Excellence in growth management:
Edmond de Rothschild Asset Management
The investment philosophy at Edmond de Rothschild Asset Management, winner of the SimCorp StrategyLab Growth Management Excellence Award 2010, has always been to deliver quality management and performance that withstands the test of time. Free of benchmarks and passing fashions, the approach aims at identifying companies with the key elements for sustained success. This demands a growth strategy based on long-term vision and bold conviction.
By Philippe Couvrecelle
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An affiliate of La Compagnie Financière Edmond de Rothschild, the French arm of the Edmond de Rothschild Group, Edmond de Rothschild Asset Management specialises in managing equities, convertible bonds and asset allocation for institutional investors, banking and insurance company partners and distribution platforms throughout the world. Focusing on stock analysis and selection and asset allocation, the company has built up the capacity to deliver sustainable performance within a relatively short timespan. This largely derives from conviction-based management and a systematic strategy of driving innovation in both asset management techniques and geographical approaches in the search for permanent alpha creation.
Edmond de Rothschild Asset Management’s growth is entirely dependent on the ability to provide quality investment services and generate sustainable alpha for its clients. The stock-picking process is based on rigorous qualitative analysis of every company selected, meetings with their management comprising the cornerstone of the research process. Investment decisions are orchestrated around the synergies developed between the global asset allocation team and teams of specialised equity fund managers.
Two specialties instigate both an in-depth analysis of the markets, allowing for optimal, risk-adjusted asset allocation, and to local equity market expertise. It is here that a strong international presence and experienced teams comprising over 140 professionals with 16 different nationalities provide a valuable asset.
Guaranteeing stability as well as capacity to adhere to strategic decision-making and implementing successful growth strategies is the long-term commitment of Edmond de Rothschild Asset Management’s independent and principal shareholder, La Compagnie Financière Edmond de Rothschild, French bank of the Baron Benjamin de Rothschild. Being private allows the asset management affiliate to concentrate on long-term value creation for its shareholder through long-lasting growth and to remain innovative. This is essential since it has no captive distribution network for its funds.
GROWTH STRATEGY
The company was able to weather tough environments, particularly in 2008-10, and to make counter-cyclical investments when other financial institutions were suffering. Despite the challenging conditions of the recent financial crisis, it succeeded in putting a growth strategy in place that secured the company a considerable increase in the number of clients, revenue and earnings.
In the client area, Edmond de Rothschild Asset Management’s clients increased by 34% in the 2008-10 period. This increase in the client base demonstrates that the company ensured existing client loyalty by constantly improving the quality of its investment and client services but also won new clients, especially outside France.
Also in the 2008-10 period to the end of June, the company took in close to €1.1 billion in new money despite a particularly difficult equity market environment in 2008. Adherence to its growth strategy allowed Edmond de Rothschild Asset Management in 2009 to record the third-largest inflows in France in its peer group.
As an indication of strong initial growth in the company’s international growth drive, 78% of new inflows over the first half of 2010 derived from international markets compared to 45% in 2009. In only one-and a-half years, Edmond de Rothschild Asset Management has raised €428 million from Chilean pension funds. This positions it among the top 30 global players in the zone and makes it the second French investment management company. In the same manner, Edmond de Rothschild Asset Management Benelux has taken in €207.4 million since being set up, while Edmond de Rothschild Asset Management Hong Kong had €933 million under management at the end of June 2010.
Company revenues also rose over the period. As a mainly equity firm, revenue naturally declined over the course of 2008 due to the severe market downfall, with overall assets under management down 41%, of which 31% was due to negative market performance and 10% to outflows. In 2009, total assets under management grew by 52.3%, of which 29.5% derived from performance and 22.8% through inflows. Earnings were also increased over the period.
INTERNATIONAL DRIVE
International expansion and product innovation are, and always will be, key to the investment management industry. Edmond de Rothschild Asset Management has a long history of innovation and readily embraces new markets and new investment ideas. The main focus for future development will be to further international development, maintain product innovation to be best adapted to the wishes of clients and market constraints, and to continue improving the quality of service.
