Amundi: Europe’s heavyweight champ can make right connections

Europe’s fund management industry was once likened to an exhausted athlete. Performing strongly in a bull market is like accelerating when running downhill. Tougher market conditions could herald a shake-out — and provide an opportunity for France’s Amundi. Europe’s largest asset manager on Wednesday said it could have as much as €2bn of excess capital by 2025 to spend on M&A.

Dealmaking in the asset management industry is fraught with risk, as Amundi’s newish boss Valérie Baudson knows. Culture clashes can result in the departure of clever asset pickers, triggering outflows from clients.

Fund managers are procyclical stocks. Amundi shares are now trading at 8 times forward earnings, 5 percentage points below its long-term average.

Investors have grounds for confidence, even so. Amundi is good at executing deals, forging tie-ups with retail banking distribution networks. An example is its €430mn acquisition of the asset management arm of Spain’s Banco Sabadell in 2020. Thanks to a 10-year distribution deal, this is expected to generate a 14 per cent return on investment.

Amundi is targeting a cost-to-income ratio of below 53 per cent, one of the lowest in the European industry. A big factor is its ownership of its own portfolio management platform. It does not rely on rival systems, such as BlackRock’s Aladdin or State Street’s Charles River. Amundi technology is now a profit generator in its own right, with 42 external clients in Europe and Asia.

Plans to ramp up the technology business is one factor behind the organic growth target of 5 per cent a year, in line with post-2018 performance, assuming constant market conditions. That would generate €240mn of net income by 2025. Acquisitions could generate nearly as much again, if Amundi deployed all its forecast €2bn of excess capital on deals meeting its 10 per cent ROI target.

That outlay might bulk assets under management by €100bn, potentially far more for passive mandates. But Amundi would still be dwarfed globally by the likes of BlackRock. The latter’s $10tn of assets is nearly five times Amundi’s $2.2tn.

But Europe is a very different market to the US. Here, banks dominate retail fund distribution and Amundi has scale, connections and competitive advantage.

European fund management remains fragmented and is ripe for consolidation. Baudson has a big opportunity to generate strong returns from Amundi’s impressive scale.