by Yves PERRIER, CEO of Amundi
A megatrend is a pattern or a movement that has a major impact on business and society as a whole. Megatrends can be broken down into categories such as globalization, demographic changes, urbanization, shifts in power from developed countries to the largest emerging economies, technology changes, climate change and declining growth. If we are to weather the storms of change, we will need to adapt, said Yves Perrier, Chief Executive Officer of Amundi Group, in his opening remarks at the 2016 Amundi World Investment Forum in Paris.
AMUNDI: NIMBLE AND AMBITIOUS
Speaking to an audience of over 400 delegates from over 50 countries, Mr. Perrier began his address by noting that the Forum’s impressive turnout is indicative of the relationship Amundi aims to build with its clients every day. Mr. Perrier noted that this year’s Forum was quite special, as it marked the first forum since Amundi’s IPO, which took place on November 12, 2015. Since its inception in 2010, Amundi had always planned to go public, going so far as to include the plan in the shareholders’ agreement between the two shareholder banks, Crédit Agricole and Société Générale. The IPO was possible because, in just five years, Amundi has achieved its goal of becoming Europe’s leader in asset management and one of the industry’s most profitable players in the world.
Mr. Perrier stressed that Amundi achieved its objectives thanks the commitment of all of its employees to serving Amundi’s clients and the trust that Amundi strives to foster every day.
The IPO was a great success, raising 1.6 billion euros in the biggest IPO on Euronext in the past ten years. It reinforced Amundi’s position as an investment management platform open to clients beyond the banking groups that created it. It was a milestone in terms of visibility and international recognition, helping accelerate the growth in its two client segments: retail and institutional investors. It helped strengthen the engagement of Amundi’s staff through an employee stock purchasing plan concurrent with the IPO. And it enabled long-term partners to acquire a stake in Amundi’s capital.
Since the IPO, Mr. Perrier pointed out that Amundi’s profitability has held up well despite a very challenging market environment. The Amundi share price has outperformed the market and Amundi has reached a new stage of growth with its recent acquisition — announced just days ahead of the forum — of KBI, an asset manager specialized in global equities. This most recent operation is but one illustration of Amundi’s drive to continue growing, both organically and externally, in order to bring the best expertise to their clients. Indeed, Mr. Perrier said that “Amundi’s financial strength and the profitability of its diversified business model enable them to provide their clients – both individuals and institutional investors – with the best advice, expertise and services.”
POWERFUL ECONOMIC FORCES SHAPING THE WORLD
Turning to the Forum’s topic, Mr. Perrier listed the Megatrends that have the potential to reshape the world as we know it. An ageing population, urbanization; the shift of power from developed countries to emerging countries; disruptive technology; issues related to the management of natural resources; and declining growth.
“Some of these trends pose enormous challenges, like population ageing, and some promise future opportunities, like technological innovation,” said Mr. Perrier. “But there’s also low growth and weak inflation, with interest rates even lower than they were this time last year. The ultra-low interest rate environment that we’ve seen since the 2008 financial crisis has now evolved into a negative interest rate environment in Japan and Europe,” he continued. Citing the factors that have pushed down interest rates across the board, such as the weak economic recovery and weak inflation, Mr. Perrier said the main cause low rates and bond yields stems from central banks policies. These factors have fuelled the debate on whether we’re heading into a period of major stagnation — a “new normal” of lasting low interest rates and a lasting absence of inflation.
TOWARD A WORLD WITHOUT GROWTH ?
Mr. Perrier noted that regardless of whether or not the “secular stagnation” theory is correct, what is a clear and established fact is that global economic growth is facing major headwinds, including the decline in productivity gains; the weight of debt in economies; population trends; deepening inequality and declining income among the consumer classes; and the environmental crisis.
“In the space of a few decades, our societies went from an economy where the labour supply commanded growth to one where full employment depends on growth. As a result, economic growth has become central to the agendas and policy tools of governments and countries, to the point of becoming an obsession. But this obsession with growth,largely fuelled by the fear of unemployment, is now running up against another problem: the need to counteract the environmental crisis. As a consequence, current economic discourse is calling into question the future of growth itself,” Mr. Perrier affirmed. To adapt to a world with insufficient or zero growth, or perhaps to even help prevent it from occurring, Mr. Perrier listed are several possibilities, including driving investment into the sectors that are most promising from the perspective of innovation and growth, like new communications technologies, the development of alternative energy sources, biotechnology, nanotechnology, industrial robots, the development of new materials and heath technologies.
Companies can also open up new financing channels. “Asset managers and Amundi are contributing to this,” Mr. Perrier pointed out. Companies can also put an emphasis on quality, and they can continue to expand in growth areas. These adaptations will only work if supported by economic policies, Mr. Perrier stated. “We have to recall that adequate and pro-growth economic and social policy must complete the efforts of central bankers, with concrete plans allowing to embark and mobilize all economic agents in this major transition,” he said.
THE CONSEQUENCES FOR INVESTORS
“Central bankers deserve praise for their courage in venturing into unknown territory,” Mr. Perrier affirmed, adding: “ In Europe, the situation has improved significantly — investors have rightly responded favourably to factors like access to financing, the return of growth to a rate close to potential, a persistent low interest rate environment, fiscal leeway, strong competitiveness and improvements in public deficits.”
However Mr. Perrier cautioned against ignoring the fact that central banks have taken the financial markets into unknown and sometimes unusual territory, one in which interest rates have disappeared, but the notion of risk has not. Yield curves have disappeared, but risky asset valuation models remain. Liquidity remains, but the actions of central banks and regulators, coupled with the frantic search for yield, are reducing liquidity in some financial markets, thereby increasing the risk of contagion, volatility and even market manipulation. And financial stability is mostly artificial while the debt problems remain unresolved.
Clearly, asset management and asset allocation must adapt to this challenging environment, one categorized by tight liquidity management; the universal acceptance of lower yields (and different risks) on traditional asset classes; the need to look for yield on real and alternative asset classes, in particular by capturing liquidity premiums; the implementation of approaches like factor investing and Smart Beta; a permanent and reactive asset allocation; and an emphasis on execution.
Mr. Perrier concluded by stressing that, in the current environment, it is highly likely that central banks will maintain their accommodative monetary policies for a long time. That means that adaptation will not by simply an option – it will be an imperative.