Interview of Laurent MINVIELLE – La Française Global Investment Solutions
Head of Risk Controls & Reporting,
La Française Global Investment Solutions
1. La Française Group has really evolved over the past few years with many partnerships to become a leading player in asset management in France with over 48 billion outstanding. Can you introduce the Group to us?
The Group is a multi-specialist asset manager with 500 employees. It is based on a strong shareholding, Crédit Mutuel North Europe with a majority stake, and its directors and employees. It undertakes 4 core businesses:
- The Global Asset Management,
- The Real Estate Management,
- The Investment Solutions,
- Direct Funding, particularly with the incubation activity.
The Group grows and goes international with its characteristic brand and its expertise to form strategic partnerships.
2. La Française Group is a major player in the incubation of asset management companies, can you explain us this business and how this is a winning strategy?
Following the connection in 2013 between Next and NewAlpha, this business activity is the 4th world’s largest incubation company, with 33 active partnerships representing 9 billion in assets and 300 employees.
The covered strategy scope is very wide since this connection, from alternative investments to Long Only with various incubation techniques, from taking stockholding to sharing of incomes.
The incubation model is based primarily on the drastic selection of asset managers from a worldwide network, with clearly defined thematic investments. Then a precise control of investments is set up, in particular with an independent risk control by NewAlpha AM accompanied by an adequate support to the incubated asset management company and assistance for assets development.
3. La Française Group created 2 years ago, La Française Global Investment Solutions. What is its business activity?
La Française Global Investment Solutions was created to strengthen the range of products and services offered by La Française Group. Founded by three former investment bankers, its activity is based on two main pillars. Banking activities on the one hand, centered on the issuance of structured EMTNs. An open-ended or dedicated funds management business, on the other hand.
LFGIS is majority-owned by the La Française Group as well as its founders and employees.
The asset management company, whose asset managers are extremely experienced and technical, implement alternative management techniques through UCITS or AIF funds. The company is regulated by the AMF (French Financial Markets Authority).
The credit strategy received the EuroHedge award for best credit fund in 2014, which is a source of pride for a recent asset management company.
LFGIS has its own teams of asset management, research, financial and legal engineering, marketing and sales. Moreover, LFGIS benefits like any company within La Française Group from a support on compliance and internal control, IT, back-office as well as other administrative functions like HR, accounting and finance and premises.
4. You are the Head of Risk Control and Reporting team. What are your roles and responsibilities in everyday life?
The framework of risk controls is given by the group internal control which centralizes the relationship with regulators and disseminates the various regulations, procedures and methods that asset management companies should apply. Internal control directly supervises some types of risks such as operational risk and ensures that procedures are properly applied.
The asset management company and its risk control department are then free to set up daily follow-up and monitoring of fund risks, especially market risk and liquidity risk.
Basically, my daily work has three components:
One is to control risk. We must ensure that the risk indicators are produced daily and limits are respected. Daily statements are produced. A committee with the CEO stands at least twice a monthly with a document including a performance and risk analysis and a limit monitoring statement. Any breaches is then reported. It is also an opportunity to discuss some positions or answer questions. A monthly committee is also held in the presence of at least one member of the Group Management Board, with a review of the funds. The document that we try to make as readable as possible is also an opportunity to cover all aspects of risk control and monitoring required by the regulation (monitoring of performance, liquidity, stress tests, etc.). This enables to prove the quality of the monitoring carried out.
The other one is more about project management and may involve the launch of a new fund, improvement of methods of calculation and risk monitoring, improvement or automation of reporting, the analysis and support for a new type of transactions, …
Finally, my role is also to participate in the development of the asset management company and answer various questions from counterparties, investors, auditors or, internally, Internal Control.
All in all, the function requires a lot of flexibility, to deal with a considerable amount of information which can be sometimes very technical, but also to synthesize it, to adapt to interlocutors. In addition, it requires a lot of verbal communication and exchanges but also to write respecting a formal framework. This is a privileged function because it brings an overall vision of the asset management company.
5. Since the crisis of 2008, the sector of asset management has been highly impacted by numerous regulations (MiFID2, EMIR, AIFM, FATCA …), what is your vision on the opportunities / constraints of these regulations?
