Born to trade

Axa Investment Managers’ global head of fixed income is trying to place his business somewhere between the traditional world of money management and the total returns world of the hedge fund.

You could say that Vincent Cornet, Axa Investment Managers’ global head of fixed income, was born to trade derivatives. Cornet Père et Fils, the Cornet family business based to the south of Paris, had been trading commodities and commodity futures for three generations when Vincent Cornet came of age.

It would have been a comfortable and an easy life taking on the business, perhaps expanding it a little before retiring to hand it down to the next generation. But Cornet had greater ambitions.

The business was sold, and in 1983 Cornet, after graduating with an economics degree in Paris, moved to the futures capital of the world, Chicago, to trade commodities on the Chicago Board of Trade for French investment house CDC Gestion. “I was right there trading in the pit,” he says.

Cornet spent two years in Chicago – gaining a further degree in economics and finance while he was there – before moving back to Paris and into the fixed-income world, where he arbitraged the cash and futures markets. “There were a lot of arbitrage opportunities at that time, so it was easy to make money,” he says.

As the futures markets became more efficient, these arbitrage opportunities disappeared, but Cornet’s derivatives background meant he was always in a position to innovate at a time – the 1990s – when most of the big financial advances came from the use and evolution of derivatives.

It was also at this time that he started to dabble in the creation of an investment fund that would make its returns from arbitrage opportunities, and which these days one would associate more with a hedge fund. “I wanted to think about new products and build new capabilities,” says Cornet, adding that six months after the arbitrage fund – which used a variety of methods to arbitrage fixed-income products – was launched, 18 of CDC’s competitors had copied it.

In 1997, Axa Investment Managers, which currently has E275 billion under management, poached Cornet from CDC Gestion. He was ultimately co-head of the fixed-income business at CDC, and Axa initially took him on to be head of fixed-income investment for France. His immediate challenge was to get the investment team ready for European convergence and the single currency by merging what had been country-specific desks. He achieved this in just two weeks.

But over the longer term his ambition lay in fundamentally changing Axa’s approach to how it manages money. “If you want to deliver performance over time then you have to be able to deliver in a positive and a negative environment,” he says. “I saw that people are looking for total returns, so we needed to think differently.”

His goal then was to bridge the gap between the world of hedge funds, with their goal of total returns, and the traditional world of a large and well-known, long-only asset manager. This remains his goal today, and it is this factor, along with the creation of a large collateralised debt obligation (CDO) business (Risk March 2004, page 28), which both invests in and issues CDOs, that distinguishes Axa from most of its competitors.

“You have to think as an arbitrageur,” says Cornet. “Every time I think about a market, I think in two ways – should I be short or should I be long? You can’t manage a fund as a long-only guy.”

So Cornet is more than happy to launch total-return-style funds and eager to fill a widely perceived gap in the market. “Sometimes investors can’t buy into hedge funds, or they don’t trust hedge funds. So we see huge demand there, and we want to be part of that business.”

But what do the regulators think? “We work closely with regulators, and sometimes it means we have to adjust things.”

Cornet adds, however, that Axa Investment Managers’ approach differs from that of a hedge fund in two crucial ways. The first is that Axa offers investors unleveraged funds. “The second is diversification. A hedge fund might offer five to 15 strategies. But one of our multi-strategy funds could have 25 strategies – convexity, credit arbitrage, single sector, etc.”

It all sounds like pretty radical stuff for a major European asset manager. But Cornet couldn’t imagine trying to develop his business in any other way, just as he couldn’t imagine remaining in his traditional family business to the south of Paris.

“It’s about innovation rather than being radical,” Cornet says.