La Française – as the name suggests – may not be an investment name that is well known outside of France. But the Paris-based funds group has big international ambitions and has been steadily growing its RI presence as a core part of that strategy. The most recent of those moves was the joint venture signed late last year with Inflection Point Capital Management (IPCM), the sustainable fund manager started by Matthew Kiernan in 2009, through which IPCM will advise on $1bn of La Française’s assets in exchange for a half share in IPCM. That venture replaced an existing SRI partnership with J. Safra Sarasin Group, the Swiss asset manager: see RI story.
In 2012, La Française took a 20% stake in Cedrus Asset Management, the RI fund-of-funds business, which was spun out of Cedrus Partners, the Paris-based SRI consultancy. La Française’s investment, which was made by NExT AM, its fund manager incubation unit, included €15m in assets invested in the Cedrus fund. Back in 2008, the group bought a 15% stake in Mandarine Gestion, the Paris-based fund manager, which is a signatory to the UN-supported PRI and has a strong ESG conviction to its investment process. The group RI strategy can, in part, be explained by the background of La Française’s parent, Crédit Mutuel Nord Europe, the French co-operative banking group. But a large part is due to La Française’s Chairman, Xavier Lépine, who dances to a different tune than most investment chiefs. A collection of fine electric guitars on the wall of his office includes a special limited version of BB King’s ‘Lucille’ Gibson guitar, while a collection of Beatles’ albums are proudly displayed behind his desk: framed vinyl of course. It’s not surprising to hear that he plays guitar in the fund manager’s in-house rock band. Standing out from the crowd is part of Lépine’s raison d’être: “Our job is to develop internationally with different investment propositions from our peers. We don’t want to be the ‘nth’ stock picking manager doing the same thing.”La Française was formed out of the takeover by fund manager l’Union Française de Gestion (UFG) of peer asset manager, La Française des Placements, (LFP), to become UFG–LFP, then eventually La Française. The investment group includes a strong real estate business, as well as La Française Asset Management (LFAM), its international funds business, which runs €28.3bn of the group’s €41.9bn in assets.
“This is SRI 2.0; not a filter, not best-in-class, but real integration”
La Française signed the Principles for Responsible Investment in 2010. Lépine says putting responsible investment at the centre of LFAM’s approach reflects a conviction that we are living through accelerating mega-trends: “These include huge urbanisation shifts, demographic issues, military combat, environmental problems, energy and technology shifts. If we don’t take these into account and their impacts on countries and companies we’re going to get things badly wrong. For us, taking into account ESG issues is not a moral issue, it’s a belief that financial figures will not give everything you need to know about a company, especially given these mega-trends, which are happening very quickly in some areas.” On the IPCM deal, Lépine says Kiernan first approached NextAM, the group’s asset management incubation division, but La Française saw more interest in reformatting its own equity investment model to factor in IPCM’s Strategically Aware Investing model. This combines traditional fundamental and quantitative financial analysis with a forward-looking assessment of companies’ strategic management and execution capabilities on sustainability issues. Lépine says: “This is SRI 2.0; not a filter, not best-in-class, but real integration of non-traditional factors into investment.” Under the no-cash deal, La Française took a 49% stake in IPCM UK, now the main London-based research subsidiary of the sustainability manager, while IPCM took a 49% cross stake in a newly
created Paris-based entity called La Française Inflection Point (LFIP), which will handle the actual asset management. The $1bn in equity assets run by the joint venture comprises retail and institutional money from La Française withdrawn from the previous Sarasin relationship. Lépine says: “IPCM will do the research for our model portfolios, and we run the client assets with different approaches here via our Paris-based equities team. There will be a new Chief Investment Officer for LFIP that we are in the process of recruiting. We will also launch other funds on the back of the IPCM research as part of a broader restructuring of our funds range. Our clientele in equities was largely French institutions, which for issues including demographics is becoming a smaller market. Therefore, we are pushing for a more international clientele, notably in the Benelux countries, Nordic region and markets like Italy, where we believe investors are open to this approach. We think the La Française brand will make more people ask about who we are than the reverse.” Asked whether the firm is taking a risk in allying with IPCM, which had yet to winany client business after four years, Lépine says: “Innovest had a very good reputation and Matthew Kiernan is well known. The IPCM research and models have a real sense for value creation in the short and long term and on paper their performance to date is good, a few points higher than the benchmark. We’re ‘investing’ in the sense that we are evolving our equity approach with IPCM. Maybe this is less easy than recruiting a star manager or buying a rival fund manager, but we will have something which is right for us: long-term thinking that doesn’t sacrifice short-term performance.” La Française’s equity funds have to date been run on a ‘top-down’ basis with relatively concentrated portfolios of 80-100 stocks and significant company bets. Lépine says: “LFIP brings us much ‘bottom-up’ granularity on the finance and ESG side. We think this combination of top-down political, interest rate and inflation views accompanied by a much more granular view of company performance incorporating its responses to society’s major challenges is the way of the world today.”