Asset owners and managers - navigating the new business environment

28 September 2023
| By partnerarticle |
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By Philippe Kerdoncuff, Head of Asset Owners and Asset Managers, Australia & New Zealand, Securities Services business at BNP Paribas.

In today’s dynamic world, asset owners and asset managers are continually having to adapt to changing market conditions. 

A sharper awareness on asset class innovation, refining investment operating models, ongoing reporting and disclosure requirements for ESG investments, plus managing liquidity, are some of the challenges that stand out - and where BNP Paribas can provide experienced support and expertise, transforming the challenge into an opportunity. 

Managing asset class innovation and diversity

Globally asset owners and asset managers are facing increasing investment in digitalisation to keep up with market trends. According to Markets & Markets, the tokenisation market is expected to broaden from $2.3 billion in 2021 to $5.6 billion by the end of 2026, with an average annual growth rate of 19%.1

Custodians are now having to take these assets into consideration and it’s an area that BNP Paribas’s Securities Services business (BNP Paribas) is following closely by experimenting with solutions, participating in new initiatives launched by clients or by some market infrastructures including central banks. However, we’re not seeing a huge level of interest from Australian clients, with a lack of regulation in this sector likely playing a key role. Instead, we’re witnessing increasing local allocations to loans, property, and private markets – a fast growing area which BNP Paribas is also heavily involved in.  

For example, in the loans sector, we’re seeing a growing trend here reflecting the state of play in the US where the loans sector grew exponentially over the past two years to January 2023.2  Similarly with respect to the ever-expanding private markets segment, many pension funds are developing in a way to better improve financial returns. To achieve this, specific and dedicated operating models need to be put in place. This is an area where BNP Paribas have designed and implemented state-of-the art technology to increase visibility and oversight but also provide timely valuations and risk and performance analytics.

Refining and improving operating models

Operational risk is another theme now unfolding globally with regulations in Europe, UK and the Asia Pacific focussing on the need for operational resilience by asset owners.

For example, in Australia the new CPS230 prudential standard on track to commence 1 July 2025, encompasses enhanced Board requirements where a Board of an APRA regulated entity is ultimately accountable for oversight of the entity’s operational risk management. This includes business continuity responsibilities and the management of service provider arrangements.

In response to efficiency and regulatory drivers, asset managers and owners and their service providers are refining operating models to streamline operational activities and technology, creating closer integration along the investment lifecycle. 

BNP Paribas is helping clients interface with third-party solutions that bring together middle office, fund administration and custody services to create a fully integrated end-to-end investment management solution. 

For BNP Paribas’ clients, it means a single management system – single end to end platforms managing analytics, risk, investments, reporting, and attribution, rather than numerous systems operating independently of each other. Our experience across the entire asset class range in building links between the client, our third-party solutions and BNP Paribas means that this sophisticated infrastructure provides a single point of access, consolidating views for both asset owners and asset managers. 

Steering the ESG pathway

Supporting asset owners and asset managers through the ESG transformation is an ongoing commitment for us at BNP Paribas. We are continually developing ESG tools and reporting and incorporate ESG components across our entire product range. 

The 2023 BNP Paribas’ ESG Global Survey of 420 asset owners and managers, hedge funds and private equity firms shows that institutional investors are mobilising capital towards investments that will deliver measurable positive impacts alongside financial returns. According to the survey3, limited data quality remains the biggest barrier to ESG investing: 71% of respondents say inconsistent and incomplete ESG data is a significant barrier to the greater adoption of ESG (+17 percentage points versus 2021). Regulation and reputational risks remain major drivers of ESG adoption. Respondents were most likely to have assessed the financial materiality of ESG regulation and reputational risks (60% versus 58% respectively). 

These findings confirm the various challenges institutional investors face to practically implement sustainability into their strategies. For instance, navigating the moving feast of new regulation, asset owners are required to put meaningful climate policies into effect, but at the same time they’re aware existing climate benchmarks don’t often suit their purposes. BNP Paribas is working on tailored solutions to address these challenges across our client range. 

Data is critical, with the need to access reliable and timely data, in particular for reporting requirements. BNP Paribas’ Manaos platform4 connects asset managers to best practice ESG data and service providers, enabling access to 15 best of breed data providers, granting access to over 80 apps and more than 5000 ESG data points.  This technology enables institutional investors to manage their investment data with respect to ESG monitoring and reporting on sustainability. The investment services platform now collects fund inventory data from 100 asset managers for portfolio look-through applications, covering EUR 5,000 billion in assets. Fund managers can instantly assess a range of insights – including the ESG risk and impact scores of their investments, their contributions to the United Nations Sustainable Development Goals, and climate change indicators – to facilitate the production of analytics and regulatory reports.  

