CEO of AXA Investment Managers (also CEO of BNP Paribas Asset Management), effective July 1, 2025, AXA Investment Managers (AXA IM)
BNP's Pierri: Stocks Performance to Be Subdued in 2024
Sandro Pierri, chief executive officer of BNP Paribas Asset Management, discusses the future of the 60/40 portfolio and European asset management with Bloomberg's Francine Lacqua on "The Pulse."
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About Sandro Pierri
Sandro Pierri, CEO of BNP Paribas Asset Management and president of EFAMA, spoke at the Investment Management Forum 2023 about structural changes in the economy and asset management industry. He described what he called a "multiple transition" involving ecological, technological, demographic, and geopolitical shifts occurring simultaneously, which he said was unprecedented in his career. Pierri stated that equity returns are likely to be subdued in 2024, which he said would put pressure on both costs and revenues for asset managers. He also noted that only one-third of European household assets are professionally managed and argued that increasing retail participation in capital markets is necessary to fund Europe's sustainability and digital transitions. Pierri discussed regulatory priorities for the European asset management industry, calling for predictability and stability in the regulatory framework, as well as coherence between different pieces of regulation. He cited the example of the Retail Investment Strategy (RIS), which he said favors passive instruments, and questioned how that reconciles with supporting the green transition. Pierri also highlighted structural differences between U.S. and European asset management, noting that the U.S. benefits from a single large home market and tax incentives for long-term savings like 401(k) plans, which he said are still missing in Europe. He expressed confidence that European asset managers can compete with larger players due to strong human capital.
Transcript (16 segments)
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Interviewer0:00
What's the question you get asked most day in, day out?
Is it inflation and central banks?
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Sandro Pierri0:02
Well, first of all, thanks for having me. Here we go, asking many questions.
I would say probably the most frequent one are inflation and unemployment. I mean, what is that? Well, I think inflation is slowly coming down. And I think the numbers yesterday is clearly confirming the thesis that inflation is a bit more under control. What is a bit striking is the resilience and the strength of the labour market on both sides of the ocean, which is the other element that would give us comfort in believing that as we go into 2024, markets will buy more aggressively into a basically reversal of central banks tightening. There's a number of structural reasons, probably for the labour market to ask. Probably the best explanation is that given the shortage in the labour market that many firms have seen after the pandemic, they are very cautious in taking more radical action because they know it will be very tough to rehire when the economy recovers. So unemployment and inflation are probably the trickiest questions at this stage. I think the rally yesterday is quite meaningful because it signals appetite for riskier assets. At the moment, there's a clearer outlook. Having said that, I think the numbers yesterday are a bit better, but our view is that central banks will try to be on the safe side until they have significant confirmation inflation is under control, so they will not start easing. It might take a bit longer than the market is discounting right now.
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Interviewer1:45
I'm really happy you came in today because I feel like we have everything. So we have the US inflation number in the US, the rally that you were talking about. We also have President Xi invited meeting and it seems that markets have largely discounted or not really focused on geopolitics. Again, is there a worry that markets are looking at the wrong things and that actually they don't even know how to price stagflation, which is what you're potentially hinting at if the labour market stays strong? It's a very difficult market to navigate cyclically, but I would say even more structurally, one of the things we have been putting in the world with our clients is that we're living in a world of what we call multiple transitions. Everyone has been focusing on the ecological transition and energy transition, but at the same time we're seeing a technological transition, a demographic transition, and a geopolitical transition, all happening at the same time, which is unprecedented in my professional career. This is the first time such a big change is happening and it's structural. These four major forces are self-reinforcing but potentially also contradicting each other. There are implications longer term — the market is struggling to price properly. We believe this points to structurally lower GDP growth globally and higher inflation. This is almost a paradigm shift compared to the last 20-25 years. So we are in a regime change which is very difficult for the market to price because we look at the past. That's exactly where we are right now. And I guess underpinning everything is the cost of money, the cost of credit. How much of that is structural given the shifts and forces you were talking about?
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Sandro Pierri3:36
Now, look, if we're saying that inflation will be structurally not dramatically higher but probably averaging 3%, of course the floor in interest rates will be significantly higher than the previous cycle. So zero interest rates, we're probably not going to see them for quite some time. There's a structural element to interest rates. By the way, slightly higher interest rates are not necessarily bad. What really hurts the economy is the speed at which rates have risen over the last two and a half years, not the absolute level. That speed has been significant.
