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Amundi’s ETF chief on building a scale business

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Three framed pictures occupy pride of place in the sleek Paris office of Amundi’s Valérie Baudson.

One shows the team of colleagues she leads in the exchange traded fund unit she built from scratch at the French asset manager. Another features CPR, Amundi’s thematic investing division, of which she is chief executive. And the final picture is of Ms Baudson alongside her fellow Amundi management committee members.

The triptych is a visual representation of Ms Baudson’s manifold responsibilities. How does one person carry out three jobs at the same time? “Very naturally,” she tells me over a video call with her characteristic poise.

Ms Baudson’s multiple titles at Amundi — she has recently taken on a fourth, head of third-party distributors and wealth — are partly a quirk of the €1.7tn asset manager’s structure. All the senior executives supporting chief executive Yves Perrier are responsible for several business lines.

But they are also testament to the drive that has helped her rise to the highest echelons of Europe’s largest asset manager since joining 13 years ago.

Brought in to launch Amundi’s ETF business, she now oversees a €140bn-in-assets unit spanning conventional tracker funds and ETFs, and smart beta funds that track indices tilted to one or more factors.

Her promotion to deputy chief executive in 2016 means she is regarded as a potential candidate to one day lead Amundi. Mr Perrier, 65, has not indicated when he will step back but speculation is rife over who will replace the longstanding chief.

As a life-long careerist with the Crédit Agricole group, the French bank that is Amundi’s majority shareholder, Ms Baudson understands the demands of internal politics and shows restraint when asked about her ambitions. “All that I can say is that I’m totally focused on my current roles, which are extremely interesting and demanding,” she says with a smile.

Amundi

Established 2010

Assets under management €1.65tn

Employees 5,000

Headquarters: Paris

Ownership Crédit Agricole has 70 per cent stake, with a free float of close to 30 per cent

Dressed in a Chanel-style bouclé jacket, the 49-year-old exudes self-confidence and speaks in a direct, matter-of-fact manner. But she is also a careful diplomat — a close colleague describes her style as “an iron fist in a velvet glove” — and an expert at toeing the corporate line.

She is tight-lipped about whether Amundi is preparing to do a deal to grow its ETF business. Media reports in November suggested it is one of the bidders for domestic rival Lyxor, owned by Société Générale, one of the founding shareholders of Amundi.

“The Amundi ETF business was pure organic growth starting from zero and we maintain this objective,” she says. “But if there are [external] opportunities, obviously we will look at them. There is more room for consolidation in the ETF industry and in asset management as a whole.”

An acquisition of Lyxor, a predominantly passive player with €157bn in assets, would propel Amundi into the position of Europe’s second-largest ETF provider, making it better placed to compete with US passive juggernaut BlackRock. With $72.8bn in ETF assets, Amundi lags far behind BlackRock, which has $532bn in Europe alone, according to ETFGI.

The rumours come as the ferocious fee war among passive funds is straining margins, making scale essential for managers to compete. Ms Baudson knows this well. She joined Amundi just before Mr Perrier set about transforming it into the region’s largest fund group through a series of deals, the most recent of which was the 2016 acquisition of UniCredit’s Pioneer.

Reflecting on the rationale for the dealmaking, she observes that the seismic changes that would reshape asset management were already on the horizon in 2007. “We knew that the industry was increasingly going in two directions, with very large actors that are willing to provide all types of solutions and benefit from scale [such as Amundi] on one side, and smaller boutiques on the other side.”

While this, and the emergence of ETFs, were enough to convince Ms Baudson to swap investment banking for asset management, her switch surprised some at the time. “I left a very nice corner office [at broker Cheuvreux, then part of Crédit Agricole],” she laughs. “Everyone found my choice completely crazy — but I was really looking for a challenge and it [turned out to be] the best decision of my career.”

Valérie Baudson’s CV

Born 1971 Paris

Education

1992-1995 MA, Finance, HEC Paris

Total pay Not disclosed

Career

1995-99 International audit manager, Banque Indosuez

2000-07 Various roles including head of marketing, Cheuvreux

2008-present Chief executive of ETF business, Amundi

2016-present Member of general management and executive committee; CEO of CPR AM, Amundi

One former colleague says that Ms Baudson’s lack of previous asset management experience worked to her advantage, with her business-minded attitude gelling particularly well with Mr Perrier’s approach.

