Effective fund management supporting our commitments in a complex world

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1 TABLE OF CONTENTS Effective fund management supporting our commitments in a complex world annual report Profile and key figures 3 Editorial by Ghislaine Bailly, Chairwoman of Covéa Finance 6 Interview with Sophie Beuvaden, Chief Financial Officer of the Covéa Group Highlights 16 Governance 18 Managing risks: securitisation and dialogue between teams Fundamental analysis supporting Fund Managers 24 Specialist legal functions by area 28 Analytical accounting supporting the management of the company 30 The restructuring of the Securities-Chain continues 32 Guaranteeing long-term performance 34 Better communication at the heart of consistency and performance Active monitoring for positive performance 42 The investment process 46 Fund Management: the younger generation rises to the challenge 48 Information based on the requirements of our business lines 52 Collaboration, independence, performance 54 Promoting our expertise and our funds Tools to support brand financial advisors 58 Range of funds 61 Financial report 63

2 COVÉA FINANCE shareholders research decisions orders mesure publication publication of information clients of effectiveness of results and network support Communication, interaction, information; between business lines and employees, within the Group and externally. Throughout the value chain. This is our vision of finance for insurance. Communication, interaction and information are three key words for Covéa Finance: communication between employees; interaction between business lines so that risks can be managed a little better each day without undermining performance; information exchanged within the Covéa Group and with the company s business environment. Throughout the value chain, this spirit of cooperation is a key dimension of Covéa Finance and contributes towards the company s very notion of finance for insurance. 03

3 COVÉA FINANCE / PROFILE The Covéa Group at a glance Portrait of Covéa Finance Covéa is a Mutual Group Insurance Company (Société de groupe d assurance mutuelle), grouping together the MAAF, MMA and GMF brands. Leader in property and liability insurance in France, with nearly 20% market share, Covéa is a powerful driver of competitiveness through the many synergies offered to all three brands: economies of scale, pooling of investments, sharing of costs and best practices, access to new markets, overseas development, grouped purchasing, etc. The pooling of resources has particularly resulted in the creation of specialised structures, each enjoying since its creation a position of market leader or major player in their sector: Covéa AIS (claims management), Covéa Finance (asset management), Covéa Immobilier (real estate). Covéa Finance is the portfolio management company of Covéa, grouping together the MAAF, MMA and GMF brands. Independent in its decisions, Covéa targets long-term performance. Through the work of its integrated research teams, the company enjoys recognised analytical abilities enabling it to anticipate changes in its environment. Its corporate philosophy puts risk management at the heart of its employees activities and makes each of them a force of value creation for insurance. LIFE AND NON LIFE GROSS PREMIUMS: OVER 15.5 BILLION Covéa General Finance Direction 10 th LARGEST FRENCH FUND MANAGEMENT COMPANY (1) 7 th LARGEST FUND MANAGEMENT COMPANY IN THE INSURANCE SECTOR (2) 56 MUTUAL FUNDS OVER 11 MILLION POLICYHOLDERS Covéa Finance Covéa Immobilier Asset Management Covéa Immobilier Property Management 81.1 BILLION OF ASSETS MANAGED (3) 130 EMPLOYEES (3) (1) Source: AFG, 31/12/2012 (2) Source: L Argus de l assurance, 31/12/2012 (3) As at 31/12/

4 COVÉA FINANCE / EDITORIAL Editorial Ghislaine Bailly, Chairwoman of Covéa Finance We are constantly having to adapt to new economic and financial constraints in order to maintain performance levels Since the fall of the investment bank Lehman Brothers, each year that goes by brings with it challenges to be faced by the Covéa Finance teams. As in 2012, 2013 was marked by financial markets under constant pressure from many economic and political factors, one event hot on the heels of the next. A year of two halves The first part of 2013 was European, defined by the failure of the Cypriot banking system in April, the woes of Portugal in July and a tense series of elections due to the gravity of the issues at stake. In Italy, the ousting of Mario Monti raised many questions about the country s economic future and its ability to avoid a major sovereign debt crisis. In Germany, the re-election of Angela Merkel upset the secret hopes of the French government to see the country being led by a new coalition more open to European solutions to solve the sovereign debt crisis. For the second part of the year, attention focused on the United States, with investors having difficulty deciphering the intentions of the American Federal Reserve ( the Fed ) regarding quantitative easing and the lockdown of the federal administration following the failure by Republicans and Democrats to agree on the public debt ceiling. In France, only the recent recovery of equities can counteract the negative effects of declining assets under management. A macroeconomic and financial world of complex interactions To understand a changing world Year on year the global economy has become an increasingly vast, dense and complex field of investment. However, today there is the widespread feeling that the world we live in cannot be completely understood by the human brain. In this world we see increasingly international and increasingly powerful 06 07

5 COVÉA FINANCE / EDITORIAL We are directing all our efforts towards our shareholders and our clients, the three mutual insurance companies of the Covéa Group. companies (often more so than countries themselves), but also more fragile companies. They are more exposed to geopolitical risks, to risks inherent to globalisation and to exchange rate risk. Their investment decisions are based on economic, financial and accounting data that is increasingly difficult to decipher. The changing asset management sector Since the stock market crash in 2007 and the collapse of nominal rates of return, the asset management sector has had to deal with numerous constraints. In France, only the recent recovery of equities has been able to counteract the negative effects of decreased assets under management. Competitive pressure is increasing both in France and in the rest of the world. The big winners are the American asset management companies. However, these changes are taking place in a regulatory environment that is becoming stricter for all financial players and with which it is particularly difficult to deal in a context of very low nominal and real interest rates. The downward trend in recurring revenue from their portfolios is limiting their ability to invest in higher yield but riskier asset classes. Every mistake has a significant cost and yet the probability of occurrence continues to increase given the dramatic shortening of economic cycles caused by the free movement of capital and the resultant globalisation of the economic landscape. A new factor in the equation Another major consideration is that our world is under the influence of the most powerful: the United States. Every American economic policy decision is scrutinised by all the world s investors and influences their decisions, whereas American economic policy is guided by domestic choices and not international considerations.... Which unfolds in a world undergoing profound restructuring The end of the Cold War inaugurated a new economic order in China and in the United States From the first cracks appearing in the Soviet empire which led to the fall of the Berlin Wall, China had already entered into the post-mao era by beginning to open up to the rest of the world. Boosted by a currency which is institutionally pegged against the US dollar, in 2001 the country joined the World Trade Organisation (WTO). By halving the value of its currency a few years beforehand, China was able to confidently tackle the markets opened up to it by its membership to the World Trade Organisation at a time when Russia, then taking over from the Soviet Union, was plunged into a deep economic crisis. At the same time, the economy of the United States experienced strong growth against a backdrop of major structural changes such as the increase in high-tech industries symbolised by Silicon Valley and the rapid development of the finance and business services sectors to the detriment of manufacturing industry, which continues to decline in terms of gross domestic product and employment. The nature of the American economy had therefore already started its gradual transformation in a movement which started in the early 1980s. When this was followed by the explosion of the so-called internet bubble in March 2000 followed by the terrorist attacks of 11 September 2001, the machinery began to grind to a halt. Budgetary policy and monetary policy were then put to work with a very big reduction in the Fed s intervention rates and a fall in the tax burden. In Europe, the introduction of the single currency upset the traditional economic policies of the participating countries The changeover to the euro took place in 2001 at a time when Germany was stagnating, weakened by the absorption of the former GDR and a restrictive monetary policy initiated in the early 1990s. Whereas the economically poorer countries benefited from the attention of investors, direct and financial investments benefited from the favourable growth gap sustained by lower asset prices and labour costs than in Germany. The eurozone should have seen inflation accelerate dangerously, yet it remained at a manageable level. At the origin of this phenomenon, China and the other emerging countries during their opening-up phase which supplied the developed world with cheap products were offsetting the upward pressure on prices caused by strong growth and a convergence of labour costs of the countries of Southern and Northern Europe. For many years, China exerted strong deflationary pressure. In the developed countries, the lack of significant inflation and the increased purchasing power of consumers, particularly thanks to products manufactured in countries with low labour costs, for some time masked the structural trends for which the world is paying the price today. Indeed, direct investments resulted in a significant relocation movement towards a number of emerging countries, more specifically China, the world s veritable production factory. China continued to experience record development First of all seeking considerably lower labour costs than in the developed countries, companies gradually invested to capture the immense market of the new Chinese consumer which, thanks to the dynamism created by Chinese liberalisation, saw their income increase considerably. Relocations sustained the increased power of China both economically, where it became the number one holder of dollars ahead of Japan, and geopolitically. From China arose 08 09

