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Quantitative Management: French Managers make resistance

Despite respectable performances, French quantitative managers are struggling to significantly increase their assets. Is it the fault of too cold local institutional?

Article also available in : English EN | français FR

From London to New York from Chicago to Boston, "french quants" abound in the quantitative management companies. All the major houses have their French: Renaissance Technologies Winton Capital Management through DE Shaw. Pathways are known: Normal sup, Polytechnique, Centrale, ENSAE, DEA probability...

However, at the time of making the inventory of the French quantitative management, the picture is more mixed. A name still returns incessantly Capital Fund Management. Leaded by Jean-Philippe Bouchaud, Marc Potters and Jacques Saulière, the management company shows 5.6 in assets with 4.2 billion allocated to Stratus, its "flagship" fund, which is closed at the moment. According to Prequin, a data provider for alternative investment, Discus Feeder Limited, one of its compartments, is now part of the 5 biggest funds of "managed futures" with Renaissance Institutional Diversified Alpha Fund from Renaissance Technologies, BlueTrend from BlueCrest Capital Master Fund, Diversified Trend Program - Enhanced Risk from Transtrend and Winton Diversified Program -Winton Futures Fund from Winton Capital Management.

Capital Fund Management is now the locomotive of the French quantitative management. Its peers hope to follow in the footsteps. Seven Capital Management, founded in 2006 by Johann Schwimann, is also present with 300 million euros of assets including 175 for its "flagship" Seven World Asset Allocation. "With a volatility target of 6%, the Seven World Asset Allocation fund implements active and quantitative strategies based on dynamic analysis of risk and a strong diversification of asset classes: equities, bonds, commodities, listed real estate and alternative. Risk-based portfolio and market positions are adjusted daily from buyers to neutral to ensure the fund high responsiveness to market events and good resistance to shocks in order to limit capital loss . Internally developed and constantly reassessed by the research team, the management process called GRAATM Seven Capital helped to obtain the status of Young Innovative Company "says Johann Schwimann. The fund annualized return between 23/03/2007 and 30/11/2012 was 2.19% (-0.82% against the composite index for 50/50 and -8.2% for the Eurostoxx 50). The fund volatility is 4.3% (against 12.5% for the Composite 50/50 and 28.3% for the Eurostoxx 50) and Max Drawdown of -5.0% (-30.1% against the composite index for 50/50 and -60.3% for the Eurostoxx 50).

Nicolas Duban & Jérôme Coirier : « This year, among the 70 reviewed projects, a significant number is related to quantitative asset management companies »

According to Nicolas Duban and Jérôme Coirier, Chairman and CEO of NEXT-AM, subsidiary of La Française AM, managing minority interests of the Group, associated with investment partners, some projects could be in the pipeline, in the near(...)

Rivoli Fund Management, founded in 1996 by Thaddée Tyl and Vincent Gleyze, manage 250 millions euros of assets including 135 for its "flagship" Rivoli International Fund. This diversified systematic quantitative fund follows strategies like Trend following, Arbitrage, mean reverting or pattern recognition. This year the fund declines slightly (-6.85% YTD), but still shows an annualized return of 2.30% over 5 years with a volatility of 16.62%.

Behind, at John Locke Investments, Cogitam or Finaltis, assets are more modest but still with good performance. The Cyril Systematic Fund from John Locke Investments in UCITS format, is down this year (-6.16% to 30/11/2012) but shows an annualized return of 6.52% since its launch on 03/07/2000. But despite its relative success, the question remains: how to boost collection? Quant Valley, which includes many of these managers, is working to build an index representing the performance of its members and the launch of a product available on a platform of accountability.

Nicolas Duban et Jérôme Coirier, Chairman and CEO of NEXT-AM are rather optimistic. They plan to take stakes in quantitative management companies. "Of the 70 cases met in 2012, a significant proportion of projects consist of quantitative management companies. We have a relationship with the association ’Quant Valley’ which effectively promote these management techniques. The fact that the managed assets should be promptly significant to recoup high management costs in relative terms (research costs, selling expenses) is a real challenge during boot. We now look at files that could end " they say. If the promotion and know-how are important, the key will remain the performance and robustness over time. "Given the commitments that institutional investors should honor, it should be noted that the quality of performance in absolute terms, not only the relative ranking, is a prerequisite" warned Nicolas and Jérôme Coirier Duban.

French investors are too cautious, too wait-and-see, procrastinating, pretending to be interested in your case, but first expect that foreign investors are investing heavily.

Much more pessimistic, François-Serge Lhabitant, Professor at Edhec and Chief Executive Officer and Chief Investment Officer of Kedge Capital, the Swiss fund of fund managing the wealth of the Bertarelli family, believes that "the regulatory environment, tax policy and French is as a real bugbear for foreign investors. Local institutional are afraid to invest in hedge funds because they would be criticized in case of loss." Equally negative, a very experienced sales told us off duty " French investors are too cautious, too wait-to-see, procrastinating, pretending to be interested in your case, but first expect that foreign investors are investing heavily . At the exact opposite of the American and British investors even Asian. These generally take a little time before investing, but their approach is different, they study the process in detail and contrast. Once they are invested, they commit over time. Your fund may experience tremors, but they will follow. Large U.S. Institutional generally have a small pocket they use to invest in young talent who often tend to outperform. They hope to find the future nugget for a modest ticket in relation to their assets. There is much less difficulties to start its own funds across the Atlantic although competition remains fierce. "

The weakness of outstanding assets from French quantitative managers makes them less accessible compared to Anglo-Saxon managers with whom we have no problem with ratio control

On the institutional side, the speech is different. Most institutional investors surveyed feel uncomfortable with the "black box" but a major problem is the weakness of outstanding assets. "We do not intend to irrigate the Paris financial place" says Chief Investment Officer of a large pension fund. "The weakness of outstanding assets from French quantitative managers makes them less accessible compared to Anglo-Saxon managers with whom we have no problem with ratio control. Betting small tickets? No question. Operationally, it is very difficult to multiply them indefinitely as implicitly wants many managers. We are very attentive to each of our lines of investment and they require significant follow-up. If we multiply our lines constantly, we have difficulties to ensure a sharp control. This is really not what we want, " said he. Positions seem so little reconciled.

The presence of quantitative French funds on « managed account» platforms is now low or even zero

Will the solution come from managed accounts platforms? Not sure. The presence of French quantitative funds on "managed account" platforms is now low or even zero. Some French managers displaying much better performance than managers referenced are not included and are surprised. "The platforms are biased to the stars managers who actually have the least need," says our interlocutor. No platforms contacted have wished to return in controversy.

Alain Albizzati, Head of Alternative Investments and Structured Products at Lazard Frères Gestion, which in turn, favors managers with a long track record, expanded team and high outstanding assets, suggests to managers "better adaptation of legal formats to the needs of investors and especially to bring more transparency to the process of managing their funds often akin to a kind of ’black boxes’ to potential customers."

Paul Monthe December 2012

Article also available in : English EN | français FR

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