On the regulatory front, complying with complex requirements, including fiduciary responsibilities is top of mind for asset owners and managers. The challenge for us is to help clients to stay ahead of the game and prove to their clients they are remaining true to label to avoid the spectre of greenwashing.  One of our core approaches is to integrate ESG components as part of our investment compliance duties, in addition to providing a consultative role. We check that asset managers are investing as per their investment mandate and not diverting their attention away from the source of their returns. 

Opportunity out of adversity - optimising cash balances

In the previous low interest rate era, cash management was a relatively easy game. According to Akshay Maharaj, Head of Treasury Asia Pacific for Securities Services at BNP Paribas, that has changed, with the market seeing a significant increase in interest rates. The rate rises have already impacted the way asset owners and asset managers do business. Funding costs are higher, and firms will expect to pay more.  As banks seek to stabilise funding sources, the value of deposits remains high. Institutional investors with long balances can capitalise on higher returns on operational cash balances – an opportunity out of adversity. 

Cash is again now considered a major and significant part of asset owners and managers investment strategy and a factor just as important as liquidity management. Optimising cash flows and enhancing liquidity processing allows asset owners and managers to reduce risk and maximise returns. 

BNP Paribas SmartCash is an innovative and flexible packaged solution to help asset owners and asset managers achieve efficient and effective cash management with the benefit of competitive returns, along with less manual processing which can be costly, risky and time consuming. 

Some asset owners and managers have over-the-counter options and other types of derivatives over their portfolios to better manage their cash collateral. They also need to manage liquidity risk as per their normal liabilities such as pension payments. BNP Paribas now offers collateral management services to asset owners to enable them to meet their financial management and margin rules obligations. 

Also, for institutional investors trading OTC derivatives, BNP Paribas has developed a full suite of services from initial margin calculation to collateral management. This includes triparty collateral management for non-cleared OTC derivatives,  in an end-to-end solution fully integrated with our broad and comprehensive global offering.

Benefits of a long-term partner

At its core, asset servicing is about the guarantee of service delivery and being close enough to clients to be a trusted and long-term strategic partner. BNP Paribas is here for the long haul; we continue to evolve and innovate, never standing still.  Asset owners and asset managers will continue to benefit from our experienced support, high quality reporting to both clients and regulators, timeliness, thought leadership and expert insights by keeping abreast of topics and gaining insights from around the world. 

As the industry changes, it is more important than ever to have partners who provide a safe pair of hands in today’s increasingly complex world. We partner with clients and remain committed to investing and developing new systems and processes to keep them ahead of the curve. 

While others are withdrawing from the sector, BNP Paribas continues to grow custody and securities services - and proudly strategically partner with and support a wide range of clients – from some of the biggest superannuation funds in the country through to also some niche players. We offer world-class service, tailor-made solutions and dedicated client support team, with the global backing and financial strength of the world-wide BNP Paribas Group.

1Tokenization Market Size, Share, Trends, Revenue Forecast & Opportunities (marketsandmarkets.com)
2United States Commercial and Industrial Loans - August 2023 Data (tradingeconomics.com)
3Global ESG Survey 2023 - Securities Services (cib.bnpparibas)
4Manaos is developed by AELX SAS, a technology subsidiary of the BNP Paribas Group

 

The information contained within this document (‘information’) is believed to be reliable but neither BNP Paribas nor any of its branches or affiliates (hereinafter collectively, “BNP Paribas”) warrants its completeness or accuracy. Opinions and estimates contained herein constitute BNP Paribas’ judgment and are subject to change without notice. BNP Paribas and its directors, officers and/or employees shall not be liable for any errors, omissions or opinions contained within this document, nor for any direct or consequential losses arising from any action taken in connection with or reliance on the information. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument or service, and is not intended for retail investors. The information does not constitute legal, financial, tax or professional advice, is general in nature and does not take into account your individual objectives, financial situation or needs. You should obtain your own independent professional advice before making any decision in relation to this information. For the avoidance of doubt, any information contained within this document will not form an agreement between parties. Additional information is available on request.

The contents hereof may not be reproduced (in whole or in part) without the prior written consent of BNP Paribas. The use of any trademarks and logos displayed herein is strictly prohibited unless written permission for such use is obtained from BNP Paribas and/or, where relevant, such third party, which may own the trademarks and logos.

