She spent twelve years in Real Estate Finance at BNP Paribas before moving to Axa Real Estate, later Axa Investment Managers, in 2001, where she most recently served as Global Head of Alternative Investments. She has now, in a sense, returned to the BNP Paribas fold following the French bank’s acquisition of the French insurer’s asset management business.

A year ago, Isabelle Scemama was appointed Deputy CEO of BNP Paribas Asset Management, while retaining her role as head of the firm’s entire alternative investments business, known as «BNPP AM Alts».

A few weeks ago, Scemama visited Zurich. finews met her in the lobby of a city-centre hotel to discuss, among other topics, developments in private markets.

Ms Scemama, how do you define alternative investments?

Alternative investments, or alts, encompass everything outside traditional asset classes. Private market investments are part of that universe, but the term «alts» is much broader.

How important are alts within BNP Paribas Asset Management?

BNP Paribas Asset Management manages total assets of around 1.6 trillion euro, of which 300 billion euro is managed by BNPP AM Alts, the platform for alternative investments of BNP Paribas Asset Management. In traditional investments, the trend is shifting from active to passive management, which is placing significant pressure on margins. There is no passive investing in alts. It is a winner-takes-all market, and the winners are the managers capable of consistently generating above-average performance. That, in turn, depends on the ability to be selective, diversify portfolios and, of course, attract talent. Success on all three fronts requires scale. We are the number one alternative investment manager in Europe and the only European firm among the global top ten. Our strengths lie in real estate, alternative credit, infrastructure and private equity. Globally, the private markets sector is dominated by US players.

«There’s no passive investing in the Alts. It is a winner-takes-all market, and the winners are those managers who capable of consistently generating above-average performance.»

Why is there no similar trend towards passive investing in alternative assets, and therefore towards lower margins?

A large part of the alternatives universe consists of illiquid assets. Management styles vary considerably and are difficult to compare, while benchmarks are also lacking.

But hedge fund indices have existed for a long time, have they not?

You are right, but hedge funds are effectively the only alternatives category for which benchmarks and some passive products exist. Hedge funds are often invested in traditional and therefore liquid markets. That does not apply to the vast majority of the alternatives universe.

You have witnessed the evolution of the European asset management industry over the past quarter of a century. There have been many changes in recent years. Will this transformation continue?

Yes, the trend towards consolidation through mergers and acquisitions will continue. In the past, providers were often specialized in a single asset class. Today, scale matters, and firms are expected to offer as broad a product range as possible. The move towards full-service offerings is also linked to the fact that the distinctions between different asset classes are increasingly becoming blurred.

«In the past, providers were specialised in a single asset class. Today, scale matters, and the product range should be as comprehensive as possible»

Can you give an example?

The line between equities and bonds , for instance, is becoming increasingly blurred because there are far more hybrid forms of equity and debt capital than in the past, such as mezzanine financing. Real estate investment has also changed significantly.

In what way?

The market has become much more diverse. It now includes student accommodation, care homes, co-living and logistics real estate, covering everything related to warehouses and distribution centers. Alongside the traditional office and residential property, this has now become an established sector. It is no longer simply a matter of buying and selling. As active investors, we manage and optimize cash flows, often by developing operating companies as well, meaning the businesses that manage the underlying assets. This requires highly experienced teams with an in-depth understanding of the business. This shift towards operational and active management first emerged in the hotel sector and has since spread to many other segments.

«The problems in den US privat credit market were ultimately the result of an oversupply of capital.»

Private credit has come under intense scrutiny since problems emerged in the sector a few months ago. In some cases, investors wanted to withdraw money from investment vehicles but were unable to do so. Are these simply growing pains in a market that has experienced a boom?

The problems mainly concern segments and investment vehicles in the US market, following a period in which very large amounts of capital, particularly from retail investors and wealth management clients, flowed into semi-liquid private credit vehicles. The controversy surrounding the «cockroach» warnings – a reference to Jamie Dimon’s comments on defaults by certain companies, which also appeared on banks’ balance sheets — combined with fears that artificial intelligence could disrupt the software sector, which is heavily represented in the direct lending market, led to substantial redemption requests from these semi-liquid investment vehicles. Ultimately, however, this was the result of an oversupply of capital in the US market. This caused some market participants, including banks and fund managers, to become less disciplined in their due diligence processes and less selective in their investment decisions. Europe did not experience similar excesses.

Are you opposed to retail investors gaining access to alternatives such as private credit?

Of course not, but certain principles must be respected. The most important are selectivity and diversification. Credit is particularly well suited to semi-liquid investment vehicles because loan maturities are generally below five years and interest payments are made quarterly. This means that substantial amounts of capital begin to flow back from the first year onwards, helping to smooth the redemption process. Diversification is important. In our semi-liquid multi-credit strategy, we combine a very broad range of products. We have a track record of more than 20 years and generate returns of over 10 percent.

«Illiquid assets do not suddenly become liquid. For that reason gating is sensible.»

Do retail investors really understand what they have bought? Many were surprised that liquidity, and therefore their ability to withdraw capital, could be restricted.

Those who sell such products to investors are responsible for ensuring that they are properly informed about the associated risks. Regulation is strict in Europe. We are required to categorize clients, and we do not sell every product to every client. The higher the proportion of retail investors, the larger the liquidity buffers must be. These buffers are precisely defined by European regulators. Illiquid assets, however, do not suddenly become liquid. For that reason, so-called gating is fundamentally sensible. Otherwise, in the event of excessive redemptions, the manager could be forced to sell assets at heavily discounted prices.

What happens next in the private credit market?

It is advisable to remain calm, because by no means all software will become obsolete. The environment in Europe is also different from that in the United States, where certain vehicles have extreme exposure to software companies. This has led to numerous cancellations, increased volatility and correspondingly large discounts.

How have your clients responded to the turbulence?

They are satisfied with the performance achieved in recent years, but they have naturally raised questions about the latest developments. It has paid off that, more than 25 years ago, we began diversifying and building expertise beyond our traditional asset management platform in areas such as real estate, direct lending and a broad range of asset-based financing solutions. We also operate in niche areas such as significant risk transfer, meaning transactions that allow banks to optimize the risk of their balance sheets. Today, we are able to combine all these instruments to deliver multi-credit strategies. Even during the most recent turbulence, we were not forced to sell assets. For us, selectivity, due diligence and diversification are the keys to success.