Ostrum AM aims to be the reference hub for European institutional investors

Not only development of management excellence, but also innovation on a wide range of services across the entire value chain. The plans of Ostrum AM in the Natixis Investment Managers galaxy, revealed to FocusResparmio by Philippe Setbon, the company's ceo, and Ga?lle Malléjac, cio Insurance & ALM Solutions

by Davide Mosca

'We are here to help our clients meet their clients' demands'. It is in this statement that Philippe Setbon, ceo of Ostrum Asset Management, encloses the way in which the company looks at asset management, as well as its ambition to become a reference hub for European institutional investors. A statement that hints at the need to go beyond the needs expressed by this type of client with specific and sophisticated requirements. "In a way, we need to know our partners even better than they know themselves," Setbon explains, referring to a "multidimensional approach; the only one", he says, "capable of going beyond expectations and creating a solid and lasting bond. "We are a leading responsible institutional asset manager, and a specialist in insurance management," adds Ga?lle Malléjac, cio Insurance & ALM Solutions at Ostrum Asset Management, "and these two characteristics are highly differentiating in a world of huge or small entities".

FocusRisparmio met with the two professionals to understand how an asset manager with 400 billion euros in assets under management and an institutional vocation is moving in the changed investment environment to contend for the role of strategic partner in the insurance and pension landscape.

As an AM whose specific expertise includes bonds, the first question can only be whether it is true what we have been hearing since the beginning of the year. Namely, that bonds are back.

Ga?lle Malléjac (GM): We have seen a dramatic adjustment in interest rates since 2022 and today is a very good time to invest in bonds. We believe that rates will continue to rise throughout 2023, although not exponentially. We expect overall rises between 2.5% and 3% for the 10-year Bund. We have this expectation given the persistence of inflation, in particular core inflation, the ECB’s continued rise in interest rates, as well as the internal dynamics of the fixed income market, with Frankfurt phasing out its purchase programs. Despite these headwinds, we do not expect a real recession but only a slowdown in the face of the signs of resilience coming from the European economy. While the ECB will continue the fight against inflation by continuing to tighten monetary policy, it is also ready to provide the system with the liquidity if necessary to ensure overall stability, particularly in the banking sector.

Ostrum AM's business model is based on supporting investors offering both: a full range of asset management solutions on the back of its long-standing insurance-related and fixed-income management expertise, and investment services thanks to its innovative technological platform. All this with very strong expertise in ESG. and technological innovation layers. How do all these points fit together. Where does this union come from?

Philippe Setbon (PS): At Ostrum AM, we are a key player for institutional investors in Europe with assets under management of EUR 400 billion, 400 engaged investment professionals and more than 35 years of tracking record in fixed income. Our focus is mainly on pension funds, insurance companies, foundations, and corporations in the area of long-term liabilities. This means that most of our assets are managed in a type of relationship that we can define as b2b. To aim for the role of reference for European institutional investors, it is necessary to have management excellence in fixed income, which is the basis of any liability-driven approach. The same is true for the ability to offer a service that goes beyond management alone by meeting all related needs. To build a long-term relationship with this type of client, support must necessarily extend to the entire value chain: advice, portfolio construction, investment management, reporting. This ability to support asset owners in a plurality of aspects is essential to succeed in establishing itself as the one-stop-shop of reference for institutional clients. Our size, our historical expertise, our investment capabilities and our innovative tools are a strong edge to address our clients long term needs and offer them a wide range of tailor-made investment solutions with a strong SRI dimension.

What steps are needed to achieve this goal?

PS: We aim to be the European market leader in liability-driven investment (LDI) strategies and to do so we want to grow assets under management from the current EUR 400 billion to EUR 600 billion. In the insurance management industry, size is key to addressing all our clients' needs, to offering competitive prices, while providing high quality management and tailor-made services. Our size is a strong edge that allows us to invest in research, talent attraction, in IT and data, which are crucial in ESG and technological transition. All of these expensive activities can only be sustained by large entities. The only ones capable of investing at every level of the transformation taking place in our industry. The implementation of this strategy will enable us to respond more and more comprehensively to the needs of our clients.

Regarding our development ambitions, we made Italy a priority market given that it was similar in structure and needs to France – our home market. That’s the reason why, in January, we opened a branch of Ostrum AM in Milan, to strengthen local partnerships and stand closer to our Italian clients. And we strongly rely on the distribution power of Natixis IM's locally based sales forces, as well as on their in-depth knowledge of the local market.

How does this strategic view translate into concrete business activity?

GM: With this in mind, we have already set up a department entirely dedicated to institutional investors in which the different activities are carried out in an organic and organizational manner. All our professionals who deal at various levels and with different specializations with this type of client work in a full information sharing. A mode that allows us to identify solutions involving several functions that would not be implementable if each one operated independently to satisfy a single request from the customer. This is customer centricity for us. The ability to think holistically about needs in order to go beyond expectations. Having an offer that covers the entire spectrum of needs makes all the difference. So does the ability to do it efficiently. In this sense, we have developed a proprietary digital platform dedicated specifically to insurance clients that allows us to combine the objectives transferred by the client and simulate the effects of an investment decision, in terms of risk, sustainability or accounting. As a concrete example: for our large insurance mandates, we are capable to measure overall carbon intensity, carbon footprint, biodiversity footprint and climate alignment.

The core, however, obviously remains active management. What will make the difference in this new scenario that we have been living in for more than a year now?

PS: From a management point of view, we have expertise across all asset classes with a strong SRI dimension and our view is that excellence is built through proprietary research. We have more than 40 people who only do research and support the investment team. This is a key point, because along with bonds, yield dispersion has returned. The end of the decade of markets dominated by ultra-accommodating central banks means that the ability to actively manage risk and actively seek alpha will be key.