BNP Paribas is a credit institution that is authorised to perform banking activities and investment services under the law applicable in France and is subject to prudential supervision on a consolidated basis by the European Central Bank, in cooperation with the Autorité de contrôle prudentiel et de résolution. As a public listed company and as an investment service provider, BNP Paribas is also in France under the supervision of the Autorité des marchés financiers. Its registered office address is 16 boulevard des Italiens, 75009 Paris, France, and its website is www.bnpparibas.com.

Services described in this document, if offered in Australia, are offered through BNP Paribas acting through its Australia Branch ABN 23 000 000 117 (“BNP Paribas”) and/or BNP Paribas Fund Services Australasia Pty Ltd ABN 71 002 655 674 (“BPFSA”). BNP Paribas is licensed in Australia as a foreign authorised deposit-taking institution by the Australian Prudential Regulation Authority and delivers financial services to clients under its Australian Securities & Investments Commission Australian Financial Services License (AFSL), No. 238043.  BPFSA is an Australian-incorporated company which is a wholly owned subsidiary of BNP Paribas and delivers financial services to clients under its AFSL No. 241080.  The Information is directed at wholesale clients only and is not intended for retail clients (as both terms are defined by the Corporations Act 2001, sections 761G and 761GA).

Services described in this document, if offered in Hong Kong, are offered through BNP Paribas acting through its Hong Kong Branch, which is registered as a Licensed Bank under the Banking Ordinance and regulated by the Hong Kong Monetary Authority. It is also a Registered Institution regulated by the Securities and Futures Commission for the conduct of Regulated Activity Types 1, 4, 6 and 9 under the Securities and Futures Ordinance. Furthermore, where the content relates to regulated products/ activities, the Information is directed at “professional investors” as defined in the Securities and Futures Ordinance.

Services described in this document, if offered in Singapore, are offered through BNP Paribas acting through its Singapore Branch, which is licensed by the Monetary Authority of Singapore under the Banking Act 1970 as a qualifying full bank. It is also a clearing member and depository agent of The Central Depository (Pte) Limited (CDP), a trading member of Singapore Exchange Derivatives Trading Limited (SGX-DT), and a clearing member of Singapore Exchange Derivatives Clearing Limited (SGX-DC). Singapore dollar deposits of non-bank depositors placed with the Singapore branch are insured up to $75k by the Singapore Deposit Insurance Corporation.  Foreign currency deposits, dual currency investments, structured deposits and other investment products are not insured.

Services described in this document, if offered in New Zealand, are offered through BNP Paribas Fund Services Australasia Pty Ltd (“BPFSA”) acting through its New Zealand Branch, NZCO registration number 1010736. BPFSA is an Australian-incorporated company which is a wholly owned subsidiary of BNPP. BPFSA is registered under the Financial Service Providers (Registration and Dispute Resolution) Act 2008. BPFSA is not licensed by a New Zealand regulator to provide financial services and BPFSA’s registration on the New Zealand register of financial service providers does not mean that BPFSA is subject to active regulation or oversight by a New Zealand regulator. NO BNP PARIBAS ENTITY IS A REGISTERED BANK IN NEW ZEALAND. The Information is intended for wholesale clients only, as such term is defined in the Financial Markets Conduct Act 2013.

Services described in this document, if offered in the People's Republic of China (“PRC”, which for these purpose excludes the Hong Kong or Macau Special Administrative Regions or Taiwan), are offered through BNP Paribas China Limited (“BNPP China”), a subsidiary of BNP Paribas. BNPP China is a commercial bank regulated by the China Banking and Insurance Regulatory Commission. This document does not constitute an offer to sell or the solicitation of an offer to buy any financial products in the PRC to any person to whom it is unlawful to make the offer or solicitation in the PRC.BNPP China does not represent that this document may be lawfully distributed, or that any financial products mentioned herein may be lawfully offered, in compliance with any applicable registration or other requirements in the PRC, or pursuant to an exemption available thereunder, or assume any responsibility for facilitating any such distribution or offering.  In particular, no action has been taken by BNPP China which would permit a public offering of any financial product or distribution of this document in the PRC.  Accordingly, no financial product mentioned herein may be offered or sold, directly or indirectly, and neither this document nor any advertisement or other offering material may be distributed or published in the PRC, except under circumstances that will result in compliance with any applicable laws and regulations. 

Services described in this document, if offered in India, are offered through BNP Paribas acting through its branches in India, which is registered as a Scheduled Commercial Bank and is regulated by Reserve Bank of India. It is also a registered custodian under the SEBI (Custodian of Securities) Regulations, 1996 and is regulated by the Securities and Exchange Board of India.

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