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Every rising pop star knows: America is hard to break. A number of financial institutions have attempted to break into the United States over the years. Few have succeeded. Amundi, which aspires to become the European BlackRock, is trying to expand in the United States.
There is a long way to go. Catching up with U.S. rivals such as BlackRock and Vanguard would require significantly increasing its roughly $2 trillion in assets under management, a fraction of those of its peers. But the French asset manager, controlled by Crédit Agricole, is taking its ground.
The group agreed this week to take a 26.1 percent stake in Victory Capital Holdings, a US-listed fund manager for $2.8 billion. This operation should not only almost triple its assets under management in this immense market, but also improve its profitability there.
This looks smart. No money will change hands. Amundi US will combine its $104 billion in assets under management and approximately $470 million in revenue with Victory’s client assets (and $820 million in revenue) to create a $279 billion manager distributed to states -United and Europe.
In return, Amundi receives Victory shares. Even though more than two-fifths of these shares are non-voting shares, Amundi finds itself with two of the nine director seats on the American company’s board. This structure makes it possible to circumvent American regulations when banks of global importance, such as Crédit Agricole, have their own fund management companies.
We see the attraction for Amundi. First, Victory has a similar business model to its French suitor: buy, integrate, then repeat. She oversees 11 different companies and her market value has nearly tripled to some $2.9 billion in five years. Second, Victory’s cost-to-income ratio, at 49 percent, is expected to help dilute Amundi US’s 60-plus percent ratio, created following its 2017 purchase of Pioneer Investments from Italy’s UniCredit, underlines Tom Mills at Jefferies.
Full details of the transaction are not yet available. But both sides estimate the valuation of Amundi’s US operations and stake in Victory, once the latter issues more shares, at around $1 billion. On this basis, Amundi will have traded its US operations for the equivalent of 1 per cent of its assets under management, well above the 0.6 per cent at which the whole group trades.
European investors in asset managers would normally be devastated by the idea of growth through acquisitions. Personalities like Janus Henderson and Jupiter give cause for pause. But at least the Amundi deal, with its announced cost reduction (before taxes) of $100 million, gives hope for a better outcome.
Amundi still has a long way to go in terms of global ambitions. But this seems like a low-risk step.
*This note has been modified to clarify the revenue split between Amundi US and Victory.