The coronavirus crisis has blunted Amundi’s ETF sales this year. While most European ETF providers have been hit, the slowdown has been more pronounced for Amundi, with year-to-date sales down 32.5 per cent year on year compared with 11.7 per cent for the rest of the sector, according to ETFGI.

Ms Baudson blames the weak numbers on several large one-off redemptions due to big investors moving into less risky assets. She is optimistic that Amundi can meet its objective of achieving €200bn in passive assets by 2023 thanks to its expertise in sustainable investment — an increasingly popular area for ETF investors.

Amundi is developing a climate ETF that will track a benchmark that is aligned with the goals of the Paris agreement. “We believe it’s a misconception that ESG criteria cannot be taken into account in ETFs.”

Sustainable investment is something of a pet project for Ms Baudson, who, outside of her work at Amundi, is leading work within French finance lobby Paris Europlace to make it easier for investors to select stocks using ESG criteria.

She strongly believes Europe needs a classification system for what constitutes a good or bad social investment, an expansion of the EU’s green taxonomy. This is particularly important given the spotlight cast on social inequalities by the pandemic, she says. “A company can’t perform well in the long term if it doesn’t take care of its social footprint.”

The Europlace committee led by Ms Baudson is also pushing for Europe to develop a centralised database of companies’ ESG information in order to reduce investors’ reliance on ESG rating providers, many of whom are based in the US. “It’s extremely important that Europe keeps its sovereignty when it comes to extra-financial data.”

But Ms Baudson is an internationalist at heart. She talks fondly about her time travelling the world as an international audit manager for Banque Indosuez earlier in her career. Another picture in her office shows her alongside former US secretary of state John Kerry, who she met at an Amundi event last year.

A mother of two, she balances home life with a demanding career in international finance. But her advice for women breaking into asset management is to be bold. “I always advise them to express their ambition and take risks,” she says. “They hold the same cards as their male colleagues and should dare to use them.”



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Fed needs to ignore ‘taper tantrums’ and let longer rates rise

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The writer is chief executive officer and chief investment officer of Richard Bernstein Advisors 

The Ferber Method, a sleep training technique, teaches babies to self-soothe and fall asleep on their own. It’s as much a training technique for new parents to ignore their baby’s crying as it is for the child to learn to cope by themself. 

The US Federal Reserve should consider Ferberising bond investors and ignore future “taper tantrums” like the market disruption that occurred when the central bank signalled tighter monetary policy in 2013. The long-term health and competitiveness of the US economy may depend on bond investors’ self-soothing ability to cope with reality.

The slope of the yield curve is a simple model of the profitability of lending. Banks pay short-term rates on deposits and other sources of funds and receive longer-term rates by issuing mortgages, corporate loans, and other lending agreements.

A steeper curve, therefore, is a simple measure of better bank profit margins, and has in past cycles spurred greater willingness to lend. Historically, the Fed’s Survey of Senior Bank Lending Officers shows banks have been more willing to make loans to the real economy when the yield curve has been steeper.

A chart showing how banks have been more willing to lend with a steep yield curve. As the slope on the US treasuries  10-year-less-2-year yield curve has steepened, so the net percentage of banks reporting tighter lending standards has fallen

With that simple model of bank profits in mind, textbooks highlight the Fed’s control of short-term interest rates as a tool to control lending. The Fed reduces banks’ cost of funding and stimulates lending when it lowers interest rates. But it increases funding rates and curtails lending when it raises short-term rates. Coupling lower short-term rates with a steeper yield curve can be a powerful fillip to bank lending. 

However, policies in this cycle have been unique. As US short-term interest rates are near zero, the Fed has attempted to further stimulate the economy by buying longer-dated bonds and lowering long-term interest rates. Those actions have indeed lowered long-term borrowing costs in the economy, but banks’ willingness to lend has been constrained because lending margins have been narrow and risk premiums small.

Banks in past cycles might have been willing to lend despite a relatively flat yield curve because they could enhance narrow lending margins by using leverage. However, regulations after the financial crisis now limit their ability to use leverage.

This policy and regulatory mix has fuelled some of the growth in private lending. Private lenders are not subject to regulated leverage constraints and can accordingly lend profitably despite a flat curve. The growth in private lending effectively reflects an unintended disintermediation of the traditional banking system. This has meant liquidity destined for the real economy has largely been trapped in the financial economy.

The yield curve has started to steepen, and the Fed should freely allow long-term interest rates to increase for monetary policies to benefit the real economy more fully. Allowing long-term rates to increase would not only begin to restrain financial speculation as risk-free rates rise, but could simultaneously foster bank lending to the real economy. 