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Interviewer4:15
So we also had the governor of Banco de Portugal a short while ago here, and this is what he had to say on European growth and data dependent. 'And these data really are good. They show that inflation globally is falling. The same thing is true for the eurozone. We got that number for October that is already below 3%. We must be patient, but we have this feeling that we are doing our job.' I mean, he was talking about anxiety over a soft landing. What kind of questions are your clients asking you? Does it feel good being in charge of an asset manager right now, or is it a crowded space?
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Sandro Pierri4:59
Look, as a business, we're going through significant transition. It's been a great business to be in over the last ten years: top-line growth, margin expansion, driven by structural forces. The reality is that today, even in Europe, only one third of households have their savings professionally managed, and this will continue, so we are in growth mode. But another driver has been market performance. Our asset base goes up and down with markets. Structurally over the last 15 years assets have gone down due to market performance. I think next year will be more challenging because we expect equity returns to be subdued relative to the past. That will impact our industry. Everyone is discussing pressures on cost and top line. It's a reversal of the previous long cycle. But it's crucially important that we reestablish our role from a policymaking perspective as a key mechanism for reallocating capital. The structural debate with policymakers and regulators is how we can support the big transition and ensure capital flows to energy transition. We play an important role, and it needs to come with increased retail participation in capital markets, which we've started to see but is still too low.
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Interviewer6:40
But given where we are now, and I'm not speaking about BNP Paribas, M&A in general, do you think the flow of capital is going where it should be given the shift for the green transition, or is there still a lot of work to be done?
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Sandro Pierri6:51
Well, it started to go in the direction policymakers identified. If we look at flows in sustainable-related products, Article 89, over the last two and a half to three years, we have seen these products attracting more flows than all others. So this is happening. The deals we're seeing on sustainability in private assets are going in the right direction. However, the challenge to support net zero transition is huge — an additional three and a half trillion dollars per year. So it's not enough; we're just at the beginning. There's an element of expected return. We have seen some pressure on performance of sustainable products recently. But this is cyclical. We need to accelerate because the pace of renewable deployment in Europe is not consistent with a 1.5-degree pathway.
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Interviewer8:05
Now, we were talking about markets, client behavior, the reality of stagflation. You very clearly put that we're going through a massive transition with four parts, and we don't know where we end up. What does it mean for asset managers? We will have to cope with lower growth and subdued equity returns, which affects revenue. On the flip side, we'll see a revival of fixed income. With rates where they are on both sides of the ocean, we are seeing money flow into fixed income products since September. The value proposition is simple: you can lock in 4.5% to 5% for five years, which stabilizes your portfolio. The 60/40 portfolio — I've been asking about this for the last year.
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Sandro Pierri9:10
Was that last year? Clearly, we have done a lot of research. It shows that the benefit of bond diversification was no longer there because bonds moved in correlation with equities, which normally doesn't happen. That was the reason for diversification. Now, the way the 60/40 portfolio has been thought through over the last decade is over. But the need for a diversified approach is key. What has changed is that the base level of yield is higher. The starting point is 4%, and the carry buffers the volatility in bond prices. So our view is that bonds will again provide diversification and protection in a volatile environment.
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Interviewer10:08
You're the chief executive of a very sizable asset manager. What does it mean for how you service your client? Do you spend more time on that or on figuring out where capital flows go in the transition?
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Sandro Pierri10:22
We spend time on everything that is strategically significant. It's early days, but we are focusing on efficiency and automation. The number of use cases the team has brought up is huge. We need to prioritize and test. Another important element is AI, but if your data set is not in order, you can't do much. So we are framing our journey toward using AI. At the same time, we need to ensure we have the right product offer for a cycle that will be very different.
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Interviewer11:15
Talk to me about asset management as a crowded space. How do European asset managers compare with US or Asian ones? The brands feel strong. Does that translate into revenue?
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Sandro Pierri11:31
Overall, European asset managers are doing quite well. They have benefited from the UCITS brand, which has proven effective in protecting investors and is recognized outside Europe. There are structural differences: US asset managers have a single large home market, while even with the EU capital market, doing business across countries is different, so economies of scale differ. Second, the US has tax incentives for long-term savings like the 401k plan, which is missing in Europe. Those are the main differences. But the human capital in Europe is great, and we feel we can compete with the largest players and will see growth.