Given that we’re in a “yieldless” world, also in France the race for alternative assets is going on. While in the past, “hedge fund” has not been a very popular word in France, what we are seeing right now is that the sentiment is turning more positive for some strategies, especially everything which is systematic or quantitatively driven. There is also an increased demand for advice from institutions, and insurance platforms and wealth managers have lifted UCITS funds to make up 50% of retail portfolios.

But, the volatility post Brexit has heavily impacted many investment strategies, and this Roundtable discusses the winners and losers. How have investment managers, for example systematic strategies, adapted their exposure or systems before the vote?

Another Brexit effect is that investors as a whole are holding back and almost nobody is taking any bets from an investment standpoint. This is particularly unfortunate because already since the beginning of 2016 there has been turmoil in the market, and many investors have been sitting on the sidelines since then. Another consequence of that vote is that Roundtable participants don’t see interest rates going up anytime soon.

Regulators insist on UK compliance during transition period

Brexit is not there yet, and there is still a lot of uncertainty. During a transition period, many regulations come into effect and must be implemented, like for example MiFID II and PRIIPs: What will be the status in the UK for these new regulations? Do they need to invest and comply? The French regulator’s view is that different market participants need to have the same rules when they are playing in Europe; this also includes the UK during the transition period. And what will be the status if they are going out of Europe? Also, given that the UK is the country which has the most exceptions, it’s one thing granting an exception when you are in compared to granting an exception when you are out...

Direct Lending booms

Also in France there is a lot of activity and investor interest in direct lending. Almost every type of investor wants to gain first knowledge in this space and then start deploying capital in substitution of more traditional fixed income assets. For instance, insurance companies are investing in direct lending because they need to invest in relatively safe fixed income proxy assets and at the same time they want to show to the public opinion that they are financing the economy. Private banks are also forced to step into this asset class as their largest clients push them to do so.

French regulator aims to be ahead of the curve

The French regulator AMF aims for a good balance between investor protection and innovation, trying to “give visibility on the regulatory status of the innovation on a very early stage. We do prefer to work even on a draft format with the aim to give guidance and visibility very soon to the financial institution and to the investors in these institutions.” This is very supportive for the local industry. Already two years ago, for example, France created a completely new regime for crowdfunding where investors can grant loans to SMEs, and now the AMF has issued a wholly new guidance concerning asset managers originating loans instead of investing in loans originated by banks. France will be one of the first countries to have a regime that is completely clear on what an asset manager can do on direct lending.

The Opalesque 2016 France Roundtable took place in June at the Paris office of Eurex with:

1. Xavier Parain, Head of the Asset Management Department and Deputy Secretary General, AMF
2. Gilles Guerin, CEO, BNP Paribas Capital Partners
3. David Lenfant, Managing Partner, Laffitte Capital Management
4. Philippe Paquet, Managing Director, NewAlpha
5. Nicolas Kageneck, Senior Vice President, Eurex
6. Robert Baguenault de Viéville, Co-Founder, KeyQuant
7. Steeve Brument, Head of Systematic Funds, Candriam
8. Tristan Grué, Founder & CEO, Bolden

• Which strategies will do well with Brexit and its potential aftermath?
• Will mid-sized asset management players disappear over the medium or long-term?
• Why the Brexit vote had made valuations of UK-based FinTechs very questionable
• What’s the right way to regulate FinTech?
• What will happen to FinTech when rates and defaults are going up?
• Why is France the first country to domicile the first three ELTIF funds?
• Shrinking liquidity: Not only have volumes shrunk, but also order books in the most liquid markets have become thinner as well. How do funds and investors deal with this?
• Are ETFs, as they settle end of day, moving the market from intraday-pricing to close-of-business pricing? What’s the impact of this on both the volatility and on the whole price creation process?
• What are the benefits of Eurex’ weekly Bund Options?

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