28/09/2011 Author: Tony Griffiths

French connection

The French hedge fund industry may be something of an untapped market, but for the three co-founders of recent start-up CIAM, regulatory uncertainty in the UK and close links to Europe make Paris the place to be

It’s been an eventful 12 months for Anne-Sophie d’Andlau. Having launched her firm’s first hedge fund in September 2010, the co-founder of Paris-based Charity & Investments Asset Management (CIAM) has since helped negotiate a big-name seed investment, navigate spectacularly choppy financial markets and joined a host of her peers in driving the biggest promotional push undertaken in the history of the French hedge fund industry. Introductions to running a hedge fund business have rarely covered as much ground.     

Though by no means plain sailing, the journey so far has clearly been an enjoyable one, and speaking to HFMWeek from the firm’s Paris headquarters, d’Andlau is in optimistic mood. “The last year has been both exciting and challenging,” she says. “We’re down in the first year by a bit, mainly because of the market conditions, but in September we’re positive for the month – we implemented a number of changes in the summer that are now starting to bear fruit.” 

The firm’s inaugural offering, the CIAM Merger Arbitrage Fund, a ‘pure’ strategy targeting companies over $500m of market capitalisation in Europe and North America, has three different parts to the portfolio, d’Andlau explains, and recent changes to the risk/reward profile of the most risky, but potentially most profitable, section have aided a recovery. The arrival of an additional senior analyst is also imminent. “Before we were quite concentrated, with around ten positions, now we’re going to be taking it to around 15. Having another analyst will, of course, help with this.”

Founded in 2009, CIAM is the brainchild of three of France’s most successful female financiers. Catherine Berjai, Frederique Barnier-Bouchet and d’Andlau can all boast extensive industry experience both home and abroad.
Although founded by three French nationals, CIAM’s Parisian location is not, to the outside world at least, the most obvious of choices. According to AFG statistics from March 2010, of the 335 independent asset managers in France, 20% were dedicated to alternatives. London’s dominance of Europe’s hedge fund landscape may have faced an extensive regulatory challenge in the form of the AIFM Directive, but it remains the preferred centre for
Europe’s start-ups.   

“The main reason for choosing Paris is personal, but there is another reason – we wanted to be closer to our potential investors,” says d’Andlau. “Speaking with them prior to launch, it made sense to them that we would be closer to Geneva, to Amsterdam, to Brussels and to Luxemburg, and in fact all these locations are where our investors are based today. They like that we are close by. It’s an hour’s train ride, it’s easy and it’s continental. They feel it’s easier to get feedback – I’m not sure if that’s true, but that’s the feeling.”

Such an attitude certainly paid dividends in February when CIAM received a €20m ($26.9m) seed investment from IMQubator, the Dutch seeder backed by European pensions giant APG. As part of the deal the firm was required to establish an on-the-ground presence at IMQubator’s Amsterdam nerve centre. The benefits? The partnership increased the firm’s assets by around 100% and added institutional clout to its investor base. Assets, which were €15m ($20.1m) at launch, are currently at €50m ($67.3m) with a target of €150m ($201m) set for 2012.

CIAM shares more than just performance hopes and office space with IMQubator. Both are keen to promote their respective homelands as burgeoning fund domiciles – IMQubator via its relationship with the Holland Financial Centre, and CIAM as part of a fresh drive led by Paris Europlace, AFG (Association Francaise de Gestion financière) – the French regulator, the Autorité des Marchés Financiers (AMF) and fellow French fund managers.

With the AIFM Directive putting London on the back foot, Paris appears well placed, French commentators have argued, to benefit from a possible redistribution of hedge fund talent. Recent reports that Guillaume Rambourg, the French trading star who left Gartmore earlier this year following unfounded accusations of breaching internal codes, is poised to lead a succession of big-name start-ups to Paris have not gone unnoticed. His rumoured $1bn launch would be one of the biggest ever to hit France.   

Certainly, France’s upcoming national seeding fund, Emergence, will offer an incentive to those potential managers considering a French base. A joint initiative between several French financial groups, including seeding giants NewAlpha Asset Management and AFG, Emergence will consider any management firm based in France, and will initially focus on emerging hedge fund managers.