In the international sphere, expansion has been strongly fostered since the end of 2007. The main steps in the interim expansion have been:
• October 2007: Creation of a fully owned subsidiary in Hong Kong responsible for the management of Chinese equity and Asian ex-Japan funds and the marketing of the fund range across Asia. Edmond de Rothschild Asset Management Hong Kong received SFC approval on 26.02.2008.
• November 2008: a branch is set up in Brussels and a CBFA licence acquired in the same month. The branch is dedicated to the marketing of the company’s funds in the Benelux region. Edmond de Rothschild Asset Management Benelux joined BEAMA in March 2009.
• December 2008: a subsidiary is opened in Santiago de Chile dedicated to business development in Latin America: Edmond de Rothschild Asset Management Chile.
Corporate investment in human and technological resources has tracked the expansion of the company and the growth of assets under management and will continue to do so. The medium-term goal is to achieve a substantial increase in the assets managed on behalf of international clients in Continental Europe, the UK, the Middle East, Latin America and Asia.
Sales and client service resources have also been strengthened accordingly. The international and institutional sales team now includes 12 senior sales people, including locally based teams in Hong Kong, Santiago de Chile and Brussels. This is without counting two recently created offices. Two country heads have just been recruited to open offices in Frankfurt, Germany, as well as in Madrid to cover Spain and Portugal.
Edmond de Rothschild Asset Management now has 27 funds approved in 15 countries outside France, and has also been granted the freedom to provide investment services by financial authorities in the UK, Ireland, Italy, Germany, Belgium, Luxembourg, Austria, Denmark, Finland, Iceland, Norway, Sweden, the Netherlands, Spain, Chile, Peru and Taiwan.
PRODUCT INNOVATION
While European equities account for over half of the total assets managed, Edmond de Rothschild Asset Management has become an important player in international high-growth markets such as India, Brazil and China and has strengthened the investment team over the last two to three years.
In 2008, a number of innovative funds were launched, including a successful deep-value strategy available as a global fund (Selective Recovery). Convertible bond management is a key area of historical expertise for the company and it chose to leverage its exceptional track record on the European market by launching a global fund in July 2009, Saint-Honoré Global Convertibles, and the innovative Saint-Honoré Emerging Convertibles fund in December 2009. The team was reinforced with the recruitment of two fund managers.
Attracting new talent is an essential factor in developing the product range. In Q3 2008, Edmond de Rothschild Asset Management recruited a team of commodity specialists and launched a range of commodity equity funds (Goldsphere and Commosphere World). As a consequence of its ambitious development strategy, the company has made no cutbacks to its investment teams since the start of 2008. On the contrary, it has made long-term investments across the board, in both human and technical resources.
IT PLATFORM
Edmond de Rothschild Asset Management’s development strategy is focused on an integrated financial software solution, SimCorp Dimension, which features the following functional applications: order transmission, position-keeping, middle office (reconciliation and NAV pre-validation), risk management, performance analysis (attribution/contribution) and client reporting structures.
A seamless IT architecture enables the company to ensure improved reliability, efficiency and proper implementation of processes. The software platform allows the enterprise to accompany and structure its international development, safely develop investment management techniques like derivative products and overlay management, run a risk-control system that is among the most sophisticated in the industry and provide clients with an enhanced service offer.
This seamless IT platform enables all company affiliates and offices to capitalise on an existing configuration. This facilitates the rapid replication of good investment practice. While ensuring the same reliable methodological base for all corporate entities, the solution nevertheless enables country-specific regulatory and investment issues to be managed.
For example, the demonstration of Edmond de Rothschild Asset Management’s risk management capacity to a Hong Kong prospect helped its recently established Hong Kong subsidiary to win a large mandate of more than US$100 million. The analysts were convinced the managers could continue to perform as well as they had in their former company, but they wanted to be sure that Edmond de Rothschild Asset Management had the capacity to follow and monitor risk as efficiently as the top 10 European asset management companies.
The software solution also enables the company to adjust to the various regulatory constraints of all client types, irrespective of their geographical origins. When a country-or client-specific item is added to the library, for example, it may be re-used or adapted for another country or client type. This enriches best practice in the base and allows the enterprise to improve its investment and service standards and help all clients benefit from these changes. Strictly speaking, there are no deployment costs for each country; it just takes time to configure the system to assist the managers and adapt the platform to local regulations.
FLEXIBLE MODULAR TOOL
In an industry seeing rapid changes in investment techniques, clients on the lookout for product innovation and therefore constant upgrading in the quality of service, the use of a flexible and modular software solution that can be highly customised is the guarantee of a pro-active and client-oriented business strategy.
Edmond de Rothschild Asset Management can turn this into a competitive advantage in prospecting new clients and markets. The company has implemented around 50 modules from those available in the solution. However, to meet any future marketing expansion, it may add other modules to the existing platform and reinforce them with specific features if required.
OPTIMAL SUPPORT
The software system project is steered by a monthly committee composed of members of Edmond de Rothschild Asset Management’s executive committee and the head of IT projects and development, La Compagnie Financière Edmond de Rothschild’s IT division, SimCorp’s executive team, and the people in charge of the project at Edmond de Rothschild Asset Management and SimCorp. The composition of the steering committee is in itself a guarantee that the project is fully coherent with Edmond de Rothschild Asset Management’s strategic choices.
The steering committee validates the project’s strategic choices, any major decisions and schedules and oversees issues relating to quality, costs and deadlines. At the end of the project phase, the committee will consider whether new functions should be acquired as a response to new business-line needs or a broader product offer. It will validate the activation of new modules not yet installed or specific developments based on detailed requirements requested by Edmond de Rothschild Asset Management.
GROWTH ENABLER
The modular structure of the software system allows the company to very rapidly adapt the tool to new client demands, specific investment issues in product innovation and particular client or regulatory constraints in certain countries. The speed of adaptation is a key competitive advantage and allows Edmond de Rothschild Asset Management to quickly roll out a development in a new zone or for a new client type like, for example, Chilean pension funds.
Reinforced reliability and controls
The software architecture uses a single, reliable and controlled reference tool and a process and client reporting system that is shared by all the company’s business lines. This ensures a transparent environment that guarantees reliable data and precise analysis and client reports. This integrated solution enables Edmond de Rothschild Asset Management to ensure the same quality of investment, services and risk management throughout its various entities.
UCITS IV compliant
The IT platform enables Edmond de Rothschild Asset Management to be ahead of rivals in complying with the new UCITS IV standard which will come into force in July 2011 to promote a pan-European collective investment market. The formalisation of key investor documents will require mention of risk management indicators like VaR and stress tests, etc. These are available or easily accessible in the software system. This means the company’s risk division is equipped to deal with this new regulatory requirement.
On-demand reporting
The system’s inherent flexibility represents a significant advantage for the end-client as Edmond de Rothschild Asset Management can almost instantaneously produce a client report on demand that takes specific requirements into account. Reports can, as a result, be adapted to various client types and different countries. Once the report model has been configured in the system, it may be programmed for set periods or on demand.
With the right, flexible and scalable IT platform in place, the company is able to grow through structured international development and safe development of investment management techniques. Further, it provides a risk control system that is among the most sophisticated in the industry. Edmond de Rothschild Asset Management will ensure that future development is conducted within tight risk management guidelines, especially where clients are concerned.
Philippe Couvrecelle has been Chairman of the Executive Board of Edmond de Rothschild Asset Management since May 2007 where he has driven the company’s growing international presence. A graduate of the Institut d’Etudes Politiques de Paris (IEP) with a Master’s degree in economics, Philippe Couvrecelle began his career in 1988 in the Banque Populaire Group, where he served in various operating and functional positions. In 2004 he was appointed Deputy Managing Director with responsibility for business development and new projects for Natexis Asset Management before becoming Deputy Managing Director in charge of business development at Ixis Asset Management.
Edmond de Rothschild Asset Management is an affiliate of La Compagnie Financière Edmond de Rothschild, the French arm of the Edmond de Rothschild Group, specialising in managing equities, convertible bonds and asset allocation for institutional investors, banking and insurance company partners and distribution platforms throughout the world. With 148 employees and 37 portfolio managers/analysts, Edmond de Rothschild Asset Management had €13.2 billion in assets under management as at mid-October 2010. More information at www.edram.fr.