Thus, the need for the Fed to Ferberise bond investors. Banks’ willingness to lend is starting to improve as the curve begins to steepen, but some economists are suggesting the central bank should continue its current strategy of lower long-term interest rates because of the potential for a disruptive “taper tantrum” by bond investors. The Fed needs to ignore investors’ tantrums and allow them to self-soothe.

The investment implications of the Fed allowing longer-term interest rates to rise seem clear. Much of the speculation within the US markets is in assets such as venture capital, special purpose acquisition vehicles, technology stocks and cryptocurrencies. These are “long-duration” investments that have longer-time horizons factored into their valuations. They underperform when longer-term rates rise because investors demand higher returns over time. Capital would be likely to be redistributed to more tangible productive assets.

Investors and policymakers should be concerned that monetary policy is fuelling speculation rather than supporting the lending facilities needed to rebuild the US’s capital stock and keep the country’s economy competitive.

Like a new parent to a baby, the Fed should not rush to coddle bond investors’ tantrums and should let the financial markets soothe themselves. Short-term financial market volatility might cause some sleepless nights, but the Fed could unleash the lending capacity of the traditional banking system by letting the yield curve steepen further.



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What we’ve learned from the Texas freeze

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One thing to start: While the freeze in Texas caused havoc for most, some companies have reaped big rewards. Australia’s Macquarie Group said yesterday full-year profits could rise by up to 10 per cent as a result of a surge in demand for its natural gas shipping business.

Welcome to today’s newsletter, where Texas remains in focus. In our first item, Derek Brower asks if oil’s modest price rise in reaction to last week’s events signals that the rally will soon run out of steam.

Further rises, after all, will only tempt America’s shale producers to dive into growth mode. For our second item, Justin Jacobs speaks to Devon boss Rick Muncrief about when the taps will be turned back on.

Elsewhere we round up the key reading on the Texas fallout from the FT and beyond; ask how the appointment of a general to head up Brazil’s Petrobras has gone down in the markets (hint: not well) and bring you the latest on the proxy battle to green ExxonMobil.

Thanks for reading. Please get in touch at energy.source@ft.com. You can sign up for the newsletter here. — Myles

Is the oil rally nearing the end of the road?

Texas’s cold snap last week lifted oil prices — yet still brought a warning for the market’s bulls. The Permian Basin, the world’s most prolific oil-producing region, froze up. US production fell by 2m barrels a day, according to Wood Mackenzie. Kpler, a data provider, estimates the country’s total output in February will be down by 1m b/d.

By Tuesday morning, after it emerged that producers would take weeks to fully restore flows, US oil futures were trading for around $62.50 per barrel, just $2.50 or so more than its price on the eve of the snowstorm. Hardly an Abqaiq-style oil-price leap.

One explanation is that huge volumes of refining capacity are offline too, removing a big source of demand and neutralising some of the supply disruption. But the market’s relative calm also begs questions about how resilient oil’s rally is — especially with an Opec meeting next week, when the cartel must decide how much, if any, of its 7m barrels a day or more of offline supply it will begin restoring.

Many analysts remain bullish. Goldman Sachs, Wall Street’s most influential oil-price forecaster, upped its expectations by $10 a barrel this week. It now expects Brent, which was above $66 on Tuesday morning, to hit $75 in the third quarter.

Line chart of US crude production showing The big Texan freeze

Yet the bull case increasingly depends on many things coming true at once, points out Neil Atkinson, an independent analyst who was formerly head of oil markets at the International Energy Agency. Sanctioned Iranian barrels must remain offline; US supply must remain constrained; and economies must rebound quickly. Above all, Opec must keep cutting.

Current prices are in a “sweet spot” for the cartel, said Atkinson. But any further price rises could prompt a response from shale (see below) and test Opec’s discipline, prompting a response from its biggest producer.

“Over the years, Saudi Arabia has shown its willingness to shift policy and maximise output if compliance falls and/or if the perceived costs of co-operation exceed the perceived benefits,” wrote Bassam Fattouh, head of the Oxford Institute for Energy Studies and a Saudi oil-policy expert, in an article explaining the kingdom’s recent decision unilaterally to deepen its owns cuts.

“Thus, Saudi Arabia can easily swing in the opposite direction in response to low compliance and given the relatively low level of Saudi production, the size of the upward swing could be quite substantial, as was the case in April 2020.”