“We are in the process of identifying some very interesting managers,” says Philippe Paquet, managing director at NewAlpha, who are expected to be officially named as collaborators in the coming months. NewAlpha will provide the fund’s manager selection process and sit on its investment committee. The fund should be able to seed two firms shortly after launch, he notes.

Emergence, which is in line to receive a sizeable commitment from French investor heavyweight CDC, is due to launch at the end of the year with €100m ($134.6m) before opening to secondary investors in 2012. Paquet is increasingly seeing more French managers mix trading skills, such as credit and equities. The tradition among French universities for producing skilled engineers means quantitative strategies are also likely to feature heavily in the fund’s selection pool.   

“We had very positive feedback in June and July when we made presentations to French investors. Not just intellectually, but in terms of nationalism – helping start-ups emerge in France,” Paquet says, adding that he is confident the fund will go on to reach €250m ($336.6m) by June.      
   
Like Paquet and NewAlpha, CIAM has attended several of the recent meetings designed to generate interest in France. “I’m a bit prudent,” d’Andlau says, when the prospect of an influx of new firms is put to her. “I’ve been in the industry for 16 years and I’ve been hearing that for a long time. But it seems like for the first time in all those years that there are good triggers making it more likely to happen.”

Another high-profile French hedge fund professional who has also been part of the recent initiative agrees. “There are forces out there that are making France a more attractive proposition,” they say.

For the contributor, the effort is not about proclaiming Paris the successor to London, but about doing a better job of highlighting its advantages at a time when events are conspiring in its favour. Ongoing regulatory and tax issues have tainted London’s appeal. Quality-of-life factors have long hindered Switzerland. Add to this the stream of talent looking to exit French banks as part of the wider European banking crisis and Paris, they say, begins to look increasingly attractive.

“We [the French] are very bad at marketing France outside our borders,” says d’Andlau. “Being more commercial about it and presenting things correctly would help – the UK has always been particularly good at that. Another area requiring improvement is regulation. The AMF is very much aware of that. I’m not sure they will succeed but there is a strong will within some parts of AMF to do so. Regulation needs to change for the funds – not just asset managers.”

France has not been the friendliest of places for start-ups in recent years. The jurisdiction is more expensive and complex than London, although the strictness of the AMF is now, in post-AIFMD Europe, considered a plus, d’Andlau  .

Regulatory convolution is something the AMF has acknowledged. The regulator introduced a new fund framework in August, following a legislative proposal from the French Treasury. The new structure divides the country’s funds universe firstly into Ucits and non-Ucits funds. Then, the non-Ucits pool is divided a further three times, including one more flexible option clearly intended for hedge funds.

“We started simplifying and streamlining France’s fund regulation when implementing Ucits IV because we identified its complexity as one of the barriers to entry,” Patrice Bergé-Vincent, head of the AMF’s asset management regulation policy division, tells HFMWeek. “Before this we had 25 different legal types of fund. Now, this is far simpler. The reaction to the changes has been very positive so far.”

This is just the beginning for the AMF. “Looking ahead, we are keen to elaborate our asset management regulation policy further to allow an increasing number of innovative funds to set up in France,” Bergé-Vincent adds. “We consider creating a financial district stakeholders’ group with a number of industry players to help develop our AIFM national regime. New policies haven’t been decided or discussed yet but we intend to have established a template early next year. Firstly, we wish to attract more managers to France; and secondly, ideally, we’d like more funds to establish in France.”

Would CIAM, whose current offering is a Luxembourg SIF, consider setting up a France-domiciled hedge fund? “Absolutely,” d’Andlau asserts. “That’s what we told the AMF. We would be ready to consider that very seriously if they were to make the right changes in order to attract foreign investors.”

As d’Andlau readily demonstrates, passion for change and improvement in France is not in short supply. Further challenges lie ahead for CIAM and the French hedge fund industry but, whether by fortune or endeavour, the potential for both individual and collective progress has rarely looked stronger.