6 COVÉA FINANCE / EDITORIAL Our results for the year 2013 are positive and our business has been able to stay the course in a continued unstable economic and financial world. formidable competitors which participated in the decline of certain industrial sectors in the developed countries. The strong growth of these countries, even rampant growth in emerging countries, was accompanied by soaring raw materials and energy prices. The fall of Lehman Brothers caused a global crisis... The consequences of the failure of Lehman Brothers put an end to the boom in world trade. Without the support of American and European consumers, the growth of emerging countries faltered. Assisted by the Fed s measures, many of them chose the path of recovery using public debt and infrastructure. Many once again quickly found the path to strong growth compared to that of Western countries, but nevertheless more modest than in the past. The imbalances accumulated and the recovery of Western growth, despite the unconventional monetary policy of the central banks, more specifically the United States, was still precarious.... which led to a new international order Two major trends led to the establishment of a new international order: regionalisation and re-industrialisation. In this context, four main areas stand out. First area: the movement of the geopolitical epicentre to the Pacific. Second area: the re-industrialisation of part of the United States thanks to local sources of energy and at a lower cost causing the relocation of high energy consumption industries, such as chemicals. Third area: the emergence of an economically and politically unstable Europe geographically close to the Middle East where there were an increasing number of civil wars and the associated economic impoverishment. Fourth and final area: the organisation by China under the threat to social cohesion of the fight against corruption and the refocusing of its investment efforts on infrastructure and the development of its domestic market. Reversal of the key forces: China no longer wants to be the world s factory but from now on to produce for its own market and to reduce its appetite for raw materials. Fundamental trends emerge in financial markets Despite many events which fuelled speculation regarding market trends, they remained relatively consistent and retained a certain logic. Fundamental trends emerged which included the major and essential role of the central banks in the economic recovery, particularly the all-powerful Fed. Our scenario on the United States was confirmed At the end of 2012, faced with the unforeseeable nature of changes in Europe s situation, our hope was for the recovery of the United States and the resumption of their traditional role as the global driving force. We believe that other economies will not improve without the US seems to have proved us right. The United States made a comeback as the leader of the global economy thanks to a sharp reduction in their energy dependence, the consistency of their economic policy, the new dynamics of their foreign trade and the recovery of the employment market. However, another substantial trend appeared: lower American economic growth compared to that from the early 1990s until The eurozone gave positive signals but remains under pressure The stabilisation of the sovereign debt markets observed in 2012 increased in 2013 with a convergence of interest rates in peripheral countries and the return of countries such as Ireland to the financial markets. China refocuses on its domestic market It has to change its development mode, which is too focused on exports and therefore too dependent on the vagaries of the global economy, by rethinking its place in the global production chain in order to reduce its dependence on foreign energy and raw materials. The search for returns on investment is increasingly complicated In general, risk markets were boosted by low American yields. The search for returns on investment pushed investors to turn towards private bonds, the equities of core European countries and the sovereign debt of peripheral countries, including their listed and financial equities. Enriched by the recovery of property prices and the recovery of the financial markets, American investors once again found their ability to search for risk outside the United States and thus fuelled the rise in European stock markets throughout the year. However, neither the change in the European economic environment nor the analysis of the accounts of European companies justifies such a move. The emerging countries are the big losers. Capital exited their markets throughout the year despite the respite granted by the Fed s reluctance to launch the slowdown of quantitative easing. It would finally announce this decision in December. The positions of Covéa Finance We are committed to enhancing the quality of our equity investments in three strategic areas. First area: geographic diversification by increasing our direct exposure to the US market and to the UK market and by extending our investments on international financial markets, particularly in Asia, via our mutual funds and our range of multimanagement funds. Second area: the diversification of our core investments in European and American equities. Third area: the increase of our exposure to small and mid cap securities held both directly and via a dedicated fund, both on the European and American markets. Given this unstable equilibrium, our company is adopting a global strategy and adapting to such variations through reliance on fundamentals We are directing all our efforts towards our shareholders and our clients, the three mutual insurance companies of the Covéa Group This year, our teams continued to work in close collaboration with their clients and shareholders in order to understand the changes in the economic and financial world and to provide them with reasoned analysis capable of steering them towards the most appropriate allocation policy for their business environment. We also focused on enhancing our long-term scenario 10 11

