Lyxor loses $7.3bn of ETF outflows in 2019 amid sale speculation
Selling asset manager would help parent Société Générale strengthen balance sheet
Lyxor has been hit by large outflows from its $67.8bn exchange traded funds business amid speculation that the Paris-based asset manager could be sold by its parent Société Générale.
Lyxor would provide any potential buyer with a strong position in Europe’s fast-growing ETF industry, where it ranks as the third-largest player behind BlackRock and DWS, the asset management subsidiary of Deutsche Bank.
Investors, however, pulled $7.3bn from Lyxor’s ETF unit in the first seven months of 2019, by far the biggest outflows sustained by any ETF provider globally this year, according to ETFGI, a London-based data provider.
Arnaud Llinas, head of Lyxor’s ETF arm, said the outflows were due to a broader retreat from European stock markets and not related to uncertainty over the future of the business.
“European equity ETFs have suffered around €15bn of outflows this year. Lyxor's business mix is strongly geared towards European equities,” he said.
The outflows could dent the sale price for Lyxor, which oversees total assets of $208.5bn.
Amundi, JPMorgan, UBS and DWS would all view Lyxor as an attractive acquisition target, according to ETF industry watchers.
BlackRock is a less likely buyer as it already controls 44 per cent of the European ETF market. A deal that further strengthened BlackRock’s dominant position would probably draw attention from regulators on competition grounds.
Deal activity in Europe’s $910bn ETF industry has risen as the shift among investors from traditional actively managed funds into low-cost trackers has accelerated, forcing rival ETF providers to strengthen their competitive positions.
Atlanta-based Invesco bought Source, a London ETF specialist, in 2017 in an effort to boost its European presence. WisdomTree and Legal & General Investment Management have separately acquired arms of ETF Securities, another London-based ETF boutique.
SocGen last year bought German rival Commerzbank’s equity, markets and commodities division. The deal included Commerzbank’s $10bn ETF business, which SocGen is in the process of integrating with Lyxor.
Deals involving other ETF managers have required buyers to pay a hefty premium but City analysts have struggled to place a valuation on Lyxor as there is no publicly available data about its earnings or profit margins.
SocGen’s top management have repeatedly emphasised the need to strengthen its balance sheet even though the bank was able to reach the 2020 target of 12 per cent for its core tier one equity capital ratio in the second quarter of this year.
“The sale of Lyxor could be very beneficial for SocGen’s capital position. The question is why the bank has not done so before instead of raising capital via rights issues that diluted earnings and were unpopular with investors,” said an analyst who did not wish to be named.
Amundi, the fifth-largest player in Europe’s ETF industry, has attracted net inflows of $5.6bn in the first seven months of 2019, already surpassing its new business inflows for the whole of last year.
Combining Amundi and Lyxor’s ETF capabilities would create an ETF platform with assets of about $131bn, which would be better equipped to compete against BlackRock.
A marriage between UBS and Lyxor would result in an ETF business with assets close to $136bn, which would rank as Europe’s second-largest player and a more formidable competitor to BlackRock.
JPMorgan has aggressively stepped up ETF product development and recruitment, but it remains outside of the top 20 providers in Europe, a position that it could transform via a deal with Lyxor.
Lionel Paquin, chief executive of Lyxor, declined to comment on the potential sale.