(Derek Brower)

American oil market eyes production boost

After the oil-price surge of recent weeks, the big question hanging over the US shale patch, and broader oil market, is when American producers will start loosening the purse strings and opening up the taps.

That point might now be visible on the horizon. “If we do see commodity prices rapidly increase back to $70 or $80 a barrel, you’re going to be generating a lot of free cash and that gives you a lot of optionality on things you could think about,” Rick Muncrief, chief executive of Devon Energy, a major Permian producer, told ES last week.

For now, Muncrief’s company is keeping a 5 per cent cap on production growth and promising a windfall for shareholders if prices keep climbing. “First things first, we want to make sure we stay disciplined,” Muncrief said.

But his comments to ES point to when companies might ditch the capital discipline mantra and become more vocal about their ability to both accelerate output growth and keep cash flowing to shareholders.

Robert Kaplan, head of the Dallas Fed, also talked about the potential for oil producers to pivot away from capital discipline as prices rise. “I’ve learned sometimes if prices get high enough mindsets can change,” he told an International Energy Forum conference yesterday.

“To get back to 13m barrels a day, yes, you would need a change in mindset. Probably spurred by higher prices. Can I predict whether that will or won’t happen? No I can’t predict it, but I think we should be on watch for it,” Kaplan said.

We will get more of an idea of the mood in the shale patch later this week, after Pioneer Natural Resources, EOG Resources, Diamondback Energy, Occidental Petroleum and Apache have all reported earnings.

Expect a lot of talk about when producers might start getting back into the growth game. (Justin Jacobs)

What to read on the Texas freeze

A weeklong catastrophe left millions without power and heat amid some of the coldest weather the state has seen in a century.

The failure of the state’s electric grid caused immense human suffering, financial pain for consumers (and gain for some energy companies), and has spawned a wide-ranging conversation about where things went wrong and how to prevent it from happening again. Here are the key pieces to read:

  1. Start with Bloomberg’s in-depth account of the early hours of Monday morning, when the state’s grid operator, the Electric Reliability Council of Texas, was forced to plunge millions into darkness as power generation seized up.

  2. The International Energy Agency put the pieces together here in a broad overview of how the grid broke down — and points out that the lessons from Texas should be learned far and wide, especially as the world becomes increasingly electrified and vulnerable to disruptions.

  3. Gregory Meyer and I covered the financial fallout from the storm, including the story of one family in Burleson, Texas, which saw their electric bill suddenly spike to more than $8,000. We also explored who the winners and losers were in a $50bn bonanza of power trading.

  4. Some companies that cashed in on the crisis are being accused of profiteering. The gas producer Comstock Resources said surging natural gas prices were like “hitting the jackpot”.

  5. The crisis sparked an inevitable debate pitting renewables advocates against fossil fuel backers. This green versus brown debate generated much more heat than light. But the issue of intermittent renewables’ reliability is a critical one. The FT’s editorial board argued that frozen wind turbines were hardly the main cause of the grid’s collapse as the natural gas system, which has the largest share of the power market, also failed.

  6. A less sexy but probably more important issue is why so much of Texas’ energy system was so easily felled by temperatures that much of the rest of the country sees on a regular basis. This excellent Texas Tribune story looks at why “winterising” power plants, pipelines and wells might not be as easy or cheap as state officials hope.

  7. Finally, there is a fascinating debate over the role climate change did or did not play in the Arctic blast. My colleagues Leslie Hook and Steven Bernard have a nice explanation (and graphic) of how the jet stream bent south, covering Texas in freezing arctic air.

(Justin Jacobs)

Data Drill

Shares in Petrobras fell off a cliff yesterday as the market absorbed Brazilian president Jair Bolsonaro’s decision to oust the state oil group’s chief executive in favour of a general.

Bolsonaro had blamed Petrobras’s erstwhile boss Roberto Castello Branco for recent rises in petrol and diesel prices, which had provoked the ire of the country’s truck drivers.

Strikes over fuel costs in 2018 paralysed Brazil’s economy and sapped support for the government, helping secure Bolsonaro’s election to office.

Line chart of Share price (Brazilian reals) showing Petrobras shares plunge after Bolsonaro ousts CEO

Power Points

Endnote

The proxy battle at ExxonMobil rumbles on, with activist group Engine No.1 blasting the oil major’s assertion that its carbon-cutting plan was in line with the Paris accords.