7 COVÉA FINANCE / EDITORIAL client portfolios of Covéa Finance are shareholders and/or creditors. At the same time, we worked on improving the techniques to be applied in the Multi-management Department and on improving our macroeconomic tools for monitoring the global economy, local economies and associated financial markets. Our challenges for 2014 For three years the Covéa Finance teams have been enhancing the risk management chain and this year once again have demonstrated their ability to adapt. based on reinforced technical analyses and on the enhancement of the indicators monitored in the different fund management departments. Deployment of multi-year objectives focused on risk management Our results for the year 2013 are positive and we have managed to keep our business on course in a continued unstable economic and financial world. These results are the fruit of our efforts to implement effective corporate objectives which shape our everyday work and ensure that our projects remain sustainable. Once these objectives are established they are deployed throughout the value chain. In order to enhance the visibility and understanding of our activities by our colleagues, shareholders and clients, we decided to embed the year s objectives within wider, multi-year objectives focused on risk management. In 2013 there were two overriding objectives shaping our activities: risk management and communication. They are reflected throughout the 2013 annual report. The establishment of a risk chain enabled us to start a process to identify risk at all levels of the company. The work on communication consisted of increasing the circulation of information within teams, between teams and, more generally, throughout the company. To meet these objectives and to adapt to the new economic and financial constraints, we committed internally to roll out the strategic work defined in late 2012 and early 2013 on the restructuring of our securities-chain by revising and readjusting the responsibilities and organisation of the Middle and Back Offices. According to the same line of reasoning, the Reference Framework Unit was placed under the responsibility of the Securities-Chain Department. The reorganisation of the Legal Unit was completed and a team dedicated to legal risks associated with embedded financial risks in the portfolios was created, with work in 2013 being devoted to the roll-out of the methodology. For its part, the Front Office gained an additional complementary unit to Macroeconomic Research, the Microeconomic Research Unit which participates in our desire to establish a method of analysing the companies of which the One of our major challenges since 2012 has been to generate performance on the assets entrusted to us in a context of interest rates set to remain low in Investors are forced to choose between low returns or underlying capital losses if interest rates climb above their prevailing level of the past two to three years, in response to monetary policy adjustments by the Fed. This year, our challenges will be three-fold. First challenge: to understand and identify the major trends affecting the world and the financial markets. Second challenge: to exploit developments and trends influencing asset management in Europe and in the world. We have to be willing to live in an environment of increased regulatory and technical requirements with funds mostly backed by bonds, which means rising costs alongside restricted revenue and which are highly dependent on the performance of the stock markets. Third challenge: to adapt our information system and our human resource management to the new economic, political and regulatory conditions of the French fund management company environment. These challenges are the outcome of strategic analysis: the gradual changeover from searching for performance through close monitoring of the risk-return ratio of our portfolios backed by a value chain with proven resistance, to searching for performance within a framework of acceptable risk. For three years the Covéa Finance teams have been enhancing the risk management chain and this year once again have demonstrated their ability to adapt. The important act of preparing our annual report is an opportunity for me, on behalf of the Executive Committee, to thank all the teams for the work they do on a daily basis

8 COVÉA FINANCE / INTERVIEW WITH SOPHIE BEUVADEN The strength of Covéa Finance: knowing how to anticipate and to seize the slightest opportunity Interview with Sophie Beuvaden, Managing Director, Finances, Covéa In a global financial environment where interest rates remain extremely low, the mission entrusted to Covéa Finance by the Covéa Group becomes fully apparent. Staying alert to identify every opportunity on the bond markets whilst cleverly benefiting from the slight recovery of the equity markets: these are the year s two challenges for the company. What are your thoughts on 2013? Earlier this year, forecasters were extremely worried. I therefore salute the foresight of Covéa Finance which, for its part, was already betting on a certain impetus being created by American economic recovery. Once again, and fully meeting the expectations of the Covéa Group, the company was not wrong and its scenario was confirmed in the autumn. This foresight enabled it to benefit fully from the rise in the stock market, for which it had been prepared for a long time. The game remained somewhat more challenging with bonds, where the hike in interest rates is still expected and where the major achievement of Covéa Finance was seizing the slightest of opportunities in the first quarter with Italian sovereign debt and in August on the French bond market, while maintaining the balance of an ever-prudent fund management strategy. What was the year like for you as Managing Director Finances of the Covéa Group? Both calm and difficult. The persistent very low interest rates cause anomalies and complicate financial management. They are notably at the origin of the surge in property purchases due to excess liquidity seeking investment and ready to be placed in asset classes at inflated prices or at rates which no longer offer sufficient payback for the risk taken. However, we perform asset management backed by insurance products... This situation is reflected in property and casualty insurance (IARD) by a lower contribution to pricing and in life insurance by rates paid which remain competitive, albeit low, thanks to optimum management by the Covéa Finance teams. What impacts has the reorganisation of the Covéa Group had on Covéa Finance? The reorganisation, and notably the creation at the end of 2012 of our structure Covéa Coopérations, only had very limited impact on Covéa Finance. This is quite simply because the Group s General Finance Direction had already been operating on a cross-business line basis since However, we took advantage of the initiative to overhaul the data retrieval process used by the three Financial Strategy Directors: they will remain the main contacts of Covéa Finance (one per brand), but from March 2014 will produce identical documents. What is your view of the results of Covéa Finance? The results are good, even though they remain heavily dependent on the inflows from insurance companies belonging to the Covéa Group, which has not yet recovered its pre-2009 level. That being said, as Covéa Finance s figures are based on assets under management at market value, increases in this area were favourable and pushed up turnover. But Covéa Finance has another major card up its sleeve. The company has in fact succeeded year after year in demonstrating a remarkable ability to control its running costs while maintaining its high level of expertise by developing its information systems and maintaining strict security and control requirements. How are you approaching 2014? The same experts who predicted the worst for 2013 have now become In 2013, Covéa Finance once again fully met the forecasting requirements of the Covéa Group, putting forward a scenario in its EFO in the spring which was confirmed in the autumn. die-hard optimists. Even though the US recovery gave the system fresh impetus, we must not forget that some countries, foremost among them France, have not taken the necessary structural measures to take full advantage when the time comes. The balance is fragile and no one can predict the long-term impact on many economies of central banks removing the drip. In the meantime, abundant liquidity remains, with the associated risks. We therefore have to remain vigilant and circumspect, now more than ever

