Swinging the Axa

Sweating the Asset Managers

It's not clear just what the French insurer would like to be. But it's just put its fund managers on notice.

Europe's insurers are going through something of an identity crisis. Years of squeezed investment returns and sluggish economic growth have led firms to try M&A, cost cuts and stock buy-backs to juice returns. So far this year, investors remain relatively unconvinced.

Low Returns

Insurers including AXA have under-performed European stocks year-to-date

Source: Bloomberg

On Wednesday, France's Axa tried its own hand at a new self-portrait, announcing plans for a 2018 IPO of part of its U.S. business, which would include its life and savings unit as well as its 64 percent stake in money manager AllianceBernstein Holding LP. 

The move could free up some 3 to 4 billion euros ($4.4 billion) of cash, according to analysts at Citigroup. Assuming it's spent on acquisitions, rather than returned to shareholders, that might pave the way for a more dramatic overhaul of Axa's geographic exposure and strategy. But the reaction in the insurer's stock price was muted.

More Cash

What kind of cash a U.S. IPO could raise for AXA, according to Citi estimates

Source: Citi, assuming a 50% stake of the U.S. business sold at a 20% discount

The company is being cagey on the specifics. The announcement focuses on freeing up cash for future spending rather than giving answers to what the right model for the insurer should be.

Axa's managers were careful not to commit to any detail on how much of the U.S. business they will actually offload and whether they are open to eventually ceding majority control. Shareholders shouldn't expect that the additional financial flexibility will mean sweeteners for them -- even it does bring the company closer to meeting its financial targets for 2020.

But it's hard to shake the feeling that asset management is one business that's ripe for a pullback. Axa CEO Thomas Buberl hammered home the point that the insurer wants to turn more toward health insurance and protection products as it spends its cash. It also wants to reduce its sensitivity to financial markets.

Considering Axa's ouster of AllianceBernstein's CEO and more than half the board earlier this month, there's a real sense the $500 billion money manager will now be expected to prove its worth as part of a new U.S. entity and will have to find savings or revenue synergies over the next year.

That is a good thing for a business that has successfully stabilized asset outflows, but which is still entrenched in the world of stock-picking at a time when passive, index-based funds are gaining ground. Axa's own-brand asset-management arm raked in 3 billion euros of net inflows in the first quarter of 2017. AllianceBernstein's were zero, something Axa blamed on the loss of a large mandate. That said, both brands reported growth in revenue and bumped up average management fees. A leaner AllianceBernstein that is part of a separately listed U.S. business might have more options to grow scale or product lines.

Flat Flows

Net inflows for both of AXA's asset-manager brands in Q1 2017

Source: Company filings

But Axa will also have to tread carefully to avoid damaging the brand. The surprise change in management and the announced future change in ownership structure risks damaging staff morale and client confidence.

Axa has yet to give the final word on what it wants look like in a world where competition is heating up. But the fund managers toiling under the insurer's roof can expect to sweat a little more.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Lionel Laurent in London at llaurent2@bloomberg.net

    To contact the editor responsible for this story:
    Edward Evans at eevans3@bloomberg.net

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