14/12/2011 Author: Tony Griffiths

Foundations for growth

HFMWeek speaks to Lionel Erdely, CEO of Lyxor US, about the benefits of the strong US base that the firm has built over the past two years, and his expectations for the industry in the coming year

Borne out of Société Générale’s US operation and rebranded in September 2009, Lyxor Asset Management Inc (Lyxor US) began life with strong US foundations as it was. Two years on, the firm, the US subsidiary of France’s Lyxor Asset Management, has north of 30 professionals and $2bn in AuM. “Moving to the US has enabled us to raise assets we would not have raised otherwise and maintain strong diversity in terms of clients,” says Lionel Erdely, CEO of Lyxor US, speaking to HFMWeek from the subsidiary’s New York base.

Looking back – 2011
On a global basis, Lyxor works with very large institutions – including public and corporate pension plans and insurance companies – and the US business mix is similarly diversified. Bespoke, dedicated mandates are proving a big draw and this year the firm has won several such accounts over $100m.

According to Erdely, these mandates have included: one of the largest US pension plans, one large endowment and a large asset manager. Headlines have been made recently with an announcement by the California State Teachers’ Retirement System (CalSTRS) appointing Lyxor US as its advisor in the development of a new global macro hedge fund strategy. The interest, though, is continental.

“There is interest in Canada for alternative investments and our presence in the US has enabled us to get closer to this market,” he adds. “We also have a mandate with a pension plan there.”

Other than the new, dedicated mandates and existing offshore products, a big focus over the past 12 months has been the development of US domestic products. Further developments are expected in 2012.

HFMWeek was also keen to learn about the possibility of a domestic-dedicated version of the firm’s Global Managed Account Platform (MAP), the industry’s largest, with over $12bn in AuM.

The firm is currently “discussing the possibility with potential partners who are interested in doing something of a significant size”,

Erdely says, “but, for now, we are really selective in the types of the managed accounts we offer to clients”.

Looking forward – 2012
Lyxor has operated in the US for two years and, having leveraged an experienced workforce when starting out, already has a very solid team. Erdely sees talent in the marketplace and, while a doubling in headcount is unlikely, there will be room to “grow opportunistically” in 2012. Business development and, perhaps, research are likely destinations for new staff.

In terms of trends for next year, Erdely is refreshingly bullish. “The big picture is that we expect growth in the hedge fund industry as a whole,” he says. “When we speak with institutional investors and wealth managers, their intentions are to increase their allocation to alternative investments rather than decrease it. The trend will not be broken – but there will be a few changes.”

The first change will be as a result of the year’s lower industry returns. Industry performance has been rather disappointing in 2011, with some strategies showing a higher correlation with traditional asset classes than others. This will impact the decision process of certain institutional investors, who will now take longer to understand how they can integrate a hedge fund portfolio within their global allocation.

One the flipside, the hedge fund industry’s long-term outperformance of equities has driven many investors to switch part of their long-only exposure to long/short equity managers, to use them as return enhancers and risk reducers. “That is something that is really part of the thought process of many big institutions,” says Erdely.

One trend that is expected is not new – but it is back after a 12-month hiatus. Predictions this time last year were for the biggest managers to attract an increasing amount of assets. This, says Erdely, has proved not to be the case, with a slight decrease seen instead. However, he predicts that in 2012 larger funds and, in particular, mid-sized firms will do well.   

“There is this growing demand for mid-sized managers and this is where funds of funds can bring a lot of added value because recommending the biggest hedge funds is less of a speciality,” he says. “I’m not saying it’s going to happen in Q1 but I think it’s probably a trend reversal which will take time.”

Lyxor US and Erdely will also be looking at emerging managers. “Lyxor is spending a lot of time with these managers – we see a lot of value and talent there,” he adds.

The overall message is simple – Lyxor is not new to the US and North America, but it is growing. The firm is
investing more in the region than ever before.