It seems to me that in terms of risk, the regulation of asset management was perhaps less formal than for banks before the crisis. It has much expanded since then. Facing regulation requires to set up a strong organization. This has become a barrier to entry for asset management companies. For a young asset management company like LFGIS, this is then an advantage to be backed by an important group. For the group incubation activity, this is an opportunity to provide support considering this new constraint.
6. Is the French model for risk management a model with prospects?
Implicitly the question raises the issue of the independence of the function which is advocated and imposed by the European regulation. My experience is that you have to manage to blend subtly closeness with independence.
There is no optimal organization, but organizations more or less adapted to environment and people. I have learned some principles from my experience which, I assume, are good practices.
Closeness is very important. I do not believe in controls on document by going through figures coming from complex models. We would then be likely to lose touch with the reality of the activity and to miss important information. In addition, this may involve uncooperative behaviors between Risk and Asset Management Departments with the elaboration of circumvention strategies. On the contrary, closeness means knowing faster what is going on, before it reflects in the figures. It’s also creating a virtuous circle, by providing quickly upstream solutions to problems and by moving gradually to “good” behaviors into the asset management room. Troubles are caused most often by the ignorance of some rules or limitations, even though we must also be prepared to face deliberately transgressive behaviors. A Risk Manager who is present, is able to give the rules of the game at any time, especially when the asset management needs it. As for “cheaters”, they are easier to spot if you sit also at the table.
Without actually talking about a Stockholm syndrome, the Risk Manager, intruded into the asset management room, may lose its independence. Moreover, it is always more difficult to say no than to say yes. Then, he must resist a natural pressure to accept everything or to underestimate some risks. Alone against all, the Risk Manager will be weakened or discredited at some point. I even faced situations where the Risk Manager was violently rejected from trading room. Even with a strong background, he always plays on the field of asset management which will inevitably attempt to impose a “technical” domination or a business pressure. An external support is needed to rebalance relationships with the room and to serenely relay issues or to confirm opinions. Thus, it allows the Risk Manager not to be isolated.
Closeness is necessary but demanding as the Risk Manager literally face the asset management daily. Consequently, a careful support must come in addition in order to protect him in his work.
7. To conclude, what are the next challenges for asset managers in terms of risk management in France?
In terms of risk management, the challenges that asset managers will face in the coming years are likely to be :
First of all to well guide the regulatory changes so as not to unnecessarily increase the reporting burden and keep at most concepts and reporting that make sense for asset management companies and their investors. It is not refusing everything, but pushing for the regulation to be as relevant as possible and for the regulatory reporting to be possibly useful for internal monitoring and reporting to investors. Besides, is it normal that the AIFM reporting is more or less unused?
Then, to achieve to set up information systems to meet internal reporting, investors and regulatory requirements. Otherwise, the asset management company is likely to be quickly overwhelmed by the reporting inflation!
In banks, the cumbersome of production of risks, controls and provisions to calculate imposed by regulation or internal control, has led them to make the risk teams work in silo (production of indicators, production of VaR, pricing and provision, limit monitoring, reporting, …) with the risk of losing the overall vision of risks and of the activity. Medium-sized asset management companies, in particular, have fortunately not reach that point yet, but the role of the Risk Manager would have consequently a lot to lose in terms of added value for the asset management company.
Asset management companies will also have to gradually increase the technical nature of Risk Managers, as banks had to do, to meet the multiple challenges of the function.
Prior to joining La Française Investment Solutions in June 2014 as Head of the Risk Control and Reporting team, Laurent was Director of the Alternative Investments at Edmond de Rothschild Investment Management for 3 years.
Previously, he co-managed for 7 years the fund of funds Turquoise, the Société Générale Corporate and Investment Bank’s proprietary fund of external hedge funds. He was Head of the Lyxor’s managed accounts platform between 2000 and 2003. From 1993 to 2000, Laurent was Deputy Head of the Risk Division in charge of all Société Générale Group’s Capital Market activities.
He was a macro-economist in charge of the G7 countries between May 1988 and August 1993 at IPECODE then at Société Générale.
Laurent graduated from ENSAE (1984) and holds a Master’s degree in Mathematics.