9 COVÉA FINANCE / 2013 REVIEW 2013 Highlights COVÉA FINANCE BECOMES ADMINISTRATOR OF THE AFG RECEIPT OF FUND MANAGEMENT COMPANY PASSPORTS IN GERMANY, SPAIN AND ITALY COVÉA FINANCE WINS TWO EUROPEAN AWARDS CREATION OF THE MICROECONOMIC RESEARCH UNIT COMPLETION OF THE RESTRUCTURING OF THE COVÉA FINANCE PRODUCT RANGE Active for many years in the works of the AFG, the French financial managers association, in June 2013 Covéa Finance also became a member of its Board of Directors. This is a means of gaining access from the outset to draft amendments to regulatory texts in order to be able to play an active role in their preparation, but also to anticipate more effectively their impact on the company. It is also a means of giving the other directors the necessarily different point of view of an insurance company s captive fund management company, and one which is also a mutual insurer. To be able to service new customers based in Germany, Spain and Italy, in 2013 Covéa Finance started a process of extending its accreditations. The first stage of this process was achieved last October with receipt from the AMF of the so called «out» passport, which now enables the company to operate in the three countries concerned. In 2014 this will be continued with the preparation of applications for passports on a product-by-product and countryby-country basis. A double award for Covéa Finance in February The company was awarded the Trophy for the Best French Asset Manager in the 26 to 40 funds category as rated over four years by Fundclass, and the Trophy for the Best European Asset Manager in the 26 to 40 funds category as rated over seven years by Fundclass. This award rewards the consistency of the performance of Covéa Finance in times of crisis in addition to the relevance of its fund management process based on cooperation. To enable the fund management teams to better manage risk to which companies are exposed: this is the mission of the new unit created in 2013 in the Covéa Finance Research Department. By taking another look at companies which comprise the core of the portfolio, the Microeconomic Research team provides Fund Managers with new and fundamental information to better understand the long-term potential of the companies analysed. Added value exclusive to Covéa Finance. The multi-year project to harmonise the Covéa Finance range of funds was completed in In total, 24 mergers took place. All mutual funds were renamed and numbers reduced from 90 in May 2010 to 56 at the end of Covéa Finance Awards EUROPEAN FUNDS TROPHY 2013 EUROPEAN FUNDS TROPHY 3 BEST FRENCH ASSET MANAGER TROPHY in the 26 to 40 funds category as rated over 4 years by FundClass. FUNDCLASS SPECIAL TROPHY in the 26 to 40 funds category as rated over 7 years by Fundclass. 17 TH VICTOIRES DES SICAV LA TRIBUNE EUROPERFORMANCE 17 es victoires dessicav 2013 INSURANCE COMPANY AWARDS LIPPER FUND AWARDS 2013 Award received for Covéa Multi Immobilier A for its performance levels over 10 years

10 COVÉA FINANCE / GOVERNANCE From left to right: Ghislaine Bailly, Franck Ibalot, Yannick Tatibouët, Hélène Dyé and Ludovic Jacquier A shared structure for audit and reporting systems COMPOSITION OF THE EXECUTIVE COMMITTEE Chairwoman Ghislaine Bailly Executive Officers Hélène Dyé Yannick Tatibouët Head of General Secretary Direction and Compliance Officer Ludovic Jacquier Head of Administration and Risk Management Direction Franck Ibalot COMPOSITION OF THE SUPERVISORY BOARD AT 31/12/2013 Chairman Jean-Jacques Vouhé Vice Chairman GMF VIE: Didier Ledeur Members of the board Covéa SGAM: Sophie Beuvaden Covéa Risks: Philippe Narzul GMF Assurances: Patrice Forget MAAF Assurances: Joaquim Pinheiro MAAF Assurances SA: Dominique Chevillon MAAF VIE: Lionel Calvez Assistance Protection Juridique: Olivier Le Borgne MMA IARD SA: Hervé Frapsauce MMA VIE SA: Geoffroy Brossier La Sauvegarde: Laurent Tollié In 2013 Covéa Finance continued its reorganisation process. Objective: to deal with the new challenges posed by the company s growth, but also to adapt to the new structure of the Covéa Group. Anticipation of the AIFM and EMIR Directives was also one of the key focal points of the year, alongside the process of gaining more accreditations. The creation at the end of 2012 of Covéa Coopérations, a structure in which each of the three mutual insurance companies of the Covéa Group (MAAF, MMA and GMF) is an equal shareholder, required redefinition of intra-group structures which continued throughout From June 2013, cross-divisional directions covering all the different business lines were put in place at Covéa Group level, with the aim of reinforcing the collaboration between the operational directions and to promote cooperation between the brands. This approach logically resulted in the creation of a new Supervisory Board for Covéa Finance, within which all the Group entities business lines are represented. This is able to provide guidance more in step with operational issues faced by both the insurance companies (P&C and Life, our clients) and by ourselves. This restructuring also enables us to more easily discuss our business and regulatory constraints, states Ludovic Jacquier, Head of Secretary General Direction and Compliance & Internal Control Officer (RCCI). Reorganisation of the Group s supervisory bodies In view of the implementation of the European Solvency II Directive, the Covéa Group s supervisory bodies have been restructured with the creation of a Covéa General Control and Risk Management Direction and the separation of three business lines: Internal Audit, Internal Control and Solvency II. Within this framework, in 2013 the Group adopted a common audit and organisation charter for audit and reporting systems with the creation of a Group Audit Committee responsible for tasks such as follow-up of all audit recommendations covering all the companies, including Covéa Finance. Beyond this scope, the auditing of investments has also been improved under the aegis of the Group s Financial Strategy Directors (FSDs), notably with the launch of a major project designed to harmonise the demands of the FSDs in terms of reporting and audit tools. A Financial Coordination Committee composed of FSDs, Executive Committee members of Covéa Finance and Sophie Beuvaden, the Managing Director Finances of the Covéa Group, was established to cooperate on key matters such as systems, reporting and even the audit scope of investment strategies. Finally, two other bodies continued their work: the Supervisory Board, the composition of which was revised, and the Remuneration Committee. Significant accreditation changes Fund management companies accreditation requirements are subject to change in response to developments both within the company itself and in its environment, particularly the regulatory environment. In 2013 Covéa Finance first of all continued to extend its investment scope by completing steps allowing it to operate in Asian markets: today the company can operate in all Asian countries, in both direct management and in multi-management mode. A necessary change in order to be able to process our orders in major centres such as Hong Kong, Seoul and Singapore, to mention just a few, states Ludovic Jacquier. At the same time, Covéa Finance sought to extend its accreditations in order to be able to serve customers based in Germany, Spain and Italy. These passports, obtained in October 2013, now enable us to manage under mandate on behalf of institutional customers the assets of companies which keep their accounts in these 18 19

