Fostered by a range of innovative initiatives from French asset management associations, regulators, and France-based managers and investors, new momentum has been building in Paris, contributing to the growth in strength and number of the local alternative investment community:
The EMERGENCE national seeding fund for France-based asset managers incentivates French nationals working in places like London, New York or Connecticut to come back to France to set-up their company or office
French financial regulator AMF views it as a “necessity” to have more managers and more alternative investment management companies in France. The AMF is considering more flexibility regarding regulation of the product and the manager while being stricter on selling practices
The AMF is also considering discussing with the prudential supervisor ACP an extension of the buying powers of institutional investors into alternative investments
Hedge fund launches that before would have taken place in London are increasingly happening in Paris
However, the path to become a globally leading asset management center is considered long and difficult, and will require even more support and coordination of local regulations and the investor base.
“Good” AIFM versus “roadblock” Solvency II
While the AIFM directive is now seen as a success and “good directive” for the future of the alternative investment industry, the misconceptions of Solvency II regarding hedge fund investment and its very unfavorable “by default” treatment of alternative products is considered to be the major roadblock for European institutions regarding a wider usage of alternative investments.
Nevertheless, French investors invest into absolute return funds “if a manager truly achieves this absolute return objective by creating alpha and not packaging up beta and selling it at alpha prices.”
French managers and solution providers experience a significant institutional demand for high quality UCITS and other onshore funds. Asset manager Lyxor announced the launch of two dedicated managed account platforms in Dublin and Delaware (for U.S. institutional investors), as well as a UCITS hedge fund platform for single hedge fund managers.
Like the magnitude of their fixed income risk, institutions mostly underestimate diversification benefits of hedge funds
Institutions are only slowly awakening to the fact that they largely undervalued the risk carried in their fixed income portfolios, and that the magnitude of that risk is substantially larger than what a portfolio of hedge funds may carry, when in fact each stock market crash has shown that hedge funds act as a useful diversifier in an institutional portfolio.
The 2011 Opalesque France Roundtable – sponsored by Lyxor and Custom House Group – took place in July at the Lyxor office in Paris with:
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