Measures to render French Sicavs more attractive and exportable were implemented in March 2017. But managers are yet to more widely adopt the structure, as InvestmentEurope finds out.
French boutique La Financière de l’Echiquier announced in mid-July that its France-domiciled open-ended fund Echiquier ISR, launched in 2010, will be rebranded and turned into a French Sicav.
No surprise there, given that the manager’s chairman-CEO Didier Le Ménestrel chaired the so-called Frog working group set up by the local asset management association AFG and French financial market watchdog AMF, from which came the rebirth of the French Sicav.
At the end of March 2017, another Paris-based investment firm, Métropole Gestion, converted its full fund range – seven fonds communs de placement (mutual funds) – into sub-funds of the Métropole Funds Sicav. Since then, two other managers have followed, Financière Arbevel and Flornoy & Associés Gestion.
The way the regulations have been structured enables French asset managers to turn their FCPs into Sicavs while keeping their track records and Isin codes.
Also, a charter of good governance, as potentially required by foreign institutional investors, has been embedded into the “new” French Sicav, which allows the appointment of independent directors within boards.
Xavier Parain (pictured left), head of Asset Management Directorate at AMF, says that the regulator has received its first requests from investment firms to use this structure, and that other asset managers will follow Métropole Gestion since they too may be tempted to adopt the charter of good governance for their strategies.
GRAB BACK MARKET SHARE
AFG chairman Eric Pinon (pictured below) pinpoints the fact that French Sicavs had fallen out of fashion. The idea behind the measures implemented is to revive them progressively.
“It will take time for the good governance charter – set by AFG following Frog’s working group recommendation – to be adopted and implemented by the French asset management industry.
“Asset managers are likely to understand that from the point of view of a significant number of foreign investors, a Sicav with a board incorporating independent directors is often preferred, and that it will enable them to take back market share on other hubs such as Dublin or Luxembourg regarding the Sicav market.
“Previously, the Sicav had been abandoned by several asset managers because their running costs were higher, but this is history now, because of a now abolished difference in the application of VAT,” Pinon says.
Another argument making the case for the new French Sicav, AMF’s Parain says, is that investing in French fund structures remains a guarantee of security for investors, as investment firms have the legal obligation of returning assets.
“When Lehman Brothers crashed, following the highest court of justice confirmation, French clients were refunded by the depositary banks against the bankruptcy of Lehman Brothers as sub custodian. In addition, in France investors, as shareholders of a Sicav, are bearing securities and are protected, whereas in certain countries they simply have their names on a register and regulators don’t recognise potential claims,” he argues.
Nevertheless, this last argument is not that much put forward, observes Bertrand Gibeau, partner and head of Business Development at consulting and advisory firm Reinhold & Partners.
The Paris-based company has set up several Luxembourg Sicavs for French managers – such as Verrazzano, Tikehau IM and Roche-Brune AM – in the past two years. It also occupies roles of independent directors on Sicav boards.
Gibeau (pictured left) shares Pinon’s opinion on France’s will to grab market share back from countries deemed ahead in terms of fund distribution and domiciliation. In his opinion, many features of the French Sicav could be appealing for both local and foreign investors.
“A number of foreign investors (Belgium, Nordics) are being taxed on their gains when they invest in an FCP as the concept of non-taxable legal person does not apply to the FCP structure. In addition, – and it is obvious when due diligence is performed – several institutional investors see the setup of an independent board within a Sicav as a safeguard.”
But Gibeau notes that the notion of independent directors of Sicavs is new to France. Few people yet in the French asset management industry see the interest in appointing external independent directors, he suggests.
However, he does see the ability to retain the same Isin number as a major edge.
“If the Isin number is changed, it can pose serious accountability threats to some French institutional investors, because they would then need to evaluate their gains and losses at a time they might not want to. Some institutional clients have withdrawn from French funds that were transformed into Luxembourg Sicavs,” Gibeau says, adding that a French Sicav now equals an Icav or a Luxembourg Sicav with a cheaper cost for the setup (around €40,000-50,000).
WAITING FOR MOMENTUM
“The issue with French Sicavs is that we have no track record on the means to commercialise them. AMF is pushing hard by signing memorandums of mutual recognition of funds with jurisdictions like Hong Kong. But today, the main hub for Sicavs remains Luxembourg, which is organised like a Sicav supermarket,” says Gibeau.
At least three other French boutiques with assets under management below €5bn are thinking of turning their funds into Sicavs. Speaking to InvestmentEurope earlier this year, Amiral Gestion said it is considering the establishment of a Sicav, whether domiciled in France or Luxembourg.
Gibeau underlines that some French asset managers have blocked the transfer of their FCPs into Luxembourg Sicavs. These firms have a wait-and-see attitude, as they want to see if the pioneers draw more inflows through a French Sicav.
“It’s only the start of French Sicavs. Even though there are some positive differentiators such as the cost, the security of assets, I am reasonably optimistic but not a blissful optimist. Behind the structure, you need flagship funds to sell and you have to demonstrate a strong marketing force by opening representative sales offices in countries where you wish to passport your Sicav,” Gibeau argues.
AFG’s Pinon recalls that the French asset management industry has struggled in the past to show the added value of all types of investment funds.
“Whether this added value dwells in a Sicav or in a FCP, there is no difference from an asset management point of view. The service provided by the asset manager remains the same whatever the fund structure: FCPs, and for those investors more at ease with funds having a corporate structure, the new Sicavs.”
This view echoes that of Stéphane Toullieux, CEO of Athymis Gestion, for whom the fund performance trumps structure.
“Whether we run our funds under a FCP or a French Sicav structure does not really matter to us. The vehicle chosen does not contribute in any way to the performance of a strategy. We are performance seekers, period.”
This article was first published in the September 2017 issue of InvestmentEurope.