Why Asset Managers Fear Investment Banks

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Why Asset Managers Fear Investment Banks?
Alain Dubois Chairman of Lyxor AM
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SG CIB, first Investment bank to createits own
asset manager

• In 1998, SGCIB decided to create its own Asset
  Management Company
• It was a new concept coming from an Investment
  Bank
• Lyxor has been created, separated from the
  existing Asset Manager of the Group
• As an Asset Manager, regulated in France
  according to the UCITS Directive
• The business was initially very limited
  Structured Funds. There was no reason to be
  afraid.
• But ...

SG CIB Investment Bank
Investment Bank
Created in 1998
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Lyxor AM, a success story

• After 10 years Lyxor AM manages more than 100 bn
  USD

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Lyxor AM an Asset Manager recognized by the
market
Pioneer and leader for ETFs in Europe
Lyxor AM and SG CIB Structuring expertise
recognized several times
A recognized Hedge Funds specialist
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Lyxor AM a Specific Business Model

• 3 businesses
• Structured asset management and quantitative
  strategies
• - AUM EUR 20.5 billions
• Alternative Investments
• - AUM EUR 26.5 billions
• - world leading managed account platform
• - 7th in global Ranking of Fund of Hedge Funds
  asset managers
• ETF
• - AUM EUR 27 billions
• - number 2 in Europe
• Each business is developing with a lot of
  innovation

InvestHedge Ranking Dec. 2006
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However, Lyxor is an Asset Manager, not an
Investment Bank

• We see ourselves as Asset Managers not as an
  Investment Bank
• We have strong Chinese Walls with the Investment
  Bank
• We are closer to the world of Asset Management
• But we try - like all Asset Managers - to
  benefit from the environment and ideas provided
  by Capital Markets

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Investment Banks and Asset Managers are both
providing Investment Solutions
Investment Banks may provide

• warrants
• certificates
• structured products
• indexed products
• advisory
• managed accounts

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The World of Asset Management offers plenty of
Opportunities
Advanced financial techniques options, stock
lending, risk control

• Structured Asset Management

• Alternative Investments

"INVESTMENT BANK INTRUSIONS"
Discretionary approach
Systematic approach
Passive Asset Management (Trackers)
"INVESTMENT BANK INTRUSIONS"
Active Asset Management
 long only  portfolio allocations
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Investment Banks are also Active Managers

• Proprietary Trading is similar to Hedge Funds
• Structured Products are Dynamic allocations. This
  dynamic allocation can be achieved
• directly CPPIs etc.
• or by buying a pay-off (Structured Products)
• From Passive to Active
• structured Products can be "managed"
• indices can also be managed
• This stays however very limited

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The Legal Distinction between the two is being
blurred

• MIFID knows only "Investment Firms"
• investment Banks and Asset Managers are
  Investment Firms
• both can render the service of "Portfolio
  Management"
• MIFID creates a level playing field between the
  two
• same regulations for marketing, inducements etc.
• The only Asset Management-specific Directive is
  the UCITS Directive
• but a recent interpretation by the EU Commission
  is that management of a UCITS by delegation is a
  service of Portfolio Management

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Keeping Chinese Walls is key

• Blurring the distinctions may be ok, but
• There is a fundamental difference between
• managing with a discretionary mandate
• or subscribing to Products that provide
  pre-determined returns
• This is often forgotten in the "level playing
  field" arguments
• different products should be regulated
  differently
• there is nothing wrong in regulating differently
  Structured Products and discretionary mandates
• It is important to keep appropriate Chinese Walls
  between different businesses, where they are
  necessary.

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Asset Managers can also enter the business of
Investment Banks

• Asset Managers have a broad mandate, and can
  enters the traditional business of Investment
  Banks
• and this is the future
• Hedge Funds have been doing just that
• investment bank traders creating new Asset
  Management businesses
• Structured Funds is a way for Asset Managers to
  enter the Structured Products business
• ETF can also be seen as a way for Asset Managers
  to enter the "listed products" business
• We are happy Asset Managers

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