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French alternative management: Towards a strong financial centre.

Following to their study on strenghts and weaknesses of France as an alternative management financial centre, Reinhold & Partners give us the main considerations for moving towards a strong financial center.

Article also available in : English EN | français FR

The survey conducted with those involved in alternative asset management, French and foreigners, investors and managers, has highlighted weaknesses in the French alternative asset management ecosystem.

What are the main conclusions?

- Absence / lack of information / poor knowledge of the market and of French products

  • reflect on the communication / marketing strategy
  • meet foreign players and more particularly "key influencers"

- Rather negative perception of Paris as a financial centre

  • adapt the rules (laws, regulations, etc.) when this is possible
  • boost the environment through visible, targeted, promoted initiatives
  • encourage the setting up of innovative managers regardless of the type of funds managed [1]

- Absence of a local pool of investors / absence of interest of foreign investors

  • intensify efforts to create a market in France
  • integrate the requirements of French and foreign investors

The main areas for consideration are therefore summarised below; they result from the conclusions drawn from the detailed analysis of the study which follows.

Communication and marketing

- Set up a "one-stop shop" for information on alternative asset management: the "French Asset Management Centre", dedicated to asset management

  • Why : To help alternative asset management project developers but also the French and foreign investors and the service providers.
  • How : Create a single point of access to all the information necessary for managers and investors, which covers all subjects ranging from the creation of a portfolio management company to information on different types of funds. Accessible in English. Including links to service providers. Make available with a "guide to creating a management company [2]".
    • Example : Holland Financial Centre, City of London…

- Rethink the branding of the OPCVM

  • Why : in France there are about 20 different types of funds, often differentiated by complicated, barely comprehensible and non-translatable acronyms (SPPICAV RFA EL, etc.), the foreign - and even French - players can’t easily identify.
  • How : Use simple names that comply more with foreign standards and avoid "false friends" (Contractual Fund = FCP and not "fonds contractuel", etc.).
    • Example : Luxembourg or Ireland

- Inform the "opinion leaders" and the "key influencers"

  • Why : the alternative asset management project developers generally contact, first of all, their professional contacts: Prime Brokers, lawyers, etc. Currently, France is rarely in their "catalogues". They do not know enough about the French framework and its operating to give their clients details of it.
  • How : distribute as much information as possible on a regular and identifiable basis. Explain the French market, its specificities and also the business which the service providers could do there. Create and maintain a "French alternative asset management base" to make the market visible and therefore "marketable" through ad-hoc services.
    • Example : being visible in studies

- Communicate with foreign investors

  • Why : the study shows that they do not know the French market. They are however, after the French investors, an important relay of growth. Furthermore, some foreign investors are very fond of alternative asset management.
  • How : other than the one-stop-shop presented above, make specific communications for the investors: "guide to French alternative asset management". Organise dedicated road shows abroad. Be present at conferences / summits on alternative asset management or dedicated to institutional investors.
    • Example : representation of the ALFI in Asia and road shows through the world, GAIM in Monaco…

- Prepare a wider information campaign on management in France

  • Why : if French management is badly perceived, there is also a need to recognise that France is badly known. Setting up a business in France is a mixture of objective and subjective criteria. There is an essential and concomitant need to improve the image of management and France in the communications.
  • How : write a report which presents the advantages of creating a management company in France. Find the right product (the company) / market (France) mix. Highlight France’s strengths (education, welfare system, quality of life, etc.), minimise the weaknesses (combat the ideas of taxation of funds, etc.), whilst communicating on the management market. Combine with other initiatives (such as the French Agency for International Investments (AFII)).
    • Example : Luxembourg For Finance on the social networks, "living and working in Luxembourg" brochure, "shopping & lifestyle" brochure of Ireland’s International Financial Centre.

Promotion of France as a financial centre

- Encourage the stability of texts related to the management industry

  • Why : stability is an essential determining factor of the attractiveness of a financial centre. Foreigners complain about not being able to rely on a stable environment in France. Other countries make stability a sales pitch.
  • How : by encouraging the promulgation of texts which have been validated operationally and therefore analysed from this angle by all stakeholders. By encouraging the commitment by the public authorities of a certain stability of the texts, particularly fiscal ones. To this end, it seems vital for the French industry that the current taxation of funds continues to be as favourable as those of its Luxembourgish, Irish and Cayman Islands’ competitors, etc
    • Example : avoiding retroactive laws (taxation), showing a political will for stability of the texts.

- Show the commitment of the public authorities to the development of innovative management

  • Why : the signal sent by France abroad is that of a country which refuses alternative asset management and which abhors financial activities. Foreign respondents to the study are not therefore inclined to consider France as a business friendly country. And these entrepreneurs do not cultivate masochism.
  • How : clear and audible commitment of the public authorities.
    • Example : statements of Christine Lagarde (which could be more widely broadcast and translated into English…).

