Key Players In European ETFs

IU: Valerie, please could you outline the ownership and background of Crédit Agricole Structured Asset Management (CASAM)?

Baudson: CASAM has a joint ownership structure - it is owned 50% by the asset manager of the group (Crédit Agricole Asset Management), and 50% by the investment bank (CALYON). We were created in 2005, so we are a relatively new company. CASAM has three business lines: the first and main one is structured products, developed mainly for retail clients; the second is a platform of funds of hedge funds; and the third is ETFs.

However ETFs have a longer history at Crédit Agricole, because we launched our first ones in 2001 (these are now the CASAM ETF S&P Europe 350 and CASAM ETF S&P Euro). In 2005 the group added a CAC 40 ETF, which was a natural addition for a French bank. However the real ETF business for the group started this year, 2008.

We absolutely don't want to follow a niche strategy in the ETF market - we really want to be a big player. For the time being we have issued 11 new ETFs, covering Europe and the Eurozone. We aim to launch ten new ETFs every three months from now until the end of 2009. The next launch will be on 9 December. In terms of asset classes, we are concentrating on equities first, then money market, government bonds and other fixed income, probably commodities as well.

Our goal is to have around €10 billion in assets under management in three years' time.

IU: How would you characterise your group's positioning in the ETF market against your two large French competitors - Lyxor and EasyETF - and also against other European ETF providers?

Baudson: We want to have a large range of broad index products, in contrast to some of our competitors, since they are following a more niche approach. Second, since the beginning of the year, we are launching swap-based ETFs only. Third, since we are not the first into the market, we specifically want to make sure that we are slightly cheaper than the competition. That means that we will set our management fees at the level of the lowest of our competitors' rates or, where possible, lower.

I'd also like to add we have recruited a dedicated ETF sales force, which is based within our European stockbroker, CA Cheuvreux. They sell CASAM ETFs only, and they are very close to the research analysts, close to the client flow business, and we think this is quite a new and efficient way of managing ETF sales.

So, to summarise, we want to be a global player, we want to have a large range of products, we issue only swap-based ETFs, and we want to be slightly cheaper than the competition.

Baudson: I've been meeting a lot of investors over the last six months, and we've had an extremely favourable response. They want competition in terms of products, and they want competition in terms of price. Swap-based ETFs allow for better tracking, but at the expense of a small counterparty risk, so they want to have as many players as possible. The fact that we have Crédit Agricole as our swap counterparty, the biggest French bank, is a positive point. Second, price competition is always welcome for investors.

IU: Would you therefore say that your target client base, at least initially, is domestic, within France?

Baudson: No, it's not. While the domestic client base is important for us, for CA Cheuvreux French clients represent only 20% of the business. UK clients represent about 45%, other continental European clients (Germany, Italy, Switzerland) another 25%, the remaining 10% being the rest of the world.

Baudson: The next (December 9) launch will include ten new equity ETFs, covering large international regions, and some European sectors. In 2009, the next listing will probably be equities again, and we will add some emerging market and style ETFs. As soon as possible we will add money market and fixed income ETFs to the range.

IU: What was the thinking behind the choice of MSCI as the index provider for your recently-launched European country indices?

Baudson: First of all, we met many clients who required them. As you know, many institutional investors use the MSCI indices for their benchmark. Also, there are plenty of existing CAC40, DAX and MIB ETFs, so we didn't feel the need to add to those. There were no existing MSCI country indices listed in Europe. There are some listed in the US, which are very expensive, and we felt they didn't represent a good deal for European investors.

IU: Most of the CASAM assets under management are still in the three "old" ETFs - the S&P Europe 350 and S&P Euro, and the CAC 40, while the recently-launched funds all have €3-4 million invested. Were they seeded?

Baudson: Yes, a very small amount was used for seeding them. These ETFs were launched at the end of September, and our dedicated sales team only started two weeks ago. So we are just starting the real sales process now. We also need some time for the market to get to know us and our products. It's always at least a three month process. So we'll look at our assets under management figures at the end of Q1 2009 and see how we stand then. The early feedback we've had from clients, and from our sales people, has been very positive.