Natixis chief sees sustained super-cycle in private market investing
Private assets are becoming more accessible for retail investors, with this among the factors driving their growth
THE super-cycle in private market investing is likely to be sustained, and not just for the next two months or even two years, said Philippe Setbon, Natixis Investment Managers chief executive.
Setbon sees three key drivers for continued long-term growth.
Firstly, private markets give investors an avenue to participate in economic growth via non-listed assets.
Secondly, unlisted assets are today “embedded in the strategic asset allocation of any institutional investor in the world”, which was not the case 15 years ago, he added.
Thirdly, private assets are undergoing “retailisation”, where funds are increasingly available for a relatively modest initial investment with liquidity windows.
Natixis is a global firm with around 1.3 trillion euros (S$1.8 trillion) under management. It has more than 15 affiliate fund management firms, which offer capabilities across the spectrum of asset classes.
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This includes traditional equities and fixed income, as well as private debt, venture capital and infrastructure.
The firm is part of Groupe BPCE, which operates two banking networks in France. Natixis is the group’s asset-management arm.
On private markets, the firm is optimistic that the European Long-Term Investment Funds (Eltifs) structure will help channel more capital into private funds; Eltif was conceived to make private market investing more accessible to retail investors.
However, the response to the first version of Eltif in 2015 was lukewarm at best – only 57 funds were launched, with a total of 2.4 billion euros raised.
The latest iteration, Eltif 2.0, was rolled out early this year. It removed the requirement for a minimum investment of 10,000 euros and allowed a wider range of eligible assets, among others.
A Natixis paper on private assets and a “retail revolution” noted that Eltif 2.0 is an efficient way to enable retail investors to dip their toes into private markets, especially with “evergreen” funds – which are alternative funds with liquidity windows and regularly updated net asset values.
The paper said that these funds help investors to enjoy “frequent opportunities to invest and withdraw money – in a similar vein to UCITS funds”.
UCITS refers to the Undertaking for Collective Investment in Transferable Securities – the dominant fund structure in Europe.
“With an evergreen fund, investors’ capital is at work from day one, without having to wait for burdensome capital calls.
“Track record and historical performance are also easier to read, which is a key success factor for a category of investors requiring both education and simplicity,” noted the paper.
Setbon said: “In the past, when you invested in a private equity fund, you knew it would be illiquid for five to eight years. If you wanted to exit, you’d have to pay a significant discount. With this new generation of (alternative) funds, you’d have regular windows for investors to exit. We don’t want any gates.”
He added that Asia is an important market for Natixis. This is due to the “big shift” in wealth management from Europe to Asia, specifically to Singapore and Hong Kong, which provides opportunities to market the firm’s capabilities.
“Private banks in Hong Kong and Singapore are growing rapidly; we need to be here to support our clients,” the chief executive noted. Next year, the firm aims to expand its sales staff in Asia and make senior hires.
Japan and Australia are also key markets for Natixis’ multiyear strategic plan. This is understood to be due to “structural tailwinds” such as government legislated savings and retirement plans.
“Clients in the US and Europe account for the largest part of our business, but the Asia-Pacific is a small but meaningful market for us that’s growing very quickly,” he added.
Setbon noted that 2024 has been a “spectacular” year for equities, prompting numerous conversations with clients who were on the fence.
He said clients in Asia have instead gravitated towards another option: an absolute return fund – which has been “very successful”.
“It is delivering more than a fixed-income product, but of course not as much as equity. But it provides more security,” he said.
The fund, called Alpha Bonds, is offered by a Natixis affiliate, DNCA. The fixed-income product aims for an attractive risk/return ratio in any interest rate environment.
It also seeks a return net of fees higher than the money market rate plus 2 per cent over a three-year investment period. A performance fee applies, in addition to an annual management fee.
In the half-year results for Groupe BPCE, the asset management business hit a record in assets under management of 1.27 trillion euros at end-September, “with record inflows and a strong market effect”.
The business posted net inflows of 41 billion euros in the nine months to September, thanks to the fixed-income products of Loomis Sayles and DNCA, among others.
On the outlook, Natixis believes the market may have been over-optimistic.
The firm said in a commentary: “Many contradictions can be identified among the reforms proposed by US president-elect Trump, particularly in the areas of growth and inflation. The increase in customs tariffs and the reduction in the trade deficit sought by Trump are, by their very nature, inflationary and dollar-bullish – two effects that cancel each other out.
“Reducing migratory flows and deporting illegal workers pose a threat to growth, but are, at the same time, inflationary. All these reforms constitute supply shocks (most of them negative). Central bank instruments are hardly effective to address these types of shocks.”
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