Money manager hopes to profit as Asian investors target Europe

[LONDON] Andrea Rossi doesn't buy into the story that Europe is a dead end for growth. In fact, he sees luring Asian investors to his continent as one of the key ways Axa Investment Managers will expand in years to come.

The CEO of the Axa SA unit thinks institutional and retail investors from Asia's booming economies will increasingly want insurance and investment products. And more of them will want to buy from Europe, he says, because the political outlook is becoming more stable, growth is picking up and banks are in their best shape for years.

"Four years ago, most non-European investors were looking at Europe thinking it's going nowhere," Mr Rossi, a 51-year-old Swedish-Italian, said in an interview at Bloomberg's London headquarters. Now, "Japanese pension funds and insurers are all increasing their asset allocation to Europe, and we're taking a lot of that."

Rising disposable income and aging populations are likely to drive spending on pensions and investments in Asia, where the number of middle-class families is projected to grow by as much as four times by 2030. China is already the world's second-biggest economy and India is starting to approach the UK and Germany in terms of output.

Axa Investment Managers has only a relatively small foothold in Asia at present and still generates 84 per cent of its revenue from Europe. Since becoming chief executive officer in 2013, Mr Rossi has increased assets under management by almost 200 billion euros (S$324.13 billion) to 746 billion euros.

Mr Rossi said he's particularly interested in growing the firm's third-party assets, which currently stand at 42 per cent of the total - and for that he needs new markets.

The firm has started joint ventures in Shanghai, Seoul and Mumbai and is betting particularly heavily on China, where last year it received a Wholly Foreign Owned Enterprise license, allowing it to run a business independently. The company's Hong-Kong based Axa IM Chorus team, which has more than 30 staff, launched its first investment strategy last year.

Mr Rossi isn't the only European money-manager boss to be banking on Asia for growth.

Amundi Asset Management CEO Yves Perrier said last week he aims to boost his firm's Asian assets by US$100 billion to US$300 billion within five years. Prudential Plc, which already derives about a third of its earnings from the continent, has announced plans to split the company and create a business focused on faster-growing markets including Asia.

Mr Rossi attributes his success in taking the Axa unit into Asia partly to the firm's European roots, which he said gives it an inherent advantage over US asset managers when selling European exposure.

Simplifying the firm's message to clients and "becoming a little more Anglo-Saxon" in its marketing has also helped, Mr Rossi said. And building from a relatively low market share in Asia means "it's pretty easy to double and double going up," he said.

Also key to the money manager's future is industry consolidation. Axa confirmed last year it had been approached by several firms with a view to acquiring the asset-management business.

Axa was linked recently with Natixis SA - a deal that fell apart, according to people familiar with the matter. But M&A will continue to be a theme, Mr Rossi said, as firms struggle to cut costs and deal with increased regulatory scrutiny.

"There'll be a lot of consolidation," he said, adding that the industry's biggest challenge is lowering unit costs, or the cost of providing a given service. "I can probably manage double the business with pretty much a similar number of people" because of the benefits of technology, he said.

In an M&A situation, "our strength is to have Axa behind us" for its risk and compliance framework, Mr Rossi said, adding that since he arrived at the company he has tripled the number of compliance staff.

"I can go to a boutique and say, listen, you are doing one billion today," Mr Rossi said. "If you were with us I can give you the strength of distribution, I can give you seed money."

Asked if Axa Investment Managers could be spun off with money raised in an initial public offering, Mr Rossi said the firm first needs to grow the money it oversees for outside clients.

"In order to have an IPO story, you need to be relevant, and relevant for us is" about "how big our third-party business is," he said.

The CEO doesn't expect a free ride in building the business, though, and predicts Asian money managers will increasingly compete with Europeans for the top-20 global positions in the industry. The market is currently dominated by US firms with, he said, only a handful of European players at the top.

Mr Rossi reckons the Americans will maintain their dominance but that some Chinese firms - possibly names that aren't well known yet - will emerge on the global scene.

"In five years' time, how many of those are going to be left?" Mr Rossi said. Of the big European companies, "I hope some of us will still be there."

BLOOMBERG