11 COVÉA FINANCE / GOVERNANCE The need to manage risks continues to be a matter of fundamental conviction for the company. three countries, in addition to Benelux and the United Kingdom. This approach was combined with studies into the possibility of marketing and selling UCITS in these markets and is currently being pursued through the application for marketing authorisations, adds Ludovic Jacquier. These accreditation applications and the associated vigilance issues gave the company the opportunity to describe its management process and to redesign its operating procedures in terms of risk management and customer relationship management. This is a welcome clarification in view of the future AIFM Directive, on which Covéa Finance has based its activities, with in particular the establishment in late 2012 of a Risk Committee, well ahead of the mandatory deadline of July As for the investment process, this was also re-examined, both internally and in its interactions with the FSDs, before then being submitted to the Autorité des Marchés Financiers. Anticipation: second nature to Covéa Finance At Covéa Finance, the ability to anticipate is second nature. Where future regulatory changes have required numerous investment companies to undergo a more or less fundamental reorganisation, the company has shown itself to be ten years ahead of the game, as the creation of a function dedicated to risk management to become mandatory in July 2014 under the Alternative Investment Fund Managers (AIFM) Directive dates back to 2004 for Covéa Finance. Beyond regulatory requirements, the need to manage risks continues to be a matter of fundamental conviction for the company, which accordingly implements a policy of continuous improvement in the area and encourages maximum cooperation between all its units on this most vital of issues. We are also ahead in a second aspect of the future Directive which aims to harmonise the rules for the return of assets by a custodian. In this regard since 2007, at Covéa Finance we have been taking measures enabling us to carefully select our custodians and sub-custodians, says Ludovic Jacquier. Finally, a third and final key point of the future Directive for which the company has already established strict rules: the remuneration of the fund management teams, which since 2003 has been the subject of a single dedicated regulation notably incorporating indexing based on both results and qualitative criteria and includes a cap. This is a way of making Fund Managers accountable by forcing them to take account of the impact of their decisions on all of the company s portfolios and their potential impact on the saver. EMIR and AIFM, two Directives requiring adaptation Regulation will be even more demanding in 2014, with the coming into force of two European Directives which have required preparatory work throughout First of all EMIR (European Market Infrastructure Regulation), which aims to introduce greater transparency and better management of risk on the derivatives and over-the-counter products market. The Directive notably includes the introduction of Legal Entity Identification in order to guarantee improved transaction traceability. To prepare ourselves for this, we carried out an important project which led us to review the legal agreements with our financial intermediaries and the framework agreements for all derivative products in order to define reporting procedures, adds Ludovic Jacquier. The second key challenge is the future AIFM Directive designed to guarantee a harmonised framework for alternative Fund Managers of UCITS IV funds called AIFs in Europe, while enhancing the protection of investors and savers. The Directive imposes more onerous obligations in terms of risk reporting, remuneration of Fund Managers and return of assets: three points already taken into account for many years by Covéa Finance, as mentioned above, and which have therefore been adapted to fall in line with the requirements yet without resulting in major upheaval as the company has been able to anticipate these problems well in advance. Covéa Finance, new administrator of the AFG, the French Fund Managers association For many years, Covéa Finance has participated actively in the work of the AFG. Since June 2013, the company has also been a member of the Board of Directors of the AFG in the persons of its Chairwoman, Ghislaine Bailly, and its Secretary General, Ludovic Jacquier. Within this framework, Covéa Finance enjoys advance access to draft regulatory changes and is therefore able to take up relevant positions on AFG working groups. Objective: to be capable of playing a role in future changes and also to more effectively anticipate impact on the company s structure and business. The only representative on the Board of a captive fund management company of an insurer, and moreover a mutual insurer, Covéa Finance wishes to give the other directors a fresh point of view, one which is necessarily different and complementary to that of the other members as entrepreneurial companies, venture capital companies and banking subsidiaries

12 COVÉA FINANCE Managing risks: securitisation and dialogue between teams Anticipating risks to control them and the ability to adapt strategy in an everchanging environment: this dual focus of Covéa Finance defines the work of all of its teams. In 2013, a major project to identify risks was carried out, the result of in-depth interaction and collaboration between all of the company s teams

13 COVÉA FINANCE / ECONOMIC RESEARCH DEPARTMENT Fundamental analysis supporting Fund Managers Thomas Foicik and Jennifer Dulac For over ten years, Covéa Finance has had an integrated research team which enables it to free itself of patterns and trends in the interests of completely independent decision making. This department was further strengthened in 2013 with the creation of a Microeconomic Research Unit. For over ten years, Covéa Finance has had an integrated Economic Research Department. The company s performance owes a lot to the close collaboration between its Fund Managers and those responsible for economic studies. This unique interaction is one of the special characteristics of Covéa Finance, which has been understood by shareholder clients since 2003, by giving the company the means to develop this department which works on issues provided by the fund management teams. Meetings, the production of studies, bespoke research: in support of Fund Managers, the research collects, analyses and returns the key elements which will enable them to make their decisions under optimum conditions. Our integrated research also enables us to unearth certain niches which are rarely covered by the market but which are of vital importance for a long-term investor such as Covéa Finance, explains Hélène Dyé, Head of Fixed Income and Research Direction. Relevant, accurate, unbiased data The first cornerstone of this department, Macroeconomic Research has been in existence since Faced with the expansion of operational areas and increased risks, this team grew from three to four people in 2013, enabling us to develop highly specialised work on Spain and Italy and to improve our knowledge of these countries. Macroeconomic Research works on presenting us with raw and directly usable data without embellishment or bias. It is capable of achieving an exceptional level of detail on extremely varied subjects, whether fundamental issues such as employment in France or in-depth studies on individual countries, adds Hélène Dyé. Since 2006, the year of the merger with MAAF Gestion which possessed this expertise, Covéa Finance has also been able to count on so-called quantitative research. Its role? To be a tool box for three fund management departments (Fixed Income, Equities and Multi-management). For Fixed Income, Quantitative Research looks at distortions to our insurance companies portfolios using instruments enabling it to simulate shocks. We use the efficient frontier calculation to see how it is possible to act on a portfolio. Admittedly, this is a purely mathematical exercise, but it is effective, continues Hélène Dyé. For equities, the team works on the definitions of the investment universes. Another working theme for this research unit is analysis of potential investments other than those usually made by Covéa Finance, combining share performance and bond coupon. Microeconomic Research is organised In accordance with the dual approach of risk management and independent analysis, in 2013 Covéa Finance gave its Research Department a new unit dedicated to microeconomic studies. With the company s strong growth, in a short amount of time we have changed scale and the expectations of the Finance Direction of the Covéa Group have changed simultaneously. As such, Microeconomic Research is a key contributor involved in the analytical process for selecting asset allocations. It enables us to take more controlled risks on companies, while providing a service to the fund managers by giving them fundamental appraisal which complements their own work, explains Hélène Dyé. The year 2013 was an 24 25

