in assets (+€1bn in 2018). We have been satisfied especially regarding net new cash posted over last year. Non-Belgian assets have risen significantly and that is in line with DPAM’s strategy which is to be active over all continental Europe. In Belgium we are a big fish in a small bowl so we must go beyond our frontiers, discover new markets. Also margins are larger outside Belgium on average. Growth has come from both existing clients and prospects, which means not only are we relevant but we also get noticed.
On the Belgian market, how did the firm cope with local regulation such as the tax on securities accounts ?
There are several contrast elements. These regulatory initiatives do not look beyond short term and will carry a negative impact over the long term. If we look at average household savings, the Belgian market is rich compared with the rest of Europe. Belgian household savings are not well-allocated globally speaking, most of it is parked in short-term monetary products. In addition, there is a need for third and fourth pillar savings. I find astonishing that Belgian household savings being in excess do not face adequate optimal allocation. I would plead for democratising savings through funds and stock investments to get greater yield than short-term yield. This taxation cannot be explained. There is no level playing field on the different types of savings in Belgium. Individuals ask about tax exemption whereas the first question they should ask shall be about the optimal allocation of their portfolio.
Another development in Belgium has been the launch by Febelfin of a Belgian SRI label, which seems to divide local asset managers.
Labels need to be credible and I believe Febelfin has set up something credible. It is up to players to adapt to this framework. There is no interest in being extreme regarding sustainable investments. The society needs to continue functioning. What is the interest of excluding a sector that is crucial in our everyday life ? I am in favour of evolutive guidance in the area of SRI. That said, it seems obvious some sectors like cluster ammunition shall be excluded from any fund. I suspect ESG will slowly become mainstream in the industry.
I believe DPAM is part of the top 10 ESG asset managers in Europe. We are among leaders of the pack.
Is it not mainstream yet ?
There are asset managers applying SRI processes and those only talking about it. We slowly integrate ESG aspects in all assets we manage. We have been active in the SRI space since 2002. Defining an ESG policy takes time, some investors are not there yet.
Did you circle a date for full ESG integration in assets managed by DPAM ?
I refuse to do this. The senior management cannot say « from now on, we are going to be fully ESG or SRI-compliant ». Currently we have €5bn of our assets that are managed under pure SRI strategies. We have 40+ people working on SRI at DPAM. ESG is being integrated through analysts but not only that concerns the whole staff of the firm. Ophélie Mortier and her unit are much helping to achieve that natural integration. We will be there soon. I believe DPAM is part of the top 10 ESG asset managers in Europe. We are among leaders of the pack. Moreover, we will launch a new SRI bond fund in June.
Regarding DPAM’s personnel, with emerging big data and AI trends in the fund industry, did you adapt your recruitment to new profiles ?
The profiles we target have not changed yet. We are in an exploration phase for now but there is certainly added value to be made from unstructured data or behavioural finance.
Another trend we see in Europe is the rise of activist funds. What is your view on their acting ?
I am not a fan of activist funds but I reckon asset managers shall play a role in proxy voting and pile pressure on the schedules of extraordinary general meetings. At DPAM, we have written 50+ letters to companies’ CEOs. At the difference of traditional asset management, activism pursues a financial goal, mainly short term. On average, it seems a positive evolution but there are things I do not like at all in the behaviour of activist funds.
I am concerned about passive management that is leading to a huge volume of assets concentrated in a few hands.
2018 has been a rich year for DPAM in terms of acquisitions and partnerships. What is on the plate this year ?
We will not do something that could harm existing skills at DPAM. One of my favourite mojos is do not mess with the engine if it is good. Though the group has defined a strategy. An acquisition would be of interest only if it is complementary to our existing capabilities in terms of expertises, clients and regions covered. We do not look at Belgian players but at the international level. Opportunities are currently being analysed. For instance, global real estate would be a perfect addition to our skills set as there would be no overlap.
We have tied partnerships last year with Swiss firm Quadia in the area of impact investing or with Belgian insurer Argenta for the asset management joint-venture Arvestar. We consider partnerships for capabilities that we miss and that we would like to develop jointly. We see a number of persistent moves and shifts in the asset management industry which is globalising ever more. Insurers become more interested in asset management now across Europe and new players want to concile tech and asset management. On the top of that, Asian players are increasingly establishing presence in Europe.
Do you look at any European markets in particular ?
We are analysing the Scandinavian region at the moment as we have too little presence. The analysis should be over by the end of Q2 2019 and could potentially lead to the opening of an office in the area. Nordics is a market fitting our culture well. It is a large institutional market with a big focus on SRI. We do already tick a few boxes. And I know it is possible to be successful there when you are not a Scandinavian asset manager. Otherwise, we will strengthen our offices in Europe. Our growth poles will remain Paris and Brussels in terms of asset management at the exception of partnerships.
What about Asia ?
I use my joker.
Asset managers have been in the eye of Brussels for some time in regards to systemic risk issues and therefore may look at more control on asset managers. What is your stance on this ?
Let’s recall that asset managers are not financial institutions. I am not a huge fan of more control. When you look at the fund industry, it is one of the more transparent that exist in the world. We spent an enormous amount of money to adapt to MiFID II which is an 'approved improvement'. In the end, if fund costs must be shown to the investor, I do no think the investor cares more if he/she knows whom retrocessions go to.
I am far more concerned about passive management that is leading to a huge volume of assets concentrated in a few hands. It is not certain passive’s liquidity has perfect correlation with that of active funds. If a severe market correction occurs, passive may not be as liquid as we think they were. In the passive world, a few players have become significant shareholders of a number of stocks across Europe. Here dwells an issue in the way ETFs can act sustainably as they cannot withdraw their investments from certain sectors.
Are ETFs an eventual development for DPAM ?
We are first and foremost an active manager. We can consider managing ETFs but I will not deny what we are. If there is client demand for ETFs, we will look at tailored solutions and that will be active ETFs.