Institutional Investment - May 30, 2011

Inflation is on its way back to becoming a major issue for institutional investors - an interview with Jean-Louis Laurens

In this month's interview, we talk to Jean-Louis Laurens, General Partner & CEO, Rothschild & Cie Gestion, about the first-year research from the EDHEC-Risk Institute research chair supported by Rothschild & Cie, "The Case for Inflation-Linked Corporate Bonds: Issuers' and Investors' Perspectives," and the prospect of the return of inflation in emerging and developed markets.

Jean-Louis Laurens

The first year publication from the Rothschild & Cie research chair at EDHEC-Risk Institute, entitled "Optimal Design of Corporate Market Debt Programmes in the Presence of Interest-Rate and Inflation Risks," was presented recently at a seminar in Paris. Could you tell us something about the results from a practitioner perspective?

Jean-Louis Laurens: The results of the first year of research, although preliminary, are very encouraging. The conclusion that corporations create value in issuing a proportion of inflation linked debt is a major achievement of this research programme and truly opens a new field of corporate finance.

Issuance of inflation-linked bonds by corporations is a relatively new development. Do you think that it will be increasingly common in the future?

Jean-Louis Laurens: For a long period of time, inflation disappeared in developed countries and for many people it has become hard to believe that it will ever come back. However, inflation is indeed a reality today, not only in emerging markets, but also in Europe; the UK in particular. Corporates have since the crisis found it easy to raise debt in the financial markets at very low cost. But this situation is unlikely to continue as interest rates will go up, particularly if inflation becomes a real concern. It is very likely that corporates will then start issuing inflation-linked bonds, which will meet strong demand from investors.

Do you think that corporations are convinced of the usefulness of joint analysis of capital-structure decisions and debt-structure decisions?

Jean-Louis Laurens: I am not convinced that they are fully aware of the connections between the two. I have observed that corporate treasurers tend to focus on reducing the cost of debt, sometimes at the expense of a long-term vision.

How do these research findings fit in with Rothschild & Cie's business strategy in Europe?

Jean-Louis Laurens: Rothschild & Cie group is both a corporate finance advisor and an institutional money manager. These research findings are relevant for our clients on both sides: issuers and institutional investors.

Why did Rothschild & Cie choose to support EDHEC-Risk Institute's research in this area?

Jean-Louis Laurens: Rothschild & Cie is keen to support academic research which has direct implications for its clients and helps us provide them with state of the art advice. We believe that inflation is on its way back to becoming a major issue for institutional investors which manage inflation-sensitive liabilities and corporates which will face increasing financing costs. We are confident that EDHEC-Risk, through this research chair, will help in finding adequate hedging solutions for our clients.

About Jean-Louis Laurens

Jean-Louis Laurens has been General Partner of Rothschild & Cie Gestion and head of their asset management and private banking activities since September 2009. He graduated from the Ecole des Hautes Etudes Commerciales (HEC Paris) and a PhD in economics from the University of Paris XI.

He began his career at Midland Bank/HSBC (Paris - Düsseldorf - New York) and founded the French subsidiary of Samuel Montagu & Co, the merchant banking arm of Midland /HSBC group (1988). After Samuel Montagu, he held various positions at Morgan Stanley SA: Deputy Managing Director in Paris, Executive Director of Morgan Stanley International and Co-Head of Corporate Finance for France.

In 1995, he was appointed CEO of the French operations of Dresdner Kleinwort Benson and as CEO of AVIP, Dresdner Gestion Privée and Dresdner RCM Gestion. Thereafter, he held various positions within AXA Investments Managers (1999-2005): Deputy CEO and Global Head of Sales & Marketing of AXA Investment Managers Group, CEO of AXA Investment Managers France, Benelux, Italy and Spain and Director of AXA France Assurances.

In 2006, he was appointed CEO of Banque Robeco and Robeco Gestions (France) and in December 2008, Head of Investment Management (Mainstream) and Member of Robeco Group’s Management Board.

He is a member of the Supervisory Board of Unibail – Rodamco, the "Comité d’éthique" of the MEDEF and the International Advisory Board of EDHEC-Risk Institute.

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