- Encourage innovating managers not managing French OPCVMs to set up their business in France

  • Why : even though we might regret it, the study shows that French vehicles are little known abroad. It also emphasises the difficulty of raising capital from French institutional investors. In some cases, it may be easier to create, first of all, a vehicle under a foreign law to raise capital and interest international investors.
  • How : by communicating more widely on the possibility of managing offshore funds from France. By helping the managers who, for business reasons and due to investor requirements, wish to manage offshore funds from Paris in order to carry their project to completion. By demonstrating in respect of projects to create foreign funds, the same care as for national projects when a management company is created in France.
    • Example : managers who wish to manage from Paris Cayman Islands’ funds for Middle Eastern clients.

- Encourage seeding

  • Why : this is clearly the problem area of alternative asset management in France. It is an essential determining factor, which organises the professional selection of the best talents and brings them to an economically viable size
  • How : Creation / development of a seed centre (in partnership with the "French Financial Centre", on the Dutch model). This model, for the development of alternative asset management, relies on several axes: assistance in setting up hedge funds with the contribution of funds (25ml euros per hedge fund on average), affordable premises and operational support. The managers selected have only one constraint: setting up in the Netherlands.
    • Example : In the Netherlands, the 250 million euros come from one pension fund, APG: encourage public-private partnerships

- Improvement "in spread" of some vehicles

  • Why : rationalising the ranges implies that with the same vehicle we can implement numerous management techniques.
  • How : improve more the Contractual OPCVM, allow it to get into property, clarify the notion of contractualisation of the responsibility of the custodian.
    • Example : accounting system not adapted to property, incomprehension by the players of the contractualisation of the responsibility of the custodian.

- Maintain homogeneity in the product presentations

  • Why : French management must present a coherent range if it wants to be understood, particularly abroad.
  • How : within the framework of the UCITS IV reform, and particularly the KID part, ensure not to increase the obligations for the alternative funds in relation to UCITS (we are thinking in particular of the AlterUCITS).

- Favour stand-alone texts

  • Why : in addition to the relative difficulty of finding official texts, understanding them is a hard task, particularly due to the numerous references.
  • How : favour stand-alone texts when this is possible, consider creating a "legal" database which would enable all the texts related to a specific subject to be found.
    • Example : instructions on calculating the commitment.

Favour the emergence of a market

- Continue the lobbying actions with the French institutional authorities

  • Why : you cannot export products without a national investor base. It is not possible to attract service providers if there is no alternative asset management market in France.
  • How : target all authorities to be approached, organise meetings which bring together managers but also institutional investors and service providers.
    • Example : insurance authorities, APE…

- Work more directly with the investors to improve the French framework

  • Why : the survey shows that the investors, whether they are institutional or private, wish to improve some points in the operating of French funds.
  • How : by working with them on subjects which represent determining factors in the investment decision. Reflection on the UCITS of hedge funds: how far can we go, what is the actual security? OPCVM with large lock-up: can a secondary market be created in France which is organised in units or shares? Governance: how can investors be stakeholders in the operating of some OPCVMs (club deal in a contractual fund)? Directorship: would the presence of an independent director be a good thing for selling abroad (alignment of managers / investors interests). Promote transparency and access to information...
    • Example : see part on Investors in the study.

- Make the fund distribution vehicles visible

  • Why : French managers have a difficulty in targeting investors that are capable of investing in their funds.
  • How : in agreement with the investors (institutional investors, family offices, funds of funds, etc.), draw up a list of who buys alternative asset management and under what constraints (track record, assets under management, due diligence to be carried out, degree of transparency, privileged or prohibited vehicles, etc.).

- Attract service providers

  • Why : a market needs service providers capable of providing, in France, services with high added value. The greater presence of Prime Brokers can give access to "corporate" services such as start-up capital, directors can provide TA services or independent analysis of complex products, etc.
  • How : by promoting the French market (even if it is restricted in the immediate future) and the business opportunities it has. By having a "can do" innovative management development policy, particularly at public authority level. By clearly explaining to them what services a management company can outsource, even abroad.

- Compare France to competitor countries

  • Why : to give France visibility and combat some instilled ideas which mean that, in all cases, businesses are not set up in France.
  • How : don’t think twice about doing "comparative advertising".
    • Example : the status of impatriate in France, the taxation of French funds vs. those of European funds, statistics on the period of time it takes to create a contractual fund vs. an SIF (actual periods of time and not the "displayed" ones, etc.).

- Gild anew the image with public opinion

  • Why : public opinion is probably one of the main factors that slows down any change; the world of finance is also badly perceived.
  • How : according to the principle of "what’s in it for you": creation of jobs, attraction of wealth, etc.

Reinhold Partners December 2010

Article also available in : English EN | français FR

See online : Reinhold & Partners full report


[1] This may seem strange to encourage non-French fund management by managers based in France. However, as underscored by André Orléan in "le pouvoir de la finance", the mimetic behaviours of financial players are particularly high in fund managers. This leads them to favour common locations in order to benefit from more information and the possibility of benchmarking. Before developing the French funds, it is fitting, in this way also, to encourage the agglomeration effect of managers in France.

[2] Improved version of the AMF document on this theme. It would also be fitting to make it more "business friendly", to include testimonies of managers set up in the country, names of service providers, to highlight the advantages of France, both for management but also outside...

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