14 COVÉA FINANCE / ECONOMIC RESEARCH DEPARTMENT Thanks to Microeconomic Research, we continue to improve the control of risk. year they publish an ever greater volume of information. To analyse this information in depth with a historical dimension, it takes time which the Fund Managers simply do not have. Our work therefore consists of exploiting to the maximum the data provided by the companies, making comparisons, analysing their competitive environment, their strategy, etc. We are here to provide additional information to the Equities and Fixed Income Fund Managers and to help them in their fund management decision-making; however, we do not do the valuations or forecasts and even less make recommendations. The year 2013 was devoted to developing the analysis and data provision methodology, an approach which we are currently continuing, and to the initial company studies. Today the unit has three employees and is dedicated to analysing the accounts of our largest Equities and Fixed Income positions, with complete independence of judgement and closely connected with Macroeconomic Research and our Economic and Financial Outlooks (EFO). incubation period during which the dedicated team developed a method based on the one used by Macroeconomic Research and studying about fifteen case studies, either successes or failures of large corporates. Those responsible for microeconomic studies really immerse themselves in the environment of the company: its history, its accounts over several decades, its business reports, the way it communicates, the language employed by its directors, etc. This results in unique and in-depth analysis combined with a thorough understanding of the corporate culture which, together, constitute an exciting knowledge base. The team s work was also focused on identifying patterns, calculations which it will use as a reference and will be applied to all of the cases studied, says Hélène Dyé. The creation of this method, exclusive to Covéa Finance, was one of the major challenges of this unit during its first year. Close interaction between research and fund management To succeed in this mission, Covéa Finance relies on the expertise of Sylvaine Rodrigues, who has worked as analyst and Fund Manager in the company for many years. The experience we have in macroeconomic research has saved us valuable time, particularly in terms of data processing. But Microeconomic Research will also work in tandem with Macroeconomic Research, in order to place each company study in its context, according to a database of indicators which is currently being created, comments Hélène Dyé. The team delivers the results of its work through two dedicated forums with the Fund Managers. The first takes the form of presentations of about thirty minutes during fund management meetings where all the Fund Managers are present. The second is intended for the employees more specifically concerned, namely the opposite numbers for fixed income/ equity responsible for the asset sector and offers them a two-hour presentation in the finest of documented detail. The specialist Fund Managers of particular securities are very familiar with them but do not, in performing their job, have the time to take as much perspective as the Microeconomic Research team. However, Covéa Finance is a long-term investor! If we decide to finance a company, it is because it has a multi-year industrial project. Hence the importance of a fresh angle provided by Microeconomic Research, and the Fund Managers understood this immediately, adds Hélène Dyé. NB: Although this is a valuable source of information, Covéa Finance Research department does not have, and has never had, the responsibility for making decisions: it is always the Fund Manager who decides, based on the data presented. With this new approach, Fund Managers considerably reduce risk-taking thanks to the now much more exhaustive knowledge of the stock in question. Joint interview Sylvaine Rodrigues, Head of the Microeconomic Research Unit Dominique Pouliquen, European Equities Mandate Fund Manager Why a dedicated Microeconomic Research Unit? Sylvaine Rodrigues: Its creation is the result of several years of strategic analysis by the Covéa Finance Executive Committee in a context of major changes, both as regards the size of our fund management company and the new economic and financial challenges, particularly those associated with globalisation. The corporates in which we invest are in fact becoming increasingly complex and each What is the added value of Microeconomic Research for the Fund Managers? Dominique Pouliquen: Its contribution is complementary to our work. Indeed, we focus on the perspectives of companies in order to estimate the valuation potential, whereas Microeconomic Research highlights both the successes and the failures of companies following their strategic decisions. This enables us to better understand the strategies implemented and above all to validate their relevance. The independence of Microeconomic Research internally is a guarantee of quality, as the team only bases its work on concrete facts, and not on external analyses. Its first presentations of 2013 taught us a lot about the strategies of companies in which we have invested, thus confirming our decisions. How are the studies presented to the Fund Managers? D. P.: Depending on the particular case, we benefit from more or less detailed presentations of the studies carried out by the team within the framework of fund management committees and dedicated meetings. S.R.: Information sharing is based in fact around three major steps: a summary presentation meeting, bringing together all the Fund Managers during one of their committees, a more in-depth meeting in a smaller committee with the specialist asset Analyst Manager, and finally the distribution to everyone of a complete and detailed study incorporating all of our work

15 COVÉA FINANCE / FINANCE AND LEGAL DEPARTMENT Specialist legal functions by area Ana-Maria Gimoiu, Jean-Philippe Rougier, Nadia Ben Salah, Valérie Sandra and Jonathan Vétillard The increased demands of the regulatory environment and the context of a risk of failure of financial companies make the analysis of legal risks increasingly crucial for a fund management company. Hence the reorganisation carried out in 2013 within the Covéa Finance Legal Unit. Meeting regulatory requirements while optimising the understanding of the market s legal risks: these were the two challenges identified by Covéa Finance, which led to the reorganisation of the company s Legal Unit. With the growing standardisation of the business, the fragmentation and internationalisation of market structures, which have led to a sharp increase in applicable legislation, we had to organise our skills differently in order to understand increasingly complex legal risks, explains Nadia Ben Salah, Head of the Legal Unit. Reorganisation by Specialisation In order to manage risks, the legal functions were therefore specialised by area in There are five Legal Managers who are now divided into two areas of expertise. The first is dedicated to the so-called off-market part and deals with the life of products (product redesigns, marketing, accreditation applications, etc.) and the life of the fund management company (contracts, investment agreements, etc.). The second is dedicated to the markets: its role is to implement the project for analysing the legal risks of a portfolio (see below) and it is also responsible for providing information to the Fund Managers. It works in close collaboration with the Analyst Fund Managers, adds Nadia Ben Salah. Finally, in order to be present from the outset of the preparatory works for implementation of European regulations, Legal unit is involved throughout the year on the committees of the AFG, the French association of financial managers. This enables us to alert the AFG about the possible impact of changing standards and to participate in the dialogue with the supervisory authorities (AMF, ESMA), but also to be informed in detail about developments in order to effectively raise the awareness of the company and the Fund Managers, says Nadia Ben Salah. Roll-out of a portfolio analysis method The initiative to define legal risks, which started in January 2013, was one of the key projects of the year for the market Legal Managers. It is rolled out transversally at the level of the different categories of instruments present in a portfolio (equities, bonds, mutual funds and transactions on derivative contracts), then at the level of the identification of the risks generated by third parties (brokers, counterparties, custodians). This important analytical work has notably resulted in the implementation of portfolio reporting by types of legal risk. At the same time, the team is involved in the continuation of the Octopus project, which aims to create a central reference system where all of the company s asset reference data is stored. Within this framework, and to encourage the convergence between the different business lines of Covéa Finance, a common vocabulary had to be agreed on. We also sought to determine indicators enabling us to access the characteristics of the securities within the reference framework, explains Jonathan Vétillard, Legal Manager. This work was carried out in close collaboration with the IT Department, which took the form of discussions and workshops, and led us to systematically incorporate a legal dimension into the next stages of the Octopus project, says Clément Darrieu, Head of the IT Project Unit. This process of homogenising data was already covered by the sections dedicated to currencies, timetables and indexes in 2012, then third parties and fixed income in The rest of the programme will concern a variety of elements including equities, mutual funds and transactions on securities

