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First Eagle Amundi International AE-C

Analyst Report
Morningstar's Take
|22/11/2016

by Thomas Lancereau, CFA
*  This rating and report were issued for a different share class of this fund. The performance and fee structure of this class may vary from that referenced.
On July 3, 2017, seven months after having entered into a binding agreement for the purchase of Pioneer Investments from Unicredit, Amundi announced that the acquisition has been completed. This marks the beginning of an integration phase, which the group expects to take place during the next two years, with the stated aim of realizing EUR 150 million in cost synergies.

In the context of the merger, Pioneer Investments CEO and CIO Giordano Lombardo is leaving the firm, and Amundi's CEO Yves Perrier will retain leadership of the group. In its preclosing statement published on June 22, 2017, Amundi announced a new organizational structure with two divisions: one dedicated to retail clients (with approximately EUR 450 billion in assets under management) and the other to corporate and institutional clients (with EUR 860 billion), managed by Fathi Jerfel and Dominique Carrel-Billiard, respectively.

For its US operations, Amundi is combining Pioneer Investment Management USA Inc. with its existing subsidiary Amundi Smith Breeden, under a new entity, Amundi Pioneer Asset Management. Lisa Jones, previously president and CEO of Pioneer Investment Management USA Inc., will serve as chairman, president, and CEO of Amundi Pioneer.

The group's investment staff will be organized in five platforms, led by a mix of former Amundi and Pioneer senior individuals:

- Fixed income, led by Amundi's current head of fixed income Eric Brard.

- Equities, jointly headed by Romain Boscher and Diego Franzin, who previously led Amundi and Pioneer's equity teams.

- Emerging markets, including equities and fixed income, led by Pioneer's head of emerging markets Mauro Ratto.

- Multiasset, under Pioneer's former head of Multiasset investments Matteo Germano

- US, led by Kenneth Taubes, previously CIO US for Pioneer Investments, currently CIO of Amundi Pioneer Asset Management.

Upon first announcing its plans to acquire Pioneer in late 2016, Amundi had indicated it would seek to identify key areas of retention and growth within Pioneer's range and expertise, more specifically in multiasset, US equity, US fixed income, and European equity. The new organization, which combines key members of Amundi and Pioneer's current investment teams, is thus in line with expectations and should allow for some continuity in the existing investment processes. Since the merger was announced, there has been only one notable departure (Pioneer's former CEO and CIO Lombardo). However, Amundi has explicitly said that it expects staff redundancies (estimated at slightly less than 10% of the combined workforce) during the integration period. As of the date of this note, detailed organizational charts for each platform had not been made public. We will thus continue to monitor the investment staff (including portfolio managers and analysts) for any signs of instability going forward. We will also meet with the group's senior executives in due course to discuss the new organizational structure and will update our take as needed in the coming months.

Ownership changes at First Eagle, the firm subadvising this fund’s management, and capacity questions have added to our long-standing reservation on its fee structure, and have eroded our conviction.

It has been an eventful year for First Eagle. Its founding family is now a minority shareholder, as private equity firms Blackstone and Corsair combined to buy 58% of the firm. Meanwhile, Bridget Macaskill, CEO since 2010, was replaced in March 2016 by former Jennison Associates CEO Mehdi Mahmud. Finally, on Sept. 21, 2015, the SEC announced that the fund’s advisor will pay nearly $40 million to settle charges that the firm improperly used mutual fund assets to pay for the marketing and distribution of fund shares. Thus, First Eagle’s Parent rating was lowered to Neutral.

Veteran manager Abhay Deshpande--the team’s strongest link to its past under longtime skipper Jean-Marie Eveillard--left in October 2014, but the current team is deep and experienced. Managers Matt McLennan and Kimball Brooker Jr. have worked on the team for roughly eight years, and a 15-person analyst team supports them. Eight of the analysts have served here since at least 2009. Furthermore, the team has maintained the disciplined, valuation-conscious strategy it has employed with great success for decades. The managers focus on companies with sturdy balance sheets selling at a discount to their estimate of intrinsic value, let cash build when opportunities are scarce, and typically own modest stakes in bonds and gold bullion. The success of the strategy has led to strong inflows over time, and ideally, it would close to preserve its flexibility, as it is now more difficult to take significant positions in individual smaller-cap stocks (as it did in the past under Eveillard). This element is adding to our long-standing concerns on the fund’s fee structure. Ongoing charges are not only above average here but also come with a performance fee whose hurdle is linked to Libor rather than to an equity index as one would expect given the portfolio’s positioning. We are downgrading it to a Morningstar Analyst Rating of Neutral.

Morningstar Analyst Rating™
To find out how Morningstar rates a fund click here.
Portfolio RoleThe fund can be used as a core portfolio holding for exposure to global stocks.
Morningstar Pillars
PeoplePositive
Solid and experienced, despite the loss of a veteran manager.
ParentNegative
We think Amundi does not sufficiently align its interests with those of investors.
ProcessPositive
The cautious strategy aims to preserve capital.
PerformancePositive
Solid.
PriceNegative
The fund remains very expensive.
Morningstar Analyst RatingMorningstar evaluates funds based on five key pillars, which it's analysts believe lead to funds that are most likely to outperform over the long term on a risk-adjusted basis.
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