Exxon has stuck to its guns as an oil producer even as rivals like BP and Shell lay out plans to shift into greener sources of energy and reduce fossil fuel output. But it has made concessions in the face of investor pressure, including pledges to cut emissions intensity by 2025.

This month the company said that its emissions targets were “projected to be consistent with the goals of the Paris agreement” and would position it to be “an industry leader in greenhouse gas performance by 2030”.

Engine No.1, which wants to install four new energy-transition-focused directors on Exxon’s board, was having none of it. In a letter to the board yesterday, it wrote:

“None of the company’s new claims change its long-term trajectory which would grow total emissions for decades to come. This is not consistent with, but rather runs directly counter to the goals of the Paris agreement.”

Exxon did not respond to a request for comment.

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Global stocks fall on nerves over inflation outlook

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Global stocks sank and commodities rallied as concerns over the inflation outlook continued to undermine investor confidence.

The blue-chip S&P 500 index was down 0.3 per cent in the afternoon in New York while the technology-focused Nasdaq Composite lost 1.6 per cent.

A sell-off in US government bonds — whose returns are eroded by inflation — picked up again after taking a breather earlier in the day. The yield on the 10-year Treasury note, which moves inversely to price, was up 0.03 per cent, at 1.37 per cent, by the afternoon in New York.

Overnight, the yield on the benchmark note had come just shy of 1.4 per cent, before retreating to 1.33 per cent in the morning.

The 10-year yield started the year just above 0.9 per cent, but has risen consistently with predictions that US president Joe Biden’s proposed $1.9tn fiscal stimulus package will feed through to faster price rises.

“The main concern is related to the prospect of increased inflation,” said Tancredi Cordero, chief executive at the advisory firm Kuros Associates. “There’s a lot of concern amongst investors in fixed income and businesses that are sensitive to that.”

Such worries hit Asian markets on Monday, where Japan’s 10-year government bonds rose 0.01 percentage points to 0.13 per cent, while in Australia its 10-year yield hit 1.61 per cent, its highest level since June 2019.

“The rise in global yields is a reflection of improved growth prospects given encouraging vaccine progress and in the US forthcoming sizeable fiscal stimulus,” said Gurpreet Gill, macro strategist at Goldman Sachs Asset Management.

[It] also signals higher inflation expectations and in turn pulled forward expectations for the timing of monetary policy normalisation.”

The big question is whether rising inflation will push the Federal Reserve away from its path of ultra-loose monetary policy. Investors will watch closely Jay Powell’s semi-annual testimony to the Senate banking and House of Representatives financial services committees on Tuesday and Wednesday to see if the Fed chairman provides clues as to the direction the US central bank will take.

These would be “important events”, said Jim Reid, research strategist at Deutsche Bank.

In Europe, the region-wide Stoxx 600 closed down 0.4 per cent on Monday following three consecutive weekly gains. London’s FTSE 100 benchmark fell 0.1 per cent while Frankfurt Xetra’s Dax was down 0.3 per cent.

Oil prices continued to rally, meanwhile, on hopes of growing demand for fuel as the global economy reopened following the rollout of Covid-19 vaccines. Crude was also viewed by some investors as a hedge against inflation.

Brent crude, the international benchmark, rose 3.6 per cent to $65.15 a barrel, while West Texas Intermediate, the US marker, added 3.8 per cent to $61.49 a barrel.

Copper gained as much as 3.7 per cent to hit a 10-year high of almost $9,300 a tonne in early trading on Monday, driven by reports that China’s largest copper smelter was reducing output. The price later eased to about $8,985 a tonne.

Elsewhere, nickel moved above $20,000 a tonne for the first time since 2015 following a deadly accident over the weekend at a processing plant owned by Nornickel, the world’s biggest producer of the metal. Like copper, nickel pared early gains and was trading at about $19,330 a tonne by the afternoon.

Alastair Munro at brokerage Marex Spectron said industrial metals had also been boosted by the first official statements of 2021 regarding China’s economy.

Articles in Xinhua and other official news outlets discussed strengthening rural infrastructure and modernising agricultural production methods to spur consumption, he said. Such signs of significant growth plans “look set to be a new driver of China’s economy over the next few years”, he added.

In Asia, China’s CSI 300 index fell 3.1 per cent, its biggest one-day drop since last summer, as concerns grew of a gradual tightening in lending conditions. Hong Kong’s Hang Seng lost 1.1 per cent and South Korea’s Kospi 200 dropped 0.9 per cent. Japan’s Topix gained 0.5 per cent.



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