7 June 2017

“Thanks to the dissipation of political risks and a general improvement in the economic situation, Europe is again becoming attractive to investors”

The election results in Europe are expected to open new prospects for professional asset managers and investors. The French presidential election has sent out a strong message and guarantees greater stability for the European Union.

[Philippe Setbon, CEO of Groupama Asset Management]

After the Brexit episode, what impact could a new pro-European political momentum have on financial markets?


Recent election results, not only in France but also in the Netherlands and Austria, are reassuring for the European Union. The political message is strong. With the election of Emmanuel Macron, the Franco-German partnership is once again the engine of European cohesion. And the British are now faced with a European Union that is in a position of strength for the Brexit negotiations.

On the markets, the impact is directly visible, since a reduction in the risk premium on European assets, especially French assets, is under way. In other words, the heavy weight of political risk has clearly been removed. However, although the European political context does provide better visibility, this alone is not enough to induce asset revaluation, which mainly depends on macroeconomic and structural trends, for example demographics or productivity. The reduction in political stress has a ripple effect on risk premiums but is not in itself a sufficiently significant criterion to determine investment choices.

“With the election of Emmanuel Macron, the Franco-German partnership is once again the engine of European cohesions”


Can we look forward to better macroeconomic prospects ?

As it happens, the brighter political outlook coincides with good dynamics of growth in the euro zone. We are anticipating a better economic situation over the next three or four quarters. In France, we are anticipating a fall in unemployment in 2017, together with a recovery in corporate investment.


At the same time, initiatives in favour of investors, such as the Juncker Plan, are expected to be reinforced, while Emmanuel Macro also aims to increase spending on infrastructure across Europe. However, we should not forget that the growth rate will remain modest in Europe, due to structural slowing factors, such as debt, ageing population, low productivity and inequalities of income and wealth. So, now is the perfect time to take advantage of the generally positive economic momentum to carry out structural reforms.


For asset management professionals, what are the long-term consequences in terms of investment and arbitrage strategies ?

 Globally, we are expecting a trend toward reinvestment by market operators. The easing of political risk and the improved macroeconomic situation provide greater space for investment in equity and private-sector bonds. The ECB will maintain the pace of its monetary policy, which will remain accommodating, despite a possible rise in key rates in 2018. This environment should encourage arbitrage on the fixed income markets, to the benefit of credit and equity. Nevertheless, it is still too early to make any more detailed pronouncement on asset allocation strategies: decisions will be taken very much step-by-step.


The election of Emmanuel Macron reinvigorates the prospects for monetary and economic Union. What are your feelings today on the European project? And on the financial stability of the euro zone ?

The Franco-German partnership should become the spearhead of European progress. The pro-European position of Emmanuel Macron will allow greater cohesion of European policies and will guarantee greater uniformity in economic growth rates and their financing. That will reinforce the standing of the euro zone in the world, and it will also strengthen trade in goods and services in the zone.

“I n the light of Brexit and global competition between financial markets, any initiatives that can strengthen the various trading centres in the euro zone, notably in comparison to London,  are important ”


Initiatives in favour of the Capital Markets Union are to be relaunched. How could asset managers and investors benefit from this ?

Initiatives to advance the Capital Markets Union are positive: anything that reinforces the passporting, or portability, of products and investment solutions in the euro zone is beneficial to investors and to the financial industry, especially the asset management segment. In the light of Brexit and global competition between financial markets, any initiatives that can strengthen the various trading centres in the euro zone, notably in comparison to London, are important”

Renewed economic vigour in the euro zone provides a positive environment for asset management. In a context of “financial disintermediation”, bypassing the banks, asset managers have many solutions to offer for consumer savings and for funding the economy and social initiatives. But we should not forget that it is important for every country to bring its finances under control in order to fund its economy.

” Funding of pensions: the concept of an individual or collective supplementary pension is a credible solution “


One of the structural challenges facing European economies is the need to rethink our systems of financing pensions. What solutions do you recommend ?

This is a major problem today in every country faced with an ageing population, both in the case of countries that have relied exclusively on unfunded pay-as-you-go systems, based on the redistribution of current contributions, and in countries that have opted for investment-based funded systems.

As far as France is concerned, I am convinced that we should not eliminate the pay-as-you-go model, which is a fundamental pillar of French society and establishes significant inter-generational solidarity. By contrast, it is absolutely vital to modify this system, because redistribution alone is no longer sufficient and is no longer appropriate in the light of demographic trends.

The concept of an individual or collective supplementary pension is a credible solution, and systems such as PERP (popular retirement savings fund) or PERCO (collective pension fund) are performing well and should be promoted. Today, our system lacks vehicles that are sufficiently flexible and innovative to attract the young people who are currently in work.


In concrete terms, what system do you envisage ?  

An individual investment vehicle that pays a pension on maturity (especially if tailored to the retirement period), but with the option of partial or total drawdown at any moment during the saving cycle. This flexibility would provide a high incentive for the younger generations, who may need to free up a part of their savings at any time.

Finally, it is important that the long-term investment saving plans be channelled into funding the economy and providing it with stable resources.


In France, long-term savings still prioritize life insurance policies. How do you view the recent renewal of interest in unit-linked plans? 

Investment in accumulation units is highly recommended for private individuals, as part of their long-term savings. Unit-linked plans are very good vehicles, although, of course, certain fundamental rules must be observed: you must clearly identify your investment project and therefore its investment horizon, diversify the asset classes and make regular payments to avoid the volatility of the markets.

As a subsidiary of the Groupama insurance group, one of our aims is to support the group in its strategy of developing unit-linked insurance plans. We work with Groupama Gan Vie to provide a range of management and other services for efficiently determining appropriate investment projects and their various suitable vehicles.

“Today we are reaping the benefits of the efforts deployed over the last 24 months in the distribution segment”


 How is the business of Groupama Asset Management evolving ?

Our management is generating top-rate performance. Our ambition is to continue our growth on the distribution market, both in France and internationally, where we have implemented an active commercial strategy in Spain, in Italy, in Northern Europe and South America.  Today we are reaping the benefits of the efforts deployed over the last 24 months in the distribution segment.

At the same time, naturally, Groupama AM remains at the service of its parent company, for which we provide solutions specially adapted to its insurance projects. This expertise in ALM (asset and liability management), which has been proven over many years and is a part of our DNA, is now also proposed to third-party institutional investors. The reinforcement of our market shares in this segment will inevitably involve quality of service, which is essential to institutional investors, not only for the “upstream” services of engineering and consulting, but also for “downstream” support and reporting, especially on regulatory concerns.


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