Financière Galilée's fund selection head reveals FoF bets

Financière Galilée's fund selection head reveals FoF bets

Strasbourg in Northeastern France is home to asset manager Financière Galilée which has entered a new phase of its development. After the launch of a balanced global flexible fund of funds – the Galilee Fund Picking Strategy – last July, the firm has just repatriated the management of another dynamic global flexible FoF, the Global Proactive Portfolio, on 28 August.

The second FoF of the firm will seek to outperform a composite benchmark – 75% MSCI AC World Index + 25% Citigroup WGBI All Maturities Eur – over a three-year rolling period, with a volatility comprised between 5% and 10%.

The fund manager selection, headed by chief executive officer Roni Michaly (pictured), remains the cornerstone of the boutique, founded in 2000 by Edmond Michaly, since 95% of the business is relying on it. Initially registered as an independent private wealth management firm, the family business has been recently turned into an asset management company.

Financière Galilée also runs a fund called Galilee Innovation Europe, a plain equity fund selecting European innovative stocks (R&D, robotics, client experience…).

The firm, tallying clients in France, Luxembourg and Switzerland, has been among pioneers of piloted management as its founder registered the concept of  “gestion pilotée” at French intellectual property institute Inpi.

Some €70m of assets are managed or advised under an open-architecture model by the boutique while it will manage €30m more coming from French IFA Groupe XV in Autumn.

Out of IG bonds
The Galilée Fund Picking Process consists of four quantitative steps and two qualitative steps. Some 1,200 funds are screened. Then follows a comparative peer analysis during which funds that show the best risk-reward profile are isolated.

On the sixth step – correlation matrix – 60 funds remain. Of that selection, the matrix assembles the most diversified portfolio. Either the portfolio is kept as it is or the allocation is subject to amendments. In the end, the company’s FoFs invest in 10 to 15 different strategies.

Equity and bond allocations in the allocation of the Galilee Fund Picking Strategy amounted to 50% and 37% respectively – as of mid-August 2017 – while the remaining was invested in other traditional asset classes.

“I use ETFs for tactical exposures such as one on the US large cap equity segment. The FoF combines both large asset management firms and less known boutiques like Mirante Fund Management (MFM Global Thematic Long/Short) or Dorval Asset Management (Dorval Manageurs Europe). In the fixed income universe, I favour corporate bonds against govies. However, an exception is the Global Evolution EM debt fund that I have picked in order to play EM sovereigns. Defaults remain very rare among EM sovereign bonds and coupons still deliver appealing yield,” says Roni Michaly, CEO and head of Multi-Management at Financière Galilée, to InvestmentEurope.

Michaly expresses a preference for funds with AuM of more than €5m and having a one-year track record at least. An asset class the fund buyer has deserted momentarily is European investment grade.

“We had held positions in investment grade strategies in our mandates to benefit from the European Central Bank’s corporate purchase program. We have almost removed all our positions recently and I have not played the theme in the Galilée Fund Picking Strategy.

“The ECB’s program is coming to an end. Since the announcement in 2013 of the of next year’s tapering by the Federal Reserve and the mini-crash the information has caused, central banks take additional precautions in their communication. There will be a progressive exit of the program. If volatility returns into the markets, it will not be the ECB’s responsibility,” Michaly argues.

Priority to the regs
Another topic Financière Galilée’s CEO highlights is that of the upcoming implementation of Mifid II and Priips regulations.

“The removal of retrocession fees in mandates is a crucial topic for us. The launch of a FoF has solved the problem for part of our clients who have decided to drop their mandate for the FoF. But we raise concerns regarding clients for whom we manage insurance life portfolios . How shall we adapt the offering? Shall we still provide full open-architecture or introduce in-house diversified vehicles, which is something we have avoided since the launch of the company.

“I would have appreciated an extra delay of one year for the implementation. That said, we will be compliant with Mifid II’s regulation as from 1 January 2018. We were waiting to repatriate our second FoF to assess the share of in-house products we will introduce in our mandates. We will try to convince our clients to switch for the in-house FoF,” Michaly says.

But the focus seems to be rather on Priips, whose adaptation to is termed”a top priority” by Financière Galilée’s multi-management head. The firm wants its funds to be referenced in Luxembourg-domiciled insurance life contracts since they are currently its “best-sellers”.