16 COVÉA FINANCE / MANAGEMENT CONTROL Analytical accounting supporting the management of the company 60% COST TO INCOME RATIO Daniel Robineau Through analytical accounting and the numerous monthly indicators put together, management control provides the Covéa Finance Executive Committee with a clear picture of the evolution of the company throughout the year. Analytical accounting is a method of processing data emanating from general accounts which is used to identify and value the elements contributing towards the overall results. Within this framework, all proceeds generated by the company (in the accounting sense of the term) are placed against its costs (direct and indirect) which enabled them to be produced. This method enables the company to have a better understanding of the profitability of the business from a variety of viewpoints and therefore to present relevant information. To this end, analytical accounting is a key management tool for the company, explains Daniel Robineau, Head of the Finance and Legal Department. At Covéa Finance, based on the two main client typologies (mutual funds and mandates), each client is therefore associated with its related costs. The aim is to break down the operating result by client typology according to the conditions selected by the Executive Committee, which then uses the data to take the necessary decisions for the smooth running of the company, adds Daniel Robineau. Monthly performance indicators to monitor the business The Management Control team, which actively participates in preparing the financial statements, also provides monthly business indicators. These include data relating to assets which are broken down by client typology (mutual funds or mandates) or by type of product (equities or fixed income). To this data, which is also crossed-checked (weighting of equities in mandates for example), is associated the operating proceeds. We also analyse the change in asset values which is impacted bothby the volume of the inflows and by the change in the markets. We also closely monitor the different components of the income statement, in terms of both income and expenditure. Our objective is, here also, to provide the Executive Committee with information enabling it to monitor the most relevant indicators and the evolution of earnings in order to continually be able to verify that everything is in line with the budget prepared in the previous year, states Daniel Robineau. Positioning in relation to other players Since its creation in 2009, Covéa Finance has participated in the AFG (French financial management association) working group examining the profitability of fund management companies. Within the context of this work some twenty (1) fund management companies, investment bank and insurance subsidiaries provide each year a certain amount of information and indicators which are compiled by the AFG in complete confidentiality. Even though it is difficult to compare them as each company has its own specific features (at Covéa Finance for example the clients are also the shareholders), the data provided by the AFG each provides an insight into the major trends and makes it possible to position the company in relation to other fund management companies in terms of a variety of indicators, says Daniel Robineau. For three years, Covéa Finance has been in the low average in terms of pricing, for both mandates and mutual funds. The company also reported the lowest cost-to-income ratio (2) of the sample of companies, a ratio which has been steadily declining since the merger with MMA Finance in 2010 due to the pooling of costs. (1) 17 companies in 2012, representing 75% of the market. (2) Ratio of operating costs against proceeds

17 COVÉA FINANCE / SECURITIES-CHAIN Valérie Massé, Mélanie Aillard and Mickaël Rodriguez Valérie Sandra, Sabine de Lépinay and Isabelle Guenard The restructuring of the Securities- Chain continues In 2013, the Covéa Finance Back Office functions moved towards a more specialised structure with dedicated employees for each brand. At the same time, the Securities-Chain Department overhauled its panel of valuers in order to enhance security and effectiveness. Reorganisation of the Back Office Initiated at the end of 2011, the modernisation plan of the Covéa Finance Securities-Chain (Middle Office, Back Office and Reference Framework) achieved new milestones in Having inventorised Back Office tasks in 2012 in order to identify productivity gains and therefore increase the time dedicated to controls and audits, several options were analysed in order to optimise the organisation of work within the teams. At the start of 2013 we decided to abandon the multi-brand approach, in which each employee was responsible for the administration and accounting from A to Z of a combination of MAAF, MMA and GMF portfolios, explains Valérie Massé, Head of Back Office Unit. In this new set-up, responsibilities are grouped together by brand, with three dedicated teams. Each group is now comprised of employees working exclusively for one brand. This organisation enables the employees to have a better understanding of the particularities of the brand and therefore to improve the quality of customer service, adds Valérie Massé. A fourth group was further tasked with carrying out all cross-functional activities of the Back Office and with monitoring the non-insurance portfolios. Each of these groups has an expert responsible for their brand for monitoring and securing production, controls and for resolving incidents and technical problems. Since its creation, this new organisation has already proven its effectiveness. As far as the brands are concerned, it provides greater organisational transparency and favours the creation of special relationships while guaranteeing enhanced responsiveness of Covéa Finance employees. Internally it helps to improve the quality of work, to free up more time for controls and audits, to increase productivity and to guarantee a consistent quality of service. A process of valuer migration In an increasingly competitive environment, Covéa Finance strives to remain as responsive as possible but also to benefit from the technological advances of service providers, notably with a view to adding value to its fund management teams and, by extension, to its clients. Accordingly and in order to improve the quality of service, but also to harmonise processing and the flow of information, in 2013 the company overhauled its valuation services. We have been used to working with three valuers and we wanted to reduce this number to two, for greater efficiency. This migration has enabled us to formalise monitoring indicators in terms of production, but also in terms of quality. It has also made it possible to increase automation rates and provide instant transmission of transactions to the valuer and to the custodian, freeing up time for Securities-Chain employees for tasks with higher added value. At the same time, we have strengthened the supervision and reporting of our valuation policy in the interests of risk management. And finally, it has enabled us for half of the funds concerned to calculate net asset values more quickly, explains Franck Ibalot, Head of Administration and Risk Management Direction. This migration project, launched in early June, was completed in record time at the end of 2013 thanks to the involvement of numerous company teams, especially the Fund Managers. The choice between one person or another is therefore not made so much on the ability to value the mutual funds as on the quality of the additional service, and must be arrived at with the agreement of the support departments in order to be assured of the fluidity of the circuit, explains Sabine de Lépinay, Head of Fixed Income Mutual Fund Unit. The process of deciding on a single valuer for our Equities funds is an integral part of our wish to constantly improve our procedures and working methods, adds Isabelle Guenard, Head of European Equities Mutual Fund Unit. As for Valérie Sandra, a Legal Manager, she stresses the need for the valuer to be able to adapt to a constantly changing regulatory environment and to offer monitoring from the outset, with active involvement in investment working groups and even making available effective tools for monitoring the production of regulatory reports

18 COVÉA FINANCE / RISKS CHAIN Guaranteeing long-term performance In order to anticipate the risks at all levels of the value chain, since 2012 Covéa Finance has been implementing a cross-functional identification initiative involving all of the company s departments. Because everyone has a role to play in this major project. The Covéa Finance value chain is created from the contributions of the various business lines of the fund management company to the valuation of client portfolios: Data Data providers Data providers Data providers Links Links to Links to to Links to the financial the the financial markets the markets financial markets Custodians Custodians AMF AMF AMF AMF Controlling risks: Covéa Finance has made this objective a priority which has been the focus of activities for several years now using an original approach, as the company decided to start with its portfolio to identify all the risks generated, both directly and indirectly. Today risks generated by portfolio management are of many types: shareholder risks, risks related to the creditor, risks related to the data provider, etc. Covéa Finance must have a comprehensive understanding of such risks and implement effective control tools. Today our environment has changed and fund management is no longer solely focused on performance: risk must also be managed. Covéa Finance therefore has to adapt to incorporate the notion of risk, yet without losing its soul. Our challenge? To guarantee long-term performance at a given risk while being ready to accept the return from the associated risk. This changes the perspective and now our investment blueprint is based on the notion of risk and no longer on seeking performance alone, explains Ghislaine Bailly, Chairwoman of Covéa Finance. 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19 COVÉA FINANCE / RISKS CHAIN Covéa Finance selects a new index data provider Our performance management rationale is today necessarily combined with a risk management rationale. The company has therefore set about identifying all its risks and examining them one by one, from each and every angle: Where do they come from? How? Who controls them? How is information fed into the system? To whom? Each unit has analysed these issues in order to construct a risk chain which eventually will be shared by everyone in the company. Henri Pujoulet, Soufiane Jaouani, Tristan Quatre and Sébastien Desbois A multi-year project The risk identification process partly results from changes to the asset management business. Today it is crucial for the company to know its risk areas in order to optimise its operating conditions. In 2012 it focused its objectives on anticipation and on the ability to take decisions, and its 2013 risk management objective is a continuation of this work. This is a multi-year project which started in 2013 with a highly methodological process of identification. Each Covéa Finance team therefore listed its risks and classified them into three categories: cross-functional risks, portfolio risks and business line risks. These lists enabled everyone to take a step back and consider their business from a new angle. This project will of course continue in 2014 with analysis of how to optimise risk monitoring and elimination. Securing mandates, act one A perfect example of this cross-functional risk identification work is the collaboration between the Fund Managers and internal control on securing mandates. We already had a joint approach, but it was not fully formalised. The project has given us the opportunity to structure it and to improve our methods of communication, says Sébastien Desbois, Head of Compliance and Permanent Internal Control Unit. Against this background the Fund Managers therefore presented the two types of constraints they face, which are of the regulatory or fund management type. While the regulatory constraints were already incorporated within our systems, the challenge was to reflect together on the best way of incorporating the fund management constraints in order to be able to generate necessary alerts, particularly when transmitting orders, which enable us to remain in line with In 2013, Covéa Finance decided to select a new index service provider, with four progress objectives. First of all, to improve the quality of the data, with contractual quality controls performed by the provider. Secondly, to avoid manual reprocessing at Covéa Finance, which represents both a risk of error and an additional work load for the teams concerned. Thirdly, to have additional data not produced by the previous provider. Fourthly and finally, to rationalise the import flows, of which there were four, and limit the file formats. Performed in two stages, between May and September 2013, this change has a three-fold benefit for fund management. First of all, it guarantees better management of the data, but also more responsiveness in the production of performance reports, where half a day was required previously to carry out the controls and make the essential corrections. Finally, it enables new performance attribution reports to be developed for some fixed income portfolios

20 COVÉA FINANCE / RISKS CHAIN Henri Pujoulet, Soufiane Jaouani, Tristan Quatre and Sébastien Desbois the recommendations of the clients. Indeed, depending on the circumstances, some ask us to avoid one asset class or another altogether or not to exceed certain amounts of currencies, namely a wide variety of instructions which also constitute constraints to be taken into account, adds Tristan Quatre, Head of European Equities Department. The key is greater peace of mind for the Fund Manager: with the transmission of orders being more secure, Fund Managers have more time to devote to tasks with higher added value. This partnership between the two units is likely to continue well beyond the identification process, which is only the first step. Our constraints change and new problems may arise day by day which require the implementation of monitoring and alert tools. Thanks to the regular meetings we now have with Internal Control, we have the assurance of making progress in line with these changes, says Tristan Quatre. Apart from the two units mentioned, such a project obviously concerns other company functions, foremost among which is IT in the widest sense. It is our responsibility to put together a precise brief with fund management s requirements, then consult the IT Project and IT Integration teams in order work out how to introduce the necessary control tools. This is done both in reactive mode, once a specific problem has been detected, but also now in proactive mode, thanks to the quality of dialogue we have with the Fund Managers, says Sébastien Desbois. Enhanced cooperation between internal control and risk management The risk management project also enhanced the already fruitful collaboration between Internal Control and Risk Management within Covéa Finance. In support of the approach, we benefit from the strong commitment made in this area by the Executive Committee. This is the cornerstone of our desire to establish a risk culture, a way of thinking where monitoring is not perceived as a constraint but rather as a differentiating factor, states Soufiane Jaouani, Performance and Risk Studies Manager. Risk Management identified the risks by type (market risks, counterparty risks, liquidity risks, regulatory risks, etc.) before considering the most relevant recommendations to optimise management of the risks. The inventory of risks that we have been working on since 2012 is constantly updated by Internal Control in collaboration with all of the company s departments. For each catalogued control there is now an operating mode which describes the procedure to be followed and lists the persons concerned, whether they are operational or part of our control teams, adds Sébastien Desbois. To be as exhaustive as possible, Risk Management carry out analysis during twice-weekly meetings. Employees from the two units, Internal Control and Risk Management, have also undergone an immersion course in fund management, within the framework of the Covéa Finance Internal University. This course immerses us over several days in the daily lives of Fund Managers, thereby giving us a better understanding of their environment and the many areas of risk in the investment process. We are therefore better equipped to implement relevant controls and have collated quality material to put before our quarterly Risk Committee meetings, says Soufiane Jaouani. Among the other problems which guided the work of the teams in 2013, the anticipation of the EMIR and AIFM Directives figured prominently and led to the implementation of control procedures which will enable us to be in compliance when the texts come into force in 2014, explains Sébastien Desbois. The objectives of risk management and effective communication, central in 2013, will remain so for the next two years as the Executive Committee has set late 2016 as the deadline for completion, with annual interim stages which will enable it to validate progress. Among the next milestones of our project, we are planning to adapt the risk catalogue which will enable us to specify the scope of the controls concerned in order to distinguish between controls performed on mandates, mutual funds and those on the fund management company. Objective: To highlight the disparity of the work carried out on mandates and on mutual funds, explains Sébastien Desbois. The Internal Control and Risk Management units will therefore continue to develop strong synergies, particularly via joint work on key topics, such as the AMF/ESMA Directives or the monitoring of risks associated with ETFs, but also on substantial issues such as regulatory and technical watch and the preparation